This post sets out the legal requirements and 4 bare minimum content essentials for a construction contract.
Even where all of those exist, the courts sometimes decide there is no contract because all the essential terms were not agreed.
The terms on which the parties were [of one mind] must not omit any term which, even though the parties did not realise it, was in fact essential to be agreed in order to make the contract commercially.
There is a subtle distinction between:
- essential terms = ‘terms without which the contract cannot be enforced’ ie generally required for this sort of contract
- necessary terms = ‘terms which the partners have agreed to be essential for the formation of a binding contract’ ie specifically required for this particular contract, and
- important terms = terms ‘which the courts regard as important’, ie not required (Pagnan).
What is Essential?
Then you MUST ensure you don’t start work until that term is negotiated and agreed.
A few examples will highlight the dangers:
- Haden Young v Laing O’Rourke: the M&E subcontractor started work but never signed a contract as its limit on liability was not agreed. The court said no contract.
- RTS v Molkerei: the engineering contractor started work but never signed a contract as its limits on liability was not agreed. The court decided there was a contract based on MF/1.
- Arcadis v Hyder: the consultant to a specialist subcontractor started work but never signed one of the three sets of terms sent as its limit on liability was not agreed. The High Court said a contract with unlimited liability, overruled by the Court of Appeal who said it was limited (to the reasonable costs of repair and renewal).
- Wells v Devani: the trigger event for payment was not agreed before the services were provided. The court said there was no contract.
What should you do?
Your contract strategy should be decided before you start negotiating. In all your correspondece you should set out the contract terms that are essential for your business. You must make sure those terms are agreed before you start work. Once you start, anything can happen!
What is essential depends on the parties, the project, the type of contract and so on. That’s why you can’t use the same essential terms for every contract.
For example, my book on letters of intent [read more] focuses on the four quoted above, and my book on writing your 500-word consultant appointment [read more] focuses first on parties, services, price and expectations.
Cases (in order): Hart Investments Ltd v Fidler  EWHC 2857 (TCC); Trollope & Colls Ltd v Atomic Power  1 WLR 333; Pagnan SPA v Feed Products Ltd  2 Lloyd’s Rep 601, Lloyd LJ at p619. Examples: Haden Young Limited v Laing O’Rourke Midlands Limited  EWHC 1016 (TCC); RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG  UKSC 38; Arcadis Consulting (UK) Ltd v AMEC (BCS) Ltd  EWCA Civ 2222; Wells v Devani  EWCA Civ 1106