By Laura Ryan, Legal Director UK & Ireland, Atalian Servest
A lesson in law
The facilities management industry must navigate an ever-changing legal landscape in order to stay on the right side of the law. With a particular focus on the industry following the Carillion fallout and the collapse of Interserve into administration, it is more important than ever to give proper credence to legal, regulatory and compliance issues to ensure the operation of a strong and stable business. With so much to think about, that can often be a daunting task to tackle; is personal data being processed in accordance with the GDPR, is enough being done to avoid committing corporate criminal offences under the Criminal Finances Act 2017 . . . the list goes on. For my first blog, then, I think it is important to cut through the complexity and go back to basics – concentrating on legal issues concerning the formation of the contracts that we enter into.
Lesson One. The five key elements of a contract.
All too often people make the common mistake of believing that there is no binding contract in place between parties unless and until there is a contract document that has been negotiated, agreed and signed by authorised representatives. Wrong.
If the following elements coincide – offer (a promise by one party to enter into a contract on certain terms); acceptance (being a final and unqualified asset to an offer); consideration (the “something” that is given or assured in exchange for the promised goods, services, actions etc); an intention to create legal relations (which occurs when both parties have the mutual aim of establishing a legally binding agreement); and certainty of terms (clear agreement on all the essential elements) – then, usually, a contract is formed under English law. Whether there’s documentation is by the way. Those elements can be realised in ways other than in writing, the most obvious of which are verbally and by conduct.
For example, if a customer has proposed their standard terms as the basis for the contract, and the FM commences delivery of services before it makes clear that it wishes to negotiate the terms, so long as the other key elements of the contract are in play, then it is likely that a contract will be formed.
Anybody involved in winning and mobilising new business needs to keep these five key elements of a contract in mind so as not to inadvertently bind their employer when they only intend (and are only authorised, perhaps) to come to an understanding in principle. To avoid the inevitable frustrations surrounding contract administration when the time comes to review or end a partnership, it is always best practice to ensure that all contractual terms are recorded in one written contract document, signed by both parties before services commence.
Lesson Two. Follow the formalities.
Once a contract has been formed and is being operated, it is not unusual for one or more of the parties involved to request to vary it in some way. Service scope and description may change, and agreed milestones and pricing structures may fluctuate, too. When there is a degree of harmony between the customer and the provider, it is easy to see how and why the parties may seek to verbally agree modifications to their contract to suit their wants and desires at a particular point in time.
However, FMs take note – if you take this laissez-faire approach to modifying your contract then you could be in for a headache if relationships sour further down the line. Often contracts contain express clauses that place formalities around how the terms of that contract can be varied, usually specifying that any variation must be in writing and signed by both parties. So, don’t risk taking the easy approach to contract variations as it may come back to bite.
Entering into contractual arrangements for the supply of services is an everyday occurrence for FM businesses. Get this right and it will go quite some way to laying the groundwork for a successful, and legally compliant, FM partnership.