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Do I Need a Contract for Low-Value Projects?

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Service providers entering low-value commercial projects need to establish a contract. A contract safeguards both parties involved, regardless of the project’s size or value. For example, by outlining each party’s terms and responsibilities with a contract, you can avoid misinterpretations and disputes. Therefore, prioritising contracts for low-value projects is crucial for relevant suppliers. This article will discuss why your business should implement contracts for such projects and offer some practical considerations for doing so, regardless of the contract value.

Why is a Contract Important?

A contract outlines the terms of commercial agreements between parties, and it is crucial for you as a business. For trading organisations, having a contract that governs product or service sales is vital. A contract serves as a legal safety net, protecting your business when things do not go as planned.

Without a contract, businesses face various potential risks and problems. For instance, customers might be unhappy if expectations are unmet, and this can create risk if a service contract with clear terms is not signed. A clear, written contract can help prevent such issues by providing clarity and legal certainty. In short, a business contract formalises commercial agreements and helps reduce risks for all parties involved in commercial transactions.

Remember to review your contract documents carefully and seize any contract opportunities that align with your business goals.

Why Do I Need a Contract for Low-Value Projects?

You should not ignore contractual terms even if a project is not high-value. Even if a contract is low-value, you should not underestimate the value of obtaining detailed information and an agreement to protect your business from risk. This is important for both suppliers and customers.

Importance of Contracts for Low-Value Projects

Below are some of the key reasons why having a contract is essential for low-value projects.

  1. A contract helps you outline the roles and obligations of each party in the agreement. You need to document each party’s obligations over the project scope, deadlines, and deliverables in a written agreement.
  2. You can mitigate risks during the contract lifecycle. For example, you can address the risk of project delays or customer queries about product or service quality. As a customer, you can negotiate supplier remedies if they fail to meet their obligations.
  1. You can limit your liability by expressly including terms that limit liability in your contract. This is particularly vital for suppliers in low-value projects. Otherwise, you might face breach of contract claims from customers that far exceed the project’s value.
  2. Contracts can help avoid various problems and potential disputes. For instance, you can include a dispute resolution procedure to resolve issues, saving time and costs that would otherwise be disproportionate for low-value projects.
  3. Ensuring customers pay you on time is crucial for low-value projects. You do not want to deal with the trouble and cost of chasing late payments for small projects. Contracts can help you get paid on time by setting clear payment terms and supplier remedies for non-payment, such as interest clauses.
  4. Low-value projects can also prevent project scope creep, such as when a customer demands more work for the exact cost. By documenting a written scope of work, a supplier can push back and ensure that the customer only receives the services they paid for.
  5. Regulatory authorities and applicable laws may require you to write an agreement. For example, if the project involves personal data and you are the receiving party, you may need to enter into a written agreement to reflect mandatory data processing terms required by law.
  6. You may need to include contract terms to protect your intellectual property rights. For instance, to protect your assets if the customer has a limited license to use your logo or other intellectual property rights as part of the services.
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What Practical Considerations Should I Consider for a Low-Value Project Contract?

While a contract is essential for low-value projects, you should consider practical factors when choosing the right type of contract.

For instance:

    • how many resources are you willing to invest into a contract for a low-value project;

    • what is your budget for a low-value project

    • can you use a standard contract template to save time; and

    • how much time are you willing to spend negotiating on a low-value project?

While legal protection is important, it is crucial to think commercially and efficiently when entering a low-value project contract. For instance, be mindful of spending months negotiating a contract, which could end up costing more than the project itself.

When drafting a contract for a low-value project, you should consider the following practical issues:

  • make sure you spend your time drafting a contract wisely, considering the project’s value – take a cautious approach to mitigate critical legal risks;
  • keep in mind your internal resources – for low-value projects, think about involving fewer internal team members in negotiations to save time;
  • establish clear timeframes for drafting, negotiating, and finalising contracts for low-value projects – this helps avoid prolonged negotiations, which could lead to additional costs and delays; and
  • consider the perspective of the other party in your contract – would a customer paying a low project fee be willing to invest time and resources in lengthy contract negotiations?

For a low-value project, you need to take a practical approach that protects your business from legal risk and ensures that the time and costs you invest in the project are reasonable and proportional. You might also consider using a short-form contract for smaller projects.

In practice, balancing these factors can be difficult for your business. Commercial legal teams can help your company understand the important legal risks in a low-value project and advise you on the appropriate type of contract. They can also assist you in developing good practices and a strong contract management process for both high-value and low-value contracts. Additionally, your legal team can support you by creating a guidance document on key issues to consider when entering into low-value projects.

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Key Takeaways

Every business should prioritise investing in a contract to safeguard against risks, regardless of the project value. Despite the value of a project, entering into a commercial agreement carries risks that your business must protect against. Your business may consider using a short-form contract for low-value projects to limit time and costs. However, you should ensure that when you use a short-form contract, you address and protect against the key legal risks you might face in the agreement. If you need guidance on which contract terms to put in place for a low-value project, you should seek legal advice from a commercial solicitor.

If you need assistance with your contract, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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Sej Lamba

Sej Lamba

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