What's the real value of a contract?
The importance of a valid and enforceable contract (particularly in the Interior Design and Architectural professions) is something of which we are reminded on a regular basis through our work with these professionals.
While there are standard contracts (which are very good and thorough) for the Architectural profession, only the Institute of Interior Design Professionals is able to provide standard-form contracts (which, incidentally, we drafted) for its members.
“Why have a contract?” you may ask. The easy answer is, “It protects you!” The best way to answer the question, however, is to provide examples of what can go wrong if there was either a poor contract in place, or no contract whatsoever.
Is a poorly worded or vague contract worse than no contract at all?
In the latter part of 2014, our firm had the opportunity of negotiating contracts for the refurbishment of a large shopping centre. The contracts presented by the property owner were very one-sided, and had the designer simply signed the agreements, they would probably be insolvent right now!
The contract contained conventional terms and conditions that are inappropriate for design professionals. Furthermore, they contained unrealistic penalties in relation to goods being manufactured for the project. After several weeks of negotiation, we managed to find common ground where both parties’ interests were being served and the project deliverables were achieved.
Why not having a written contract is simply not an option.
Recently, our firm was asked to claim outstanding payments for interior architecture work done by a very well known designer. There was, however, no written contract in place for this work. This raised a number of questions that needed to be clarified, such as:
- what was actually agreed upon,
- the time for delivery/installation/completion,
- the charges for drawings and renderings, and,
- the agreed fee.
The impact of no written contract in this instance was profound. Opinion regarding the value of work done had to be obtained from expert witnesses, at great expense to the displeased client. The designer’s contention was that work had been done to brief and on time. Settlement was ultimately achieved through mediation but getting to that point was a costly and unpleasant experience for both parties. Had a simple written contract been in place, specifying the details of the deliverables and time for the project, this ordeal would have been avoided.
Two important pieces of legislation should loom large in every designer’s life – firstly the Consumer Protection Act (mainly for small-scale domestic work as there is a threshold) and the Protection of Personal Information Act (for both commercial and domestic work).
It’s important to know and understand this legislation if you are a designer providing professional services, or if you are a consumer and are unsure of your rights. These laws serve to regulate the behaviour of businesses so that consumers are adequately protected. The detail of these Acts are often overlooked by business owners. For example, the Consumer Protection Act ensures that there is supply chain liability. This means that if a custom-made piece of furniture breaks and injures someone, the client can potentially sue the designer for damages.
In relation to corporate work, it is vital that the confidential information of the designer’s client be stored in an acceptable way, and destroyed (not deleted) after an agreed time. This includes building plans, floor plan layouts and other sensitive information that could prove a security risk to the client. This could therefore involve additional expense to the designer, particularly in relation to storage of such confidential information in electronic format.
What information should a contract contain?
- Names and description of the parties,
- The purpose of the contract.
Which law governs this contract.
The Commencement and Effective dates? (these can be different!)
Warranties and Representations
- are any made?
- If so, what are their terms?
Limitations of Liability
- who is liable for what?
The Definition of Default by either Party, and the consequences thereof
The duration of the contract
- ie the address for service of any notices or documents
- how disputes will be resolved, and
- if there is no provision for mediation or arbitration, consent to jurisdiction i.e. in which court will the matter be heard?
Joint Ventures & Agency agreements
Oftentimes designers enter into joint venture agreements for specific projects. These agreements do not always adequately protect the parties involved. It is vital that these agreements are properly drafted after consultation with both parties, ensuring that the rights and obligations of the parties are adequately dealt with.
Often, there are agency-type agreements with suppliers. These too can contain onerous terms and conditions, and the interests of both supplier and designer need to be borne in mind to ensure fairness.
When in doubt, seek legal advice
It is highly recommended to seek professional advice, whether it is to review a contract given to you, draft a contract, or institute legal proceedings for recovery of amounts due to you. The costs of an expert legal opinion is usually far less than the potential loss suffered.