Construction projects often move quickly, and not every agreement is made around a table or signed on the dotted line.
A conversation on site, a phone call or even a quick verbal instruction can sometimes lead to an agreement being made.
The problem is that when there is no written record, it can be difficult to establish exactly what was agreed, by whom and on what terms.
What is a verbal agreement?
A verbal agreement is can create a legally binding contract but the terms of the agreement but are not recorded in writing.
Contractors must remember that verbal contracts are legally binding in England and Wales if they meet the basic requirements of contract law.
The required elements include:
- An offer.
- Acceptance.
- Consideration (meaning that both sides need to trade something of value, like money or goods or services).
- An intention to create legal relations.
How can a verbal agreement put your business at risk?
A verbal agreement can pose some serious risks if they are not properly provisioned for.
The first issue is that they can be tricky to prove without written words. Should a dispute arise, it is one person’s word against another and if someone has forgotten or misremembered a detail, it makes it even harder to resolve a dispute.
There can also be a lack of clarity and certainty when verbal agreements happen. Vague terms about payment details, payment methods and exact project scope can often be ambiguous.
Additionally, there is no safety net should a dispute arise. There are no clauses for liability, dispute resolution or confidentiality when parties enter a verbal agreement.
If a verbal agreement is disputed, it is often difficult and costly to resolve the dispute.
Should the dispute go to court, it can damage relationships that have been built up over time and create unease between both parties involved.
What is best practice when creating agreements?
The best way to avoid the risks associated with verbal agreements is to put important terms in writing wherever possible.
A written contract provides a clear record of what both parties have agreed, helping to reduce the risk of misunderstandings further down the line.
It should clearly set out the scope of the work, payment terms, timescales and each party’s responsibilities.
It is also important to record any changes made during a project. Construction projects can change quickly, whether because of additional works, variations, delays or changes to materials.
Agreeing these changes verbally without documenting them can create problems later, particularly if there is a disagreement about what work was authorised or what should be paid.
After an important conversation or verbal instruction, consider following up with an email confirming what was discussed or take written minutes of any meetings.
This creates a written record and allows the other party to correct anything they believe has been misunderstood.
Businesses should also make sure their contracts contain appropriate provisions covering matters such as liability, payment, variations, delays and dispute resolution.
Having these terms agreed at the outset can make it much easier to deal with problems if they arise.
While verbal agreements can be legally binding, relying on them wherever possible can leave your business exposed to unnecessary risk.
A clear written agreement gives everyone involved greater certainty and can help prevent a disagreement from escalating into a costly dispute.
How can we help?
Before entering a verbal agreement, consider speaking with a solicitor first. Our team can advise you on the best ways of entering a contract that will protect you and your business interests.
If you are concerned about a verbal agreement or need advice on drawing up a construction contract, we can advise you on the best way to handle this.
For advice on construction contracts, get in touch with our team.