Requested to Start Work Without a Signed Contract
It is not unusual for design professionals to be requested by clients to begin providing services prior to the execution of a formal contract. There are several reasons why a firm would begin providing services without a contract:
- Pressure from a client
- Unique, or big project opportunity
- New market
- Profit margin
- Past experience working with the client, etc.
The bottom line - most firms feel that the parties will come to an agreement in the near future and obtain a signed contract. Besides, why wouldn't that happen? They received our proposal and asked us to start work. Obviously they will be accepting our terms.
The Problem
So the project starts, and the firm begins work. At this very point, the project priorities change for all parties. The importance of obtaining an agreement on the contract is no longer the priority. The client is focusing on the project and the design firm is concentrating on the work. The priority obtaining a signed contract agreement fades in the minds of both parties.
The design firm finds themselves providing work with the “hope” that all parties are in agreement with the understanding and expectations for the project, services that will be provided, terms and conditions and payments based primarily on the proposal. If a dispute arises between the client and the design firm, the proposal is usually the only document that identifies any terms and conditions between the parties.
Effective risk management strategies are essential for every design firm – and without a signed contract, the firm is put into a weakened risk management position. In the absence of a signed contract, the firm’s proposal is the next best defense. Ensure proposals are developed with enough detail that provides an understanding of services, the responsibilities of the parties, and the terms and conditions when rendering services.
Clearly Defined Proposal
The objective is to always obtain a signed contract when offering services. However, the reality firms will continue to receive notices to begin services before executing a signed contract with clients, and firms will justify starting work for various reasons. With that said, the only document that outlines the services and understandings between the parties is the proposal.
It is a very good strategy, and best protection for the firm to have a practice of creating a detailed proposal in the event that services will be provided before the contract is executed. When developing a proposal, develop it with the understanding that in the absence of a contract, the proposal will serve as the agreement between the parties. In the case of a dispute and a third party mediator, arbitrator, or court becomes involved; the proposal can be used as an understanding between the parties. A good proposal should contain the following:
- State that all parties agree that the proposal shall constitute the agreement between the parties until a final contract is executed.
- Develop a complete scope of work that will be performed.
- Identify any assumptions that were made for the project.
- Provide a description of services to be provided by the client, client’s consultants and others.
- Identify service fees, reimbursements and the payment schedule.
- List of excluded services.
- Services for an additional fee.
Include the firms’ terms and conditions including, but not limited to:
- Standard of care
- Warranty and guarantees
- Mutual indemnification
- Dispute resolution
- Limitation of liability
- Changes in site conditions
- Consequential damages
- Instruments of service
- Reliance on information provided by others
- Construction phase services
- Objectionable design
- Lending and funding requirements
- Payment and collections
- Termination and suspension
- Opinions of probable cost
Notice to Proceed
Once the firm has received notice to proceed with the work, it is good practice to provide a written confirmation to the client confirming the request. Include in this confirmation the following:
- The client has requested the firm to start work on (include date).
- That the request to start work was made in the absence of a signed contract; the parties agree that the proposal dated (include date) constitutes the agreement between the parties until a final contract is executed.
- Forward a contract including the scope of work and the terms and conditions that was included in the proposal. Request a signature from the client.
Payment for Services
With each invoice, include a statement that the services are being rendered in accordance with the proposal until a final contract is executed. Periodically attached a copy of the contract with the invoice requesting a signature.
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Thank you.
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