Keep it legal: Contracts

Charities face the same daily challenges that confront every organisation. Things go wrong, promises are broken, deadlines are missed, people disappoint, relationships fall apart and the best-laid plans sometimes go awry.

The harsh reality is that charities are often vulnerable in the face of such circumstances. Trust is hard-wired into the sector's ethos; we enthusiastically grasp opportunities with scant thought for formalising legal relationships.

When opportunities such as contracting or subcontracting do not produce the intended outcomes, or result in entirely unforeseen consequences such as fraud, charities often say "we have no contract". But this is rarely the case, because contracts can be formed without formal written agreements. Terms may not be in writing, but can arise through verbal conversations in person or by telephone, an exchange of emails or other correspondence, established practices over a period of time, a party's actions or by implication when it's necessary to make an agreement work in practice. These factors can create a contract that's as legally binding as a written agreement signed by all concerned.

Charities all too often turn to 'the contract' when it's too late, and I suspect that most trustees have experienced this. Thinking through how relationships are going to work at the outset, when goodwill between the parties is usually strongest, invariably pays dividends.

Setting out each party's role and responsibilities is a good starting point: it can stop disputes arising later on and avoid implied terms resulting from poor practices or conduct. It's better to find out during negotiations that a contractor is not going to carry out certain works, rather than mid-way through a project. Establishing mechanisms for dealing with disputes, such as dispute resolution or mediation, is always easier when parties are actually speaking to each other. Resources can be protected by agreeing sanctions for non-performance, such as damages or termination of the contract.

A written contract need not be lengthy or unnecessarily complicated. However, if a relationship is key to a charity's strategic development or funding, it might be worth spending some money on professional advice to ensure adequate protection.

- Tim Waldron is head of the charity and community team at Coffin Mew LLP.

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