Understanding contracts
Why contracts?
Agreeing work and projects on a verbal agreement only can often seem attractive at the time – both parties appear to be in agreement about the key terms and it saves the hassle of putting together a written document leaving everyone to get on with the work in hand. However, often some of the questions that crop up later on down the line are things that maybe weren’t obvious at the time the verbal agreement was made – for example, a change of ownership of a key partner in the project, a change in VAT status, or a problem with delivery. So having a written contract can help both parties think through the mechanics of the project from start to finish and visualise any potential pitfalls and how these might be managed early on. The key advantages of contracts are:
Commitment – the act and cost of contracting demonstrates serious intentions
Clarity – contracts make the rights and obligations of everyone involved absolutely clear
Certainty – contracts enable future-proofing of business for the contract term
What should a contract cover?
There is no standard form contract, as the situations contracts cover can be variable. Almost anything can be agreed in writing, but each artistic and cultural project is likely to be unique. A contract does not have to be complicated; in fact, it should be plain and simple so that everyone understands it. Some key things you are likely to want to cover are:
Identification – who are the parties to the contract and what is the price to be paid?
Your contract should create clarity on things like company registration details, expenses, levies such as VAT, advances, deposits, deferred payments, and penalties for late payments. You should also be clear about ownership of the assets – for example, any copyright contributed to or created through the contract.
Obligations – who is to do what under the contract?
Your contract should be certain about the property or subject of the contract, whether any warranties and indemnities will be granted, and who might need to obtain insurance. If there are any extra-statutory requirements (e.g. to obtain PVG checks) the contract should make it clear who must comply with these requirements.
Termination – how will the contract end?
Your contract should allow for a commitment by both parties for the contractual period, but also protect the parties in the event of unsatisfactory performance of the contract or changes in circumstances. You might want to agree on a process if the contract ‘goes wrong’.
How do you create a contract?
A contract is created when there is a ‘meeting of minds’ – all parties are in unqualified agreement. There is a lot of flexibility in recognising that a contract has been created. For example, one party might make an offer, and the other party might accept it, creating a contract. Or parties might keep making counteroffers until an agreement is reached. The clearest way to create a contract is to agree to one document that covers everything that has been agreed in relation to that project. Unlike a business plan, which you can adapt as you go, a contract represents a specific agreement made at a point in time, although the parties could later agree to amend the terms.
Every contract is unique so we recommend you have contracts reviewed by legal specialists, preferably those with expertise in the creative industries and with qualifications in the law that will apply to your contract. You should also carry out regular audits of your contracts to check they are still relevant and applicable.
