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If you have a construction business, you will likely have contracts with suppliers, employees, customers and contractors. A contract is a legally enforceable document that businesses use to underpin their arrangements and transactions. However, contracts are only enforceable if they contain all the elements of a binding contract. The advantage of entering a contract is that either party can seek reprieve if the other party breaches the agreement. Businesses can trust that the other party will uphold their side of the bargain. This article will explain the elements of a binding contract, the key contracts for a construction business in New Zealand and what each contract should include.

Elements of a Binding Contract

Clear Offer

For a contract to be binding, there must be a clear offer from one party to enter an agreement with another party. This means that the other party must receive the offer.

Unequivocal Acceptance

Unequivocal acceptance means that the party receiving the offer must accept the offer without any issues. The party accepting the offer must do so as detailed in the contract. If the party receiving the offer decides to counter with another offer, the other party must accept it unequivocally.

Adequate Consideration

Consideration means that both parties must receive something due to the contract. If one party does not receive anything, the contract is gratuitous and not binding. 

Intention to Be Binding

For a contract to be binding, both parties must intend for it to be enforceable. If one party does not believe the contract was binding when it was signed, it cannot be enforced in court. This is why both parties must be on the same page when the contract is signed.

Certainty in Terms

The last element in a binding contract is certainty in terms. This means the contract’s terms must be unambiguous. If there is confusion in the terms, the contract or that particular term may be invalid.

Key Contracts for a Construction Business

Supplier Contract

One of the most common contracts that a construction business will use is a supplier contract. A supplier contract covers the relationship between a supplier and your business. Thus, it will outline the product the supplier is providing and the frequency and timing of deliveries. 

Developer Contract

Another contract that a construction company will often enter into is a developer contract. A construction company and developer will agree on the scope of work they are conducting and the timeframe to complete the project. This contract might contain a liquidated damages clause outlining the amount of money that will have to be paid as damages if there is a breach of contract. This establishes the penalty for both parties for breaching the contract. Thus, it is essential to ensure that the clause is a proper estimate of the loss that might occur. 

Employment Agreement

An employment agreement governs the relationship between an employee and the business. Therefore, it will contain the rights and responsibilities of both parties. Even though the law covers many employee rights, the contract should still outline these so both parties understand their expectations.

Contractors Agreement

As a construction company, you will likely utilise contractors to conduct specific jobs. A contractor agreement will outline your relationship with the contractor and clarify the expectations of both parties. For example, it should include the scope of the job and payment information. Furthermore, it should also contain the contractor’s rights.

Commercial Contracts Checklist

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Key Takeaways

You must use contracts in all your business relationships and transactions. Contracts ensure your business agreements are legally protected, and you can claim compensation if the other party breaches the agreement. Therefore, your business must use the correct contract to reflect the business relationship and ensure you meet all requisites for a binding, enforceable contract. 

For legal assistance with contracts, our contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.

Frequently Asked Questions

Do I have to enter into contracts with my business partners?

No, there is no legal requirement to enter into a contract, but it is always prudent to do so in case there are any issues with the arrangement.

Do I have to include a liquidated damages clause in my contract?

No, you do not have to include a liquidated damages clause. However, if you choose to do so, be aware that both parties must negotiate this.

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