Be Wary of Verbal Cues When Managing Contracts

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Tuesday, January 5th, 2016
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Engineering professionals should be highly mindful of the potential impact of both verbal and non-verbal representations upon legal agreements during the management of contracts.

While people generally believe that legally binding agreements must assume the form of written documents that consenting parties have sealed and signed, members of the engineering profession must also be wary of the impact that verbal representations and even tacit cues can have on the management of contracts.

Phillip Hall of Engineering Education Australia said changes to contracts can be effected by means of purely verbal agreements devoid of accompanying written documentation.

“Contractual changes don’t need to be in writing, and any action or representation you make that inform contractual obligations have the potential be relied or acted upon,” he said. “It’s very important to be aware of this.”

“If you instruct a supplier to start work verbally, you’re accepting their offer to perform that work, and you will be held to that despite there being nothing in writing.”

Changes to work plans that arise during the course of verbal discussions between the parties to projects can also considered be valid contractual amendments.

“If you tell a supplier or customer that you are happy to substitute a product that they are producing under the contract or to comply with a different set of drawings, even though the contract says one thing that representation may actually either change the contract, and you will be required to comply with it,” Hall said. “You will not be allowed to go back on it.”

Hall further notes that even non-verbal cues can hold weight in the eyes of the law when it comes to business agreements.

“An example is if a supplier gives you a quote, and they say ‘I’ve got the quote I’ve got the keys to start – I’m going ahead to start work,’ potentially by you even saying nothing you’re are agreeing to that contract, and have therefore entered into it,” he said.

The potential impact of verbal discussions upon official contracts is more than just a moot issue of legal theory, with cases arising in Australia where unwritten agreements have overridden signed documentation.

“Examples have been brought to my attention where companies have signed on to what they thought the agreement would be, and have subsequently engaged in arbitration proceedings,” said Hall.

“One party is able to produce evidence outside of the written agreement as to what they were going to produce or supply under that written agreement. Despite the fact the agreement said one thing, it was determined that other evidence produced was actually the enforceable agreement, and therefore what determined to be effective was not the contract that had originally been signed, but what was otherwise agreed upon.”

Given the potential perils that verbal and even non-verbal representations pose when it comes to determining the precise nature of enforceable legal contracts, Hall advises that members of the engineering profession lock down everything in writing during business negotiations.

“Always remember that your actions and representations can have consequences for the contact to which you will be held, and always document decisions that are made,” he said. “Because in the end the only way you can justify taking a course of action is if you can document evidence as to why that was taken.

“Because verbal agreements can hold water in the eyes of the law, it’s matter of producing evidence of such agreements when certain situations arise to prove, for example, that you no longer have to comply with the provisions of certain part of the written contract.

“You need to get something in writing, because when push comes to shove and a dispute arises, it’s very hard to prove your case unless you’ve got some kind of follow up there.”

Hall also advocates indicating clearly to the counter-party to business transactions that both authorisation and written documentation will be required before verbal commitments can be enacted.

“When making commitments or verbal agreements during discussions, always make the caveat that you need go get approval to first, or that you will follow things up in writing before acting on it,” he said.

“This way the other party knows clearly at the time that there no commitment until the point where they receive a formal contract, signed variation or at the very least a written letter or email.”

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