As a business owner, you will form relationships with a number of stakeholders during the course of your business activities. These relationships are often governed by different types of contracts depending on the nature of the relationship. There may be certain relationships that you wish to strengthen and utilise over a longer period of time. One way to manage such relationships is through a period contract. period contracts are particularly useful in situations where you are looking for flexibility to engage your preferred contractor on an as-needed and ad hoc basis. This article will discuss when you should use period contracts, their risks and benefits, and what to consider when drafting your period contract.
What is a Period Contract?
If you are in the construction industry or hiring construction services, period contracts will be immensely useful to you. When you and another party enter into an independent contractor agreement, you may attach a template period contract to it. The contractor agreement forms the framework for the arrangement between the parties, and the contractor agrees to provide services on an ongoing, ad hoc basis. Overall, each time you require the services of the contractor, you will just need to fill in and submit the template period contract. Together, the contractor agreement and the period contract make up the whole of the agreement between you and the contractor.
Executing period contracts allows you to contract on known terms, as the terms contained in the contractor agreement will form the basis of the terms and conditions of your engagement with the contractor. The period contract will simply change the commercial terms of each project, such as specifics for:
- services;
- price; and
- working hours.
Benefits of a Period Contract
Period contracts are written contracts with a number of benefits for both parties, such as that they:
- allow for greater flexibility in engagements, particularly when it comes to completing work that is staggered or intermittent;
- save you time and money as you do not need to renegotiate the legal terms of each engagement and contract legal services;
- provide a template that, once you have executed the first period contract, you can reuse for each subsequent engagement;
- allow you to build a positive long-term working relationship with a preferred supplier based on good faith and trust.
Things to Watch Out For
Although period contracts can make things easier for both parties, there are a few things that you should look out for. Firstly, your contractor agreement needs to be well drafted as this is the main agreement and will form the basis of your relationship with the other party. Any inconsistencies could cause issues with the period contract. Additionally, you should make sure that you understand the terms included in the period contract and the relationship between the contractor agreement and the period contract. This includes confirming which agreement will override the other in the event of an inconsistency in their terms.
Additional questions you should ask yourself are:
- Does the framework contract agreement contain specific terms about the services to be provided?
- Do the services that you are requesting fall within the scope of this agreement, or do you need to draft a special condition?
- Does the framework agreement have an end date after which you will need to renew it or does the contract continue until terminated?
- Will the period contract have a specific end date separate from the framework agreement?
- If you terminate the framework agreement, do you want the orders for work submitted under the agreement also to end, or will you need to terminate them individually?
Additionally, if the framework agreement contains specific payment terms, these terms will generally apply unless the period contract specifies otherwise.
Practical Tips
It is important to remember that you can only issue a period contract after you and your contractor have negotiated and executed a contractor agreement.
The framework contractor agreement will specify the form that the period contracts need to take to ensure they are valid and binding. Every time you want the contractor to perform work on a new project, you must issue a period contract in the specified form. Along with the framework agreement, this will form the terms and conditions of that specific engagement.
Each separate contract should specify the:
- terms of that engagement;
- inclusions and exclusions; and
- price and any payment terms.
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Key Takeaways
Are you engaging the same contractors for work over and over again? Period contracts allow you to build long-term relationships with contractors by issuing a framework contractor agreement and then issuing a work order each time you would like to engage them. The period contract, along with the framework agreement, form the basis of each engagement.
If you have any questions about entering into period contracts and whether they are the right fit for your business, our experienced construction 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 1300 544 755 or visit our membership page.
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