Is a Proposal a Legal Contract: Everything You Need To Know
Is a proposal a legal contract is a question that can be answered by determining the elements of a contract and a proposal.3 min read
Is a proposal a legal contract is a question that can be answered by determining the elements of a contract and a proposal.
Contracts are written documents that contain offer(s) that are legally binding, an acceptance of said offer(s), and value/consideration to be provided. A contract must be signed by all participating parties, and the parties must be competent to contract. These are the standard elements in contracts that make them enforceable.
Although it may be complicated to determine whether an offer was provided, and acceptance of said offer given, it isn't really difficult. However, determining consideration may be challenging.
Consideration refers to the quid pro quo that is transferred between contracting parties as part of the exchange. It generally refers to the money or product/services that are exchanged during the deal.
Any written document that does not contain all the elements detailed above is not a contract—even if signed by all parties. As such, proposals, receipts, and invoices are not contracts.
Only documents that contain an offer, acceptance of said offer, consideration to be received, and signatures from all parties can be called a contract.
Unilateral contracts are agreements to pay in exchange for certain performance. When undertaking business dealings, it's best to have a licensed attorney draft all contracts. A well-written contract equitably distributes liabilities in a way that is beneficial to all contracting parties.
The “Loser Pays” Provision
Such a contract sidesteps the “American Rule” with the “Loser Pays” provision that allows victors of litigation proceedings to shift the cost of attorney fees to the loser. Such a provision enables the quick settlement of cases instead of going through the processes required for a judgment and then undergoing the challenges of actually collecting on the judgment.
An accepted and signed business proposal is not a contract if the signature was appended for discussion purposes. Such a proposal cannot be enforced by law since it doesn't contain the following elements:
- Mutual assent
- Capacity, and
Proposals could be unsolicited or solicited submissions by a party to buy or supply certain products or services. Unlike contractual offers, proposals are not commitments or promises. However, if a proposal is accepted by one party, the party should follow through and negotiate the creation of a legally binding contract.
In business circles, an RFP refers to Request for Proposal and may also be described as an RFQ or “Request for Quote.” Such a proposal is basically an agreement that is submitted with the hope of being signed and legally accepted.
Converting Proposals to Contracts
Although proposals can be converted into legally-binding contracts, the language of the proposal must be altered to contain all the elements of a contract. Once you instruct the party accepting the proposal to date, sign, make payment, and abide by the proposal terms, it becomes a legally-binding contract.
Contracts and proposals prevent financial disputes and help to eliminate ambiguity and second-guessing. Such written documents spell out project details in order to clarify expectations and obligations to the clients.
Include As Many Details As Possible
When drafting a contract in lieu of a proposal, you should be as detailed as possible. Although legalese isn't really necessary, you should include as many details of the project as you can so that the client can have a thorough knowledge of your operating procedures.
Create a Termination Clause
Once you agree to handle a project for the client, your marketing efforts usually slow down and you factor in the proceeds of the project into your company's revenue projections.
If the client either stops or places the project on hold, they also put a hold on your revenue generating ability. This is because you can't earn money from the current project and you have lost other opportunities for making money by taking on the project. As such, you should be compensated for the loss. In effect, you should add a termination clause to your contract and specify the amount of compensation you want.
“Wet” Signature on Proposal/Contracts
You should ensure that your client hand-signs all contracts and proposals. Such signatures affirm the validity of the document and are very beneficial during litigation proceedings.
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