An introduction to Letter Contracts
In this exclusive extract from A guide to letter contracts for very small projects, surveys and reports. Second edition by Roland Phillips, we introduce Letter Contracts, and what you should bear in mind when choosing to use one.
In deciding to use a Letter Contract, the parties should carefully consider whether they are compatible with the complexity of the project, the proposed procurement route and the risks to the parties.
If there is any doubt about the suitability of a Letter Contract (or an RIBA Agreement) the architect should take legal advice.
A Letter Contract may be defined as:
- A contract in letter format – the 'Letter of Appointment' – which contains all of the principal terms and conditions within the body of the letter, to which might be attached any project-specific information such as a services schedule.
A Very Small Project may be defined as:
- For a business client as a non-notifiable project under the Construction (Design and Management) Regulations 2007, i.e. where construction work is not expected to last longer than 30 working days or involve more than 500 persondays
- For a domestic client as a project where the cost of building work will not exceed, say, £40,000
- As a survey or other limited commission, for example a feasibility study, building survey or accessibility audit.
RIBA Agreements for small projects
The conditions to the RIBA 'Concise Agreement' and 'Domestic Project Agreement' are expressed in simple terms and are used with a Letter of Appointment and the optional 'Small Project Services Schedule'. The RIBA recommends these agreements for all small projects.
The first incorporates the statutory provisions which only apply to business clients or public authorities. The second takes account of the Unfair terms in consumer contracts regulations 1999.
Choosing a Letter Contract
Common sense says that when you are travelling you should take out adequate travel insurance: a new commission is the start of a journey for both client and architect, and the contract is the insurance policy.
Where the architect, after carefully considering the nature and risks of the commission, decides not to use an RIBA Agreement, a 'Letter of Appointment for a Very Small Project' may be appropriate.
But the Letter of Appointment should be reasonably balanced between architect and client, although it will omit or shorten many of the provisions included in RIBA Agreements.
Letter Contracts should only be used where the architect is confident that the resulting contract will be fair to the client despite the inherent risks.
What should an architect's contract include?
RIBA Code of Professional Conduct Guidance Note 4 says:
When proposing or confirming an appointment, a member should ensure that its terms and scope of works are clear and recorded in writing.
When contracting to supply architectural services, the terms of appointment should include:
- A clear statement of the client's requirements
- A clear definition of the services required
- The obligation to perform the services with due skill and care
- The obligation to keep the client informed of progress
- The roles of other parties who will provide services to the project
- The name of any person(s) with authority to act on behalf of the client
- Procedures for calculation and payment of fees and expenses
- Any limitation of liability and insurance
- Provisions for protection of copyright and confidential information
- Provisions for suspension and determination
- Provisions for dispute resolution.
The Architects Registration Board (ARB), Architects Code is similar, but includes a requirement that architects inform the client that individual architects are required to be registered with the Architects Registration Board, are subject to its Code and to the disciplinary sanction of the Board in relation to complaints of unacceptable professional conduct or serious professional incompetence.
A contract with a business client should be compatible with the requirements of:
- A 'construction contract' under the Housing Grants, Construction and Regeneration Act 1996 (HGCRA)
- The client's duties under the Construction (Design and Management) Regulations 2007 (SI 320) (CDM).
Business clients include public authorities, charities, religious organisations and not-for- profit bodies.
If the client has elected to complete an agreement for work to his/her home or a second home including a new home, in his/her own name, i.e. not as a limited company or other legal entity, he/she will be:
- A 'consumer', i.e. 'a natural person acting for purposes outside his trade, business or profession' to whom the Unfair terms in consumer contracts regulations 1999 (SI 2083) (UTCCR) and the Cancellation of contracts made in a consumer's home or place of work etc. regulations 2008 (SI 1816) apply
- A 'residential occupier' exempt from the provisions of the Housing grants, construction and regeneration act 1996 (as amended) (HGCRA)
- Exempt from the CDM Regulations 2007 (SI 320)
- Exempt from the Late payment of commercial debts (Interest) regulations 2002 (SI 1674).
It is recommended that you read through the terms of the Agreement with the client and individually negotiate each term in the context of the consumer's rights. Failure to do so could lead to some terms of the Agreement being invalidated.
The Letter of Appointment may be a convenient way of recording the substance of the negotiations and should minimise the risk that any of the terms may subsequently be considered to be unfair. It is not unheard of for a consumer to claim subsequently that they did not understand the implications of a term. Note that UTCCR Regulation 8(1) says that, 'An unfair term in a contract concluded with a consumer by a seller or supplier shall not be binding on the consumer.'
If the client is a married couple or joint residential occupiers, all the client parties are consumers, but the client should identify one of their number as their representative with full authority to act on behalf of the parties and to sign the agreement. But if the client's second home is to be let at any time as a holiday rental or to other tenants the client will be a business client and the exemptions will not apply.
A company may also be a 'consumer' subject to Unfair contract terms act 1977 (but not subject to UTCCR) if the transaction is only incidental to its business activity and which is not of a kind that it makes with any degree of regularity. It may be a wise precaution and courteous to treat such consumers as though the UTCCR did apply. But a 'consumer' who is not a 'residential occupier' will not be exempt from HGCRA or exempt from the CDM Regulations if not a 'domestic client' as defined in the CDM Regulations.
Cancellation of Contracts made in a Consumer's Home or Place of Work etc.
Under these Regulations, a consumer/domestic client has the right to cancel a contract, including a Letter Contract. Under the Regulations, this is limited to the seven-day 'period of grace' after the client has signed the contract. The Regulations require the architect/consultant to give the client a written notice of this right on or before the date when the contract is made.
The model Letter Contracts
A Letter Contract will comprise the Letter of Appointment and any appendices recording relevant project-specific information, e.g. the 'Small Project Services Schedule'. No separate conditions are required.
The models for 'Very Small Projects' are:
- Carefully devised to simplify the presentation
- Expressed in plain, intelligible language
- Derived from the provisions of the RIBA 'Concise Agreement' and 'Domestic Project Agreement'
- Inclusive of provisions, some optional, that can be selected, modified or deleted by the architect to meet project-specific requirements and/or the perceived risks.
There are two model contracts, one to a business client and the other to a domestic client. The RIBA 'Small Project Services Schedule' may be suitable for use with such Very Small Projects.
The model Letters of Appointment are available in rich text format (RTF) and can be downloaded free of charge from www.ribabookshops.com/lettercontracts.
The 'Small Project Services Schedule' is available in rich text format (RTF) and can be downloaded from www.ribabookshops.com/agreements.
Find out more
Extract from A guide to letter contracts: Second Edition by Roland Phillips.
To order a copy of this book, please visit RIBA Bookshops.
Copyright RIBA Publishing August 2010.
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