20 Nov Five Essential Contract Terms for Consultants, Independent Contractors, and Freelancers: Part 4- Amendment Clause
This is the fourth post in a five part series on Essential Contract Terms for Consultants, Independent Contractors, and Freelancers. This post will focus on amendment clauses.
As this series indicates, the value of a written contract is significant to avoid ambiguity in a business relationship. A written contract, however, needs to reflect the reality of the relationship and the reality of the business dealings should reflect the contract. Therefore, having a contract that is flexible and adapts to the manner in which consultants, independent contractors, and freelancers work is vitally important.
One aspect of contract law that many people run afoul of is a contract does not have to be a single, signed document. Something as common and seemingly innocuous as an exchange of emails can form a contract between two parties. In the absence of a single, signed contract, an exchange of emails, while not ideal, can form a contract and, in the event of a dispute, provide a means for a successful breach of contract claim.
More importantly, for the purposes of this post and real life, is that an exchange of emails taking place after a single, signed contract is executed can alter the formal contract in significant ways–potentially contradicting or invalidating the terms of the formal contract. Thus, having a clear amendment clause in the formal contract is vital to avoid the ambiguity of post-execution communications. But an contract providing for an iron-clad, “all-amendments-must-be-in-a-signed-document” amendment clause fails to account for how small businesses, particularly knowledge workers and creative freelancers, operate. Indeed, having such a stringent amendment clause often runs counter to the reality of a business relationship–making the contract worthless in terms of a tool to manage the relationship.
So flexibility is needed, but the confines of a typical amendments in a signed writing amendment clause is too restrictive.
The solution is a multi-part or multi-level amendment clause. In the context of a Master Services Agreement, having an amendment clause that allows for easier changes to a Statement of Work and having a more rigid amendment clause for everything else in the Master Services Agreement can keep matters clearer and reflect actual reality. For a contract that is not premised on a Master Services Agreement followed by a series of Statements of Work, allowing for changes to the scope of services and price in a series of emails may be effective, while keeping the bulk of the contract subject to a signed amendment.
A provision would break down similar to this:
Sec. 1: Amendments to the Scope of Services and Pricing provisions may be made in writing agreed to by the parties.
Sec. 2: Amendments to any other provision of this Agreement shall be made only in a writing signed by both parties.
The first section means that an exchange of emails can suffice to amend the terms of the contract. Bear in mind, however, of the advice of the Scope of Services Clauses advice in this series to make sure that the amended scope of services provisions is clearly understood by both parties and fully described in the amendment. Business Tip: Number your Statements of Work, if you have multiple statements of work with a single client, and when making changes refer to the Statement of Work being amended by both number and date. Such a practice will make clear what Statement of Work is being amended.
The second section refers to contract provisions less likely to change but may significantly affect your rights and responsibilities in the contract, such as payment provisions (Part 2), dispute resolution mechanisms (Part 3), any intellectual property rights (to be covered in Part 5) or other language that bestows obligations on either party. Having these provisions amended only in a single, signed writing ensures that there is due consideration given to the changed language (and hopefully consultation with an attorney) before the amendment is signed and incorporated in the contract. Business Tip: When amending more permanent provisions, I recommend the amendment include the original language and the replacement provision(s) in the same document so that everyone is clear about the old language was and the new language being added to the contract.
Single, signed document contracts should reflect the reality of the business relationship and vice versa. Day-to-day interactions and immediate needs may necessitate a certain fluidity in terms of offering services and pricing of those services. Yet, since the communications between the parties can change contracts, including potentially voiding the original contract if the parties are not careful, the contract should contain a clear mechanism for amending the contract. But the amendment provision should not be so restrictive as to remove the flexibility of the parties to conduct real world, day-to-day discussions about services and pricing.
Thus, a multi-level amendment clause addresses the need for flexibility while at the same time avoiding ambiguity that can be created without a documented amendment process. One section of the provision will allow for the amendment of scope of services and pricing in written exchanges of communications–provided the service description is detailed enough. The other section would require a written, signed amendment to ensure that substantive rights and responsibilities are not altered without due consideration.
The Law Offices of Matthew S. Johnston, LLC strongly encourages a documented multi-level amendment provision if the business practices is best served with such a provision. We can help knowledge workers and others to craft such a provision that suits their needs. Contact us to learn more.
What kind of amendment processes do you use now, if any? How do you usually handle changes in a client’s needs and your pricing of those goods and services.
Also in this series: