Problem: Agreeing sub-contract documentation for a job but asked to execute the contract as a deed?
I work for a contractor that specialises in concrete screeding. We were recently successful with a tender to design and carry out screeding work to a number of units on a new retail park development and are now going through the process of agreeing the sub-contract documentation.
The contract documentation requires the company to execute the contract as a deed. On previous contracts, we have simply been given a sub-contract order with various documentation attached, including the main contractor’s terms and conditions. Although the company has previously been requested to sign the sub-contract order, it has never been requested to execute the contract as a deed. Before we sign, can you explain what a deed is?
Response: The differences between a deed and a simple contract
Where your company has previously signed or agreed to carry out works in accordance with a sub-contract order, the company has entered into what is termed as a simple contract, whereas to enter into a deed, certain formalities must take place in order to properly execute the agreement as a deed:
- It must be in writing;
- it must make clear that it is intended to be a deed by the parties making it; and
- it must be executed in the presence of a witness or in the case of a company, be executed effectively by two directors or a director and the company secretary.
There are two main differences between entering into a simple contract and executing the contract as a deed. Firstly, one of the ingredients for a simple contract to be valid is that there must be consideration (i.e. money paid in exchange for goods and services), whereas a deed does not require consideration. Secondly, limitation of action is longer for a contract if executed as a deed – a party has 6 years to bring a claim under a simple contract but this doubles to 12 years if a contract has been executed as a deed.
Although a party to a contract that has not been executed as a deed can still bring an action after 6 years, the defending party can plead limitation as an absolute defence. This means that an action for breach of contract will be time barred after 6 years from the date of the breach. However, there is a possibility that a claiming party may be able to get around this time bar, and that is to bring an action in negligence. Negligence occurs when a professional (and this could include contractors), fails to execute his duty or fails to perform his responsibilities to the standard that the customer reasonably expects. For a claiming party to have any chance of success, it must be able to demonstrate that a) a duty of care was owed; b) there has been a breach of that duty of care; and c) that the negligence resulted in financial loss. Kinds of acts that are classed as negligence include failure to carry out the work with reasonable skill and care, failure to use the appropriate materials for the task, failure to comply with Building Regulations and failure to follow the plans.
© Michael Gerard January 2019
The advice provided is intended to be of a general guide only and should not be viewed as providing a definitive legal analysis.