Can you unilaterally modify a contract?

By Allan Watton on

modify a contractYou might expect the answer to the question in the title of this article, ‘Can you unilaterally modify a contract?’ to be a resounding ‘no’, but, as always, life is not that simple.

The correct answer is ‘no, except when…’

We know a contract should be a legally enforceable agreement that is entered into by two or more parties containing terms that have been discussed (usually, at length) and agreed to. And we’ve come to accept that any amendments to those contracts must be agreed by all affected parties.

For instance, we know that one of the elements of a truly fit-for-purpose contract is a biannual ‘review and refine’ process where parties can come together to realign elements of the contract that are not working as well as they could be. The goal being to shift directions, actions and behaviours to better ensure a successful outcome.

One party unilaterally deciding that it wishes to change the terms of their agreed contract is just not allowed… except when… unilateral modification is written into the agreement itself.

Few contracts, not unnaturally, allow for this as it would potentially open the agreement up to a significant amount of possible abuse. However, the way some relationships are required to work together necessitates this kind of freedom (within reasonably agreed limits).

Traditional way to modify a contract

In most cases, if you wish to modify contract terms, attempting to do so unilaterally will render those changes impotent. They will remain so unless your contractual partners accept the amendments you are proposing, and this is done through the correct contractual change process.

Most contracts actually contain a feature called a ‘variation clause’ and it is designed to stop either side ‘inadvertently’ amending the contract.

Parties can modify a contract:

    1. In writing. From a formal contractual variation agreement to an exchange of emails.
    2. Orally. Though some definitive record of this agreement having occurred should exist.
    3. By their conduct. Where parties do something and/or allow for something to be done differently to what was agreed in their contract.

It should, however, be noted that there are some agreements where variations can only be agreed in writing, where oral agreements are explicitly not allowed. However, a party’s conduct can give a court reason to determine that a variation has been implemented by a party’s behaviour, if that behaviour remains uncontested, even though it does not align with the written contractual terms.

So, it is not always straightforward.

Variations don’t simply come from parties – they can also come from outside forces, such as a change in the law which might have financial or other implications for one or more of the parties that may necessitate an unscheduled change to the agreement.

In such a situation, parties should meet, in a similar way to their regular review and refine sessions, to determine an appropriate way forward in order to amend the agreement to ensure that it is still workable for all parties.

Unilateral modification of a contract

Calling it ‘unilateral’ is a little misleading because, as we already mentioned, this is only usually allowed when both parties have agreed to allow for it in their original contract.

One example where this might be appropriate to modify a contract is on a construction project where the administrative burden on parties to keep going back to the negotiation table every time the scope of work changes would be challenging. So a ‘boundary’ can be pre-set on the scope of potential changes, so as not to hold up progress on the project because of protracted discussions about governance compliance for what are considered to be changes that fall within the agreed boundary settings.

Another example where you could modify a contract may be on an agile technology-based project where there are too many unknowns to lock down prescriptive terms. Parties can pre-agree in the contract to vary elements of the solution ‘unilaterally’ to ensure that the stated outcomes are achievable. Again, within given boundaries.

Such contracts will have a framework for parties to follow and a set of rules to abide by, and as long as these are followed there will be no need for the actual terms of the contract to be changed just because an element or the deliverable, or the route to it, requires variation.

The importance of a fit-for-purpose contract

When it comes to complex service delivery relationships, a fit-for-purpose contract is an absolute must. Too many relationships start off on the wrong foot – accepting supplier’s own agreements, adapting standardised documents – when the reality is that shoehorning your ‘square peg’ need into a ‘round hole’ contract is rarely a reliable or value for money solution.

Your contract is the satnav to your desired outcome. More than that, it’s your satnav, highway code and traffic police all rolled into one. Your guide, rule-giver and enforcer. Therefore, it often should be tailored to fit, created in collaboration with your strategic partner to drive not only actions, but behaviours, and that cannot come from a one-size-fits-all agreement.

Many suppliers will, of course, go above and beyond to ensure that your project is a success, but complex service delivery relationships have a very high failure rate – somewhere between just over half and three quarters of them leave at least one of the parties dissatisfied with the outcome – and a fit-for-purpose contract is often part of the missing element here.

Ambiguity is the enemy of outcome certainty, a lack of clarity in specific outcome objectives, responsibilities, roles, expectations and more, will likely lead to disagreement which at best will delay your project and at worst can derail it.

We have written numerous articles on the subject of a fit-for-purpose contract for complex projects, so for further detail you can read this, this, or this one. But the foundations can be summarised as:

    • Clearly define your ‘future state’
    • Determine your target objectives
    • Establish the key positive behaviours required (from both parties)
    • Define the SMART KPIs you’ll need to achieve along the way and measure whether you are getting those key positive behaviours
    • Build in a regular (at least biannual) review and refresh governance process that keeps business outcomes, objectives, behaviours and KPIs all aligned
    • Reverse engineer the creation of contract terms, from the above five points
    • Incorporate a clear contractual escalation process if outcomes, objectives and behaviours become misaligned and you are struggling to get the relationship back on track on an informal (but contractually aligned) basis.

Conclusion

If you wish to modify a contract agreement with your strategic partner, one piece of advice we’d recommend that you follow, is that it is almost always best to do so in writing, as this avoids all the complexity that oral and conduct-based variations create.

It is also important to carefully consider the impact those variations might have on the parties, the project and the other terms of the contract. It is all too easy to initiate a domino effect which could result in a whole host of unexpected ramifications.

While variation ‘by conduct’ has proven to be a valid argument, it often requires significant evidence to prove, so always look to keep things as clear and evidenced as possible by keeping diligent records.