Is a Proposal the Same as a Contract, and How Do You Create One?
With the legalities of running a business, it can be easy to get confused between one thing and another. For example, you may not know the difference between a proposal and a contract, or whether they serve the same purpose.
Throughout this article, we will discuss proposals and contracts in a business setting, as well as how to create a proposal.
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What is a Proposal in a Business Context?
A proposal is a detailed offer from a business to a client to complete a project or provide a service. It is usually in the form of a formal document that defines the details of a project or service that is being requested, such as the timeline, goals, cost, and other necessary information. The purpose of the proposal is to persuade the client that the business is the best choice for the job and to secure the work.
Proposals generally contain a comprehensive description of what the project or service entails, as well as goals and specific deliverables that the client can expect.
What Makes a Proposal a Contract?
As well as a detailed description of the project and information regarding the budget and timeline, proposals also contain an offer for the client to accept the business to complete the job. If both parties agree and sign the proposal, it becomes a legally binding contract between the business and the client.
According to Law Depot, “A binding contract is a written or spoken agreement between two or more parties that is legally enforceable”, and according to the same source, an agreement becomes legally enforceable when five criteria are met.
- Offer and acceptance: In order for an agreement to be legally binding, there must be two parties involved; one that presents an offer, and another that accepts the offer.
- Consideration: The contract must state the value that each party will receive if accepted, i.e., the payment and the service rendered.
- Mutuality or intention: Both parties must mutually agree on the terms, and intend to make a binding agreement for it to be legally enforceable.
- Legality: All aspects of the agreement must be legal in the jurisdiction that the agreement is made in. If the different parties are in different jurisdictions, then both laws are applicable.
- Capacity: The person signing the contract must have the capacity to make a legally binding agreement; either financially, mentally, or of legal age.
Once the client has looked over the proposal, agreed to the terms, and signed the agreement, it becomes a legally binding contract.
How to Create a Proposal
Create an Executive Summary
An executive summary in a business proposal is a brief, high-level overview of the entire proposal. It is typically the first section of the proposal and provides a concise summary of the main points of the proposal.
State the Reason for the Proposal
This is where you explain why you are sending the proposal, and what solution your offer can provide to the recipient.
Provide a Detailed Project Description
Describe the project in as much detail as possible, including the scope of work, timelines, project milestones, deliverables, and any other relevant details. Make sure to address any specific requests or concerns that the client may have mentioned.
Outline your Proposed Solution
Clearly outline your proposed solution to the client’s problem or request. Provide details on the methods that you will use, your approach, and any tools that you will use to complete the project successfully.
Include Pricing and Payment Terms
Clearly outline your fees and the payment terms for the project. Provide a detailed breakdown of the costs associated with the project, including any additional costs that may be incurred during the project.
Include an Agreement
Close the proposal with a written agreement and a signature from your end and a space for the client to sign if they agree to the terms.
Conclusion
Project proposals serve as legally binding contracts as long as they meet the criteria outlined above. If the client agrees to the terms and signs the agreement, it becomes an enforceable contract between your business and the client.
With the steps outlined above, you should be able to create an effective and comprehensive proposal to send to any client. Remember to include details such as the budget, fees, goals, deliverables, and timelines.
