Legal and Contractual Management

Chapter 5 - LEGAL AND CONTRACTUAL MANAGEMENT

Acceptance

An acceptance is an unqualified expression of assent to the terms proposed by the

offeror. There is no rule that acceptance must be made by words. Procurement
professionals should be on the alert to ensure that acceptance is on the terms stipulated
in the Purchase Order. A purported acceptance that does not accept all the terms and
conditions proposed by the offeror (buyer) but which in fact introduces new terms is not
an acceptance but a counter-offer. This is then treated as a new offer, which is capable
of acceptance, rejection or potential further change.

Terms of the Contract

Elliott and Quinn  illustrate contractual terms as shown in Figure above

The procurement specialist should always bear in mind:

– How statements made in negotiation become part of the contract

– Statements may be held to be a representation that encouraged one party to make a

contract but do not become part of a contract

– The more emphatically a statement is made, the more likely the courts will be to

regard it as a term

– Written terms can be incorporated into a contract in three ways: by signature, by

reasonable

notice and by a previous course of dealing

– Terms implied in fact are terms not laid down in the contract, but which it is assumed

both parties would have intended to include if they had thought about it
– Terms implied in law are those that the law dictates must be present in certain types

of contract – see Smith v Wilson (1832) where under local custom 1000 rabbits

meant 1200 rabbits

– Terms implied by trade usage can be seen by British Crane Hire Corp Ltd v Ipswich

Plant Hire Ltd (1975).

Considerations

It is important that the procurement community understand that in English Law, an

agreement is not usually binding unless it is supported by consideration

The classic definition of consideration by Lush J was: ‘A valuable consideration, in the

sense of the law, may consist either in some right, interest, profit, or benefit accruing to
the one party, or some forbearance, detriment, loss, or responsibility, given, suffered, or
undertaken by the other’. In respect of buying of goods or services consideration is
often expressed as the promise to pay when the goods or services have been
satisfactorily provided.

Capacity to contract

Minors, the mentally incapacitated and companies have limited contractual capacity. It is
the latter upon which buyers need to focus. A company is a legal person who is separate
and distinct from its shareholders. If a company acts beyond its objects in its
memorandum of association it acts ultra vires, in other words it has acted beyond its
capacity.

There are potential complexities within an organization as to who is authorized to

contract on behalf of the organization, public or private. Safeguards are often attempted
to be put in place, such as forbidding a buyer to place a contract with a value in excess
of P xxx, unless it is authorized by a designated senior person. The difficulty with this
approach is that suppliers are probably unaware of this administrative control. The
courts will most certainly examine the history of procurement practices within the
organization and will take custom and practice into consideration.
 

The right to terminate contract

Treitel explains as a matter of general law, the right to terminate for breach arises in
three situations: renunciation (or repudiation), impossibility and substantial failure to
perform. A party is guilty of renunciation where, by words or conduct, he evinces a
‘clear’ and ‘absolute’ refusal to perform. Impossibility refers to the ‘situation’ where one
party has by his ‘own act or default’ disabled himself from performing. Both
renunciation and impossibility may occur at or during the time fixed for performance
but, in such cases, the court will assess whether that which one party is refusing to do, or
cannot now do, is sufficiently serious to justify termination, i.e. whether it amounts to a
substantial failure to perform (or one of the exceptions thereto, e.g. breach of
condition). In the case of termination for actual breach, the general requirement is that
the party in default must have been guilty of a substantial failure to perform.

Contract termination for convenience

There is an increasing provision in some contracts for ‘termination for convenience’.

Basically, this means that the contractor has not done anything wrong and is therefore
not in breach of contract. Nevertheless, the buying organization finds it to its advantage
to terminate the contract. The simplest set of circumstances is that another contractor
offers a much better deal. In public sector procurement, Central Government may
decide that the public sector will no longer provide a specific service, thereby leaving
little option but to terminate the contract ‘for convenience’.

Breach of Contract

A definition of breach of contract is ‘committed when a party without lawful excuse fails
or refuses to perform what is due from him under the contract, or performs defectively
or incapacitates himself from performing’. Breach of contract is of serious concern to the
buyer who usually has no choice but to get involved in dealing with the consequences
of the breach. The actions may include consideration of rectification plans and actions,
claiming damages, invoking ‘step-in rights’ or terminating the contract.