L4M3 Chapter 1 Flashcards
What is the definition of Contract?
The totality of the agreement between both parties as evidence by contract documents
What is the definition of Whole Agreement?
Core documents and several separate schedules
Can contracts be amended after signing?
Yes, so long as existing contract states express terms/ clauses of how to create a Variation agreement
In legal terms, is there a difference between quotation and tender?
No, legal do not distinguish the difference
What is an Estimate?
An Estimate is a suppliers best guess/ estimate of the price of supply. It has no legal standing because it’s variables are open ended/ subject to change.
What is a Quotation (RfQ)?
Quotation is a fixed price to supply a product/ service and only has one variable: Price.
Having one variable of Price is what separates it from Estimate
What is the main difference between Quotation (RfQ) and Tenders (RfP)?
They are both fixed offers of price, however, Tender is a more complex/ detailed.
When should Quotations (RfQ) be used?
Under Framework arrangements/ agreements are in place and the only variable to discuss is Price.
Suppliers have been pre qualified
Low risk/ low value engagements
Where specification and delivery lead time is fixed.
What is a Tender (RfP, RfT & ITT)?
Tenders are more complex/ detailed version of quotations which assess multiple variables. i.e. Price, Quality, Lead Time, Terms.
It also include supplier pre-qualification.
When should Tenders (RfP) be used?
Complex projects
High risk, high value engagements
Where Price and Quality need assessing
When suppliers are not pre qualified
What is a common misconception of the use of Quotations (RfQ)?
Contract terms! RfQs should operate under existing framework agreements. In short, where negotiated terms are in already in place.
What is a Framework Agreement?
Framework Agreement is an agreement between buyer and supplier, which only becomes legally binding when a contract is called off.
FWAs are not legally binding nor do they commit either party to anything until a contract is called off.
FWA acts as an overarching guide to all subsequent contracts
What are the advantages of RfQs?
Saves time if specifics are known, i.e. brand name or model so the buyer only needs to assess price.
Enables quick turnaround, Quick to action, Quick result.
What are the disadvantages of RfQs?
Too convenient. Can lead buyer to ignore quality needs.
If not used under FWA, quotes will often default to supplier terms.
If not used under FWA, then contract terms are not considered.
If not used under FWA, then supplier pre qualification may be ignored.
What RfQ controls should you put in place?
Set up FWAs
Set maximum value limits. i.e. Tender must occur at £20k
Issue buyers standard terms with RfQs.
Only permit pre-qualified suppliers.
Apply Category Management to aggregate spend.
Set minimum number of quotes needed at each value stage i.e. £0-£10k 1 quote, £10k to £20k 3 quotes.
Utilise platforms to collate quotes.
Internal monitoring of RfQ usage.
Staff training.
Which industries are RfP, RfT & ITT most regulated?
Public sector organisations where tax payer money funds activity.
What are the advantage of RfPs?
Full audit trails. Use of e platforms further supports this.
Provides transparency, bribery, corruption etc.
Potential for wider supply base by being able to pre-qualify new suppliers
Encourages strategic planning of RfP event to gain the max out of sourcing activity and drive innovation/ efficient process
Drafting of brief can include buyer standard term clauses or red line terms
What are the disadvantages of RfPs?
Administrative burden.
Regimented process, with readily available templates can lead to laziness of buyers who don’t consider unique aspect of tender.
Rushed timeline lead to mistakes.
Risk of regulated industry buyers not following procedure, thus exposed to breaking rules.
In experience of drafting tender document lead to abnormal volumes of Q&As from supplier, thus wasting time.
What RfP controls should you put in place?
Ensure buyer are using correct document templates.
Ensure legal processes are considered.
Monitor accuracy of tender documents and correct where necessary.
Staff training.
Create vetted tender documents for everyone to use.
What is the definition of Waiver?
Waiver is a deliberate decision to not follow rules. This should be signed off by a senior staff member with written justification.
What is the definition of Specification?
Specification is a document which sets out the buyers demands of a supplier.
Remember, a Specification should be included in any contracts as a schedule.
What are the risks of a poorly designed Specifications?
Incorrect spec of product service
Poor quality
Over or under priced
Claims for RfP extension because supplier need to resubmit
Time and resource lost with correction processes
Risk of not fulfilling 5Ps of purchasing
Risk to end users or does not meet legal standard
How many types of Specification are there, and what are they?
There are 2 type of Specification:
Performance, also known as prescriptive
Conformance, also known as technical
Can Specification types be used together?
Yes, Performance and Conformance Specs can be used in tandem as a hybrid approach.
What is the definition of a Performance Specification?
A Performance Specification focuses on the outputs, not the inputs. This is often when the buying organization does not have subject matter expertise and leaves it to the supplier to dictate the inputs via their proposal.
What is the definition of a Conformance Specification?
A Conformance Specification focuses on the inputs and the outputs. i.e. buying organisation has expertise to dictate methods, processes, brands, part numbers etc.
What are the advantages of Performance Specifications?
Performance Specification enables the supplier to apply their expertise and inhibit innovation of solutions, driving added value.
What are the advantages of Conformance Specifications?
Conformance Specifications enable the supplier to control the input and thus, outputs, ensuring consistency. However, it stifles supplier innovation, added value etc.
Who should be considered when drafting a specification?
Multiple key technical stakeholders, who will add expertise and value to drafting. The buyer is expected to challenge these stakeholders to avoid bias and encourage engagement.
What 10 things should be considered when drafting a specification?
Purpose
Perspective
Scope
Improvement and innovation
Regulatory compliance and quality
Type
Relevance
Performance
Clarity
Service conditions
How do you make a specification a contract document?
You must expressly state the specification is a contract document by adding it to a schedule which is then expressly called out in the contract clauses.
What is the definition of a Performance Management Framework?
A Performance Management Framework is a series of standard and targets the supplier must achieve and sets out corrective actions.
What 3 components makes up a performance management framework?
KPIs - what you are measuring
Targets - To performance level to be achieved
Consequences - What happens if target are not achieved
Remember, KPIs are useless without targets and consequences. How do you know if the 70% KPI achievement is good or bad with out a target!?
What does measuring KPI performance show about the supplier?
Measuring KPIs shows the buyer the following supplier relationship status:
Stable
Improving
Declining
How do you make a KPIs/ Performance Management Frameworks legally binding?
You must expressly state the PMA/ KPI is a contract document by adding it to a schedule which is then expressly called out in the contract clauses.
When should KPI be considered/ drafted?
During the specification design stage, and issues with RfP invites/ briefs
What makes up the core of a contract?
Contractual terms, often called T&Cs
Under what circumstances does a formal contract exist?
The terms are set out in detail
Both parties agree to terms and intend to make them enforceable by law
When either party has written down details of the terms and signed it
Remember, a formal contract can still exist when details have not been written down.
Remember, formal contracts also go by the name of agreement, commission, letter of appointment, or a service level agreement.
How can you encourage buyers to use the correct contract templates?
Implement a decision tree, process map and publish internally.
What is the definition of a Term Agreement/ Contract?
Contracts with a specified period of time until expiration i.e. not evergreen.
What does a traditional contract format look like?
Articles - parties names, identification, how parties will referred to as i.e. ‘The Client’ and the basis of the contract i.e. the purpose of the contract is to provide goods or services.
Recitals - sets out the facts and deliverables. This is where error lead to weakness in legal standings.
Contract particulars (standard terms) - sets out the specific variables.
Full terms and conditions - correct reference to support schedule needed here to legally enforce them.
Schedules - document based on negotiation between parties setting out the specific project details. i.e. pricing, KPIs etc
What is the definition of Market Leverage?
Power of the purchaser to influence commercial negotiation.
Also known as Buyer Power
Remember, regulated procurement persons often say their standard terms cannot be negotiated because of a regulated industry. That is false. They can definitely be amended.
Remember, a Schedule is also known as an Appendix.
Remember, there is no limit to the number of schedules you can include in a contract.
How do you make a KPIs/ Performance Management Frameworks legally binding?
You must expressly state the Schedule in a contract document by referencing the Schedule as an Express clause.
Do contracts allow Variation by default?
No. Contract must expressly state whether this is possible and advise of the process. i.e. Who can request, who can autorise, who can accept and the mechanism i.e. by email or post.
Which 5 conditions must be met for a contract to exist?
Offer
Acceptance
Consideration
Intention to be legally bound
Capacity to contract
What is a Civil Law system based on?
Statues and regulation
What is a Common Law/ Case Law legal system based on?
Previous legal cases with support of statutes and regulation
When can Common/ Case Law be updated?
When a relevant case comes to court.
When governing authorities choose to change the law by statute, officially terminating the previous rules.
What is the definition of Statute?
A written law passed by a legislative body
What is the definition of an Offer?
A statement of what the offeror is willing to provide and the terms they are willing to provide it with
Remember, if something is not an Offer. It cannot be Accepted!
What are 4 example of what an Offer is not?
Invitation to treat – Where the supplier can discuss willingness to make an offer but has not discuss the terms for doing so yet. I.e., a tender if an invitation to treat as the buyers is discussing their willingness to make a deal but the tender and its documents do not act as the terms to offer. Another example is where a product is on display as an invitation, however, an offer doesn’t exist as the seller can refuse to sell.
Declaration of intention – where an offer was intentional, however, later declined. i.e., an auction house advertising a product for sale, but cancel event thereby declining to offer.
A mere puff (or boast) – Anything not intended to be taken literally. i.e., an exaggerated TV ad which isn’t true. A silly statement that a soft drink can make you stronger etc.
Provision of information – i.e., a plaintiff requests the price of a product, which supplier confirm back price only. This is not an offer to sell. This is just provision of information.
Remember, an offer can only exist if communicated to the other party. An offer needs to have capacity to be either accepted or declined. A party is unbale to accept or decline something they are not aware of.
What is the definition of Specific Performance?
Where a court orders a defendant to complete the obligation of a contract, sometimes in support of financial fine. This is so companies cannot get away with simply paying the fine.
What are the 6 ways in which an Offer can end?
Withdrawal, also known as revocation
Lapse
Death
Rejection including counteroffer
Failure of conditionality
Acceptance
What conditions is Acceptance subject to?
Can only occur if the offer is still open
It must be absolute and not conditional
It cannot be made by someone with diminished capacity
Remember, attempting acceptance with a conditional acceptance is a counteroffer, which is a rejection of the offer!
Remember, some acceptance can be conditional based on further due diligence. For example, land search on a property whilst the house is ‘Sold Subject to Contract’
Is a Letter of Intent an acceptance?
No. Letter of Intent only shows intention.
Tradition of the construction industry using letter of intents as acceptance of offers is a hot debate
Can acceptance be made when when an offer has closed?
No. An offer can only be made whilst an offer is open
Does acceptance of an offer need to be explicit?
No. An acceptance of an offer can be implied too. For example, is a supplier send a purchaser goods they never asked for, but the purchaser then uses them, an implied acceptance has occurred. This is also known as acceptance by performance.
Can a buyer assume title of goods if a seller is silent about an offer?
No. acceptance cannot take place if supplier is silent about an offer. For example, a buyer cannot send money to a supplier and assume title of goods if supplier stays silent. If a cheque was sent and supplier cashed it, however, that would be the acceptance.
What 2 rules exists where acceptance of an offer does not need to be communicated? ]
The seller can write into contract that it does not need to communicate acceptance i.e. contracts state call offs with automatically be accepted
Mail box rule. If buyer can provide acceptance via letter was sent then supplier does not need to communicate acceptance
Remember, it is common for domestic and international contracts to state which legal jurisdiction dictates the contract. England wales, USA etc
Remember, civil law systems i.e. lead by statutes and regulation only do not accept the mail box rule
What is the CISG?
The Vienna Convention for the International Sales of Goods.
Note, it does not cover services.
Is forms part of UNCITRAL.
How can you avoid confusion of the mail box rule?
Both parties should expressly state in any contract what merits an offer & acceptance via a deemed receipt with assumptions made
What is the definition of Consideration?
The bargain of one thing in exchange for another
Consideration must have a value
Cannot be vague
Must be specific
Can trade goods for goods/ services for services
Cannot be for an something already done, or an existing duty
Remember, for a contract to exist, there must be consideration.
Consideration cannot be based on something already done
Something that is already an existing duty
Not vague
It needs to be specific
It does not need to be good value
Must be made between contracting parties
Must be of value or an exchange of goods
What is the Rights of Third Parties Act 1999?
The act enables third party’s to enact the contract even though they are no directly party to it.
They do not have automatic rights. The contracting parties must expressly state they offer 3rd party rights. In the UK, it is common for contracts to expressly state 3rd party rights do not exists anyway to avoid confusion.
How do you enact third party rights in a contract?
Give third party’s the right by express terms
Is it common for third party’s to have a right in contracts in the UK?
No. it is uncommon due to the risk is poses the direct parties.
What is the definition of Collateral Warranty?
Agreement under which a subcontractor guarantees to a third party (purchaser) that it shall fulfil its obligation under contract. This is only legally binding if issued as a Deed
Why are Collateral Warranties important to the purchaser?
If subcontractor does something wrong, purchaser can claim via the contractor as standard, however, if the contractor went bust, then under standard contracts purchaser cannot claim against sub contractor. Remember, third party rights are not likely (are not automatic by UK law) to exist in the contractor and subcontractor contract to the benefit of purchaser. Collateral Warranty’s ensure that Purchaser can claim against sub contractor in any event. If subcontractor goes bust, purchaser would claim against contractor as contractor is responsible.
Does a Collateral Warranty need to be issued as a deed to become legally binding?
Yes!
What is issuing a Collateral Warranty as a deed so important?
Collateral warranty must expressly state that it is a deed to be legally binding. A deed is needed because there is no consideration between purchaser and sub contractor. With out a deed, the lack of consideration, would not support a claim.
If consideration is needed to create a contract between parties, how can you create a contract without consideration?
Create a deed and expressly state it is a deed!
Which class of people do not have capacity to contract?
Infants/ those under the age of 18
Sufferer of mental health
Someone under the influence of drugs and alcohol
If someone without capacity signs a contract, are both parties no longer legally obligated?
No. Person without capacity is no longer obligated, however, organisation signing it is still obligated.
Can an organisations claim capacity?
No. Even if an employee was drunk when signing a contract, the organization is still legally bound.
What else can capacity be referred to as?
Legal capacity or legal competency
What is the definition of Ultra Vires?
When a company is limited to what they can commit to through legal law. Also known as Beyond Powers.
More prevalent in public sector organizations.
I.e. if a company is limited to what it can commit itself too by law, any contract is signs could become redundant.
Restrictions are set by acts of parliament. i.e. Ultra Vires on the NHS.
What is the definition of Article of Incorporation?
Legal document creating a commercial company and setting out its purpose.
Can you describe what Battle of the Forms is?
When a formal contract does not exist expressly stating the contract will supersede/ take precedent over any other terms, meaning petty exchange of quote, purchase order, delivery note take precedent over the next. The last parties terms across the fence become legally binding. Each new document is a counteroffer of the previous so acts as a rejection and so on.
Do express term take precedent over implied?
Yes. but not when implied terms are based on statute/ regulation. Then implied terms take precedent.
What is the definition of Rules of Interpretation?
When a contract dispute goes to court due to the use of contract language being unclear, Rules of Interpretation will be applied as a guide to what the contract should mean
What happens if a variation agreement contradict the original?
The original will take precedent and the court will rule that not enough care and attention was given so it should no stand.
Remember to include precedent clauses into contracts so each parties knows which version, variations take precedent in what situations.
Are oral contracts legally binding?
Yes, but hard to evidence. this often leads to battle of the forms because no ones knows if an agreement exists orally
What is the definition of Contracting States?
States who have signed the CISG under the United Nations Commission of International Trade Law (UNCITRAL)
Is the CISG a voluntary treaty?
Yes
What is the purpose of CISG?
To create uniformed frameworks to help govern international transactions. It’s intended to create a uniformed framework by setting a common law to follow rather than the multiple local laws for different countries.
Why did the UK not sign up to the CISG?
‘Good faith’ cannot be accurately defined or measured.
Lack of time to review proposal
Lack of interest in the business community
Threat of London losing its position in international litigation
When is CISG applicable?
It covers goods, not services – it does cover goods made to specification of the buyer
It covers B2b sales but not public sectors. It also doesn’t cover B2C
It only applies when both contracting parties are based in different countries
Contract states can expressly state which parts do not apply to them
Contract state can expressly state which region it does not apply to. i.e., Hong Kong for China
At contract level parties of a contract can expressly state exclusions of the convention/ treaty
In short, all CISG laws automatically apply in contracting states unless they or contracting parties expressly state exclusions. i.e., an exclusion could be that local laws of China are precedent over CISG
When is CISG not applicable?
Distribution agreement – as these are agreement for transport and not the transfer of goods
Where payment is not money – i.e., trades for goods for services or more goods
Framework agreement – as they are not contract/ agreements on their own
Franchise Agreements
Sales of ships or aircraft
Electricity (although it does apply to gas)
Anything sold at auction
Remember, CISG covers Offer, Acceptance and Consideration of the formation of contracts. It does not cover capacity, intent to be legally binding. Local law/jurisdiction would help with this.
Is CISG law automatic for member states?
Yes, to not make it automatic, you must expressly states which parts of CISG should not apply in your contract
What is the definition of Incoterms?
Chamber of Commerce published terms covering the allocation of risk between buyer and seller
What is the definition of Misrepresentation?
False statement of fact which encouraged a party to contract
What conditions must be met for misrepresentation to exist?
Statement must be made
Statement must relate to fact
Statement must be false
Statement must be made by a contracting party
Statement must induce the contract – statement must have direct influence over a party’s willingness to contract
How many types of misrepresentation are there and what are they?
3 in total:
Fraudulent
Negligent
Innocent
What are remedies to misrepresentation?
Rescission of contract – remedy that see both parties return to their pre contract state
Damages
In the case of Fraudulent and Negligence, the court may award both Rescission and Damages. In the case of innocent, only one or the other.
What types of contract exist to CIPS?
One off purchase
Complex one off
What is a Framework Arrangement?
Framework arrangements, otherwise known as approved supplier lists, have no legal standing, do not guarantee work to supplier nor guarantee them terms for a transaction. It is not a legal contract because there is no consideration.
Mini competitions are often ran using that specific supplier base
What contract exists after running a mini competition via a framework arrangement?
A direct call off. Focused on the purchased rather than a term.
What is a Call Off Contract, otherwise known as a term contract/ agreement?
A term contract which exists for a fixed period. They are used where purchaser has a regular demand for goods or services where they want to be provided by a single supplier. i.e., elevator maintenance and repair, stationery. Focused on the term, not the purchase.
What is the definition of GATT?
General Agreement on Tariffs and Trade. International agreement regulating barriers to international trade i.e., tariffs and only applies to goods
What is the definition of GATS?
General Agreement on Tariffs and Trade in Services. International agreement regulating barriers to international trade i.e., tariffs. Only applies to services.
Remember, Hire and Lease and used interchangeably.
Their differences are that Hire is short term and Lease is long term.
You would hire a function room but lease an office.
Does hire or lease lead to transfer of ownership?
No, because there is transfer of ownership there is no ‘sale. Because there is no sale, no regulation or similar applying to sale of goods applies. i.e., UK sales of goods act or Vienna convention CISG
What is the definition of Hire Purchase?
Where an asset is hired/ leased for a period of time with the intention of a transfer of ownership through purchase. In legal terms, it starts as a hire contract and become a purchase contract. i.e., sale of goods to usual regulation around sales of goods would then apply.
Example, is PCP car lease I have.
When assigning international transfer of risk, which is is preferred, CISG or incoterms?
Incoterms
