COMMERCIAL CONTRACTING: Contracts are based on 4 questions

A contract is a binding agreement or promise between parties which is enforceable by the law.

According to Sir William Anson, “A contract is an agreement enforceable at law made between two or more persons, by which rights are acquired by one or more to acts or forbearances on the part of the other or others.

Contracts form a key feature in the day-to-day life from purchasing airtime for a phone to boarding a bus to work, all these constitute contracts.

The legally “binding aspect” is the key difference between commercial contracting and other social agreement, such as arranging to borrow a friend’s car for the weekend, for if you don’t carry out you duty in the later you won’t necessarily end up in court.

If the agreement is between two commercial enterprises, however, it is presumed that there is an intention to enter into legal relation and that the law will be used to enforce the agreement if need be.

THE FOUR QUESTIONS IN COMMERCIAL CONTRACTING

The law of contract is concerned with FOUR BASIC QUESTIONS

  1. Is there a contract in existence?

The answer to this will depend on whether the essentials of a valid contract have been adhered to.

  1. Is the agreement one which the law should recognize and enforce?

Some contract will be valid, void or voidable. This is to say that they will be enforceable, not enforceable or whose being enforced depends on the parties involved, all of which depends on if there exist some factors (vitiating) undermining them.

  1. When do the obligations of the parties come to an end?

This entails termination of a contract the most common and effective way being when the duties and obligations have been carried out. It is worth noting that there are other ways of ending contracts.

  1. What remedies are available for the injured party if the other party fails to meet its contractual obligations?

Possible remedies include the right to terminate all obligations under the contract and monetary compensation for the loss suffered as a result of the failure (damages).

Offer and acceptance being the focus of commercial contracting can occur in two ways;

  • The seller makes an offer to sell which is accepted by the buyer to establish an agreement
  • Or the buyer makes an offer to buy, which the seller accepts to in order to establish the agreement

Related: How to make an offer

In either case it should be clear that a key requirement for a valid and workable commercial agreement is the clear statement and accurate alignment of;

  1. Exactly what the buy wants
  2. What the supplier is offering, or agrees to supply

How do you define and communicate the requirements in commercial contracting?

The buying organization will seek to establish a detailed description of its requirements which can be communicated to potential suppliers. In case of re-buy, for example, detailed description may already exist, but for a new modified procurement, they may have to be drawn up, in the form of;

  • Specification (of various types)
  • Service levels agreements (added to specifications)
  • Contract terms
  • Key performance indicators, or performance measures which will be used to establish whether the requirements have been satisfactorily met

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COMMERCIAL CONTRACTING RESOURCES OUTLINE

1.1 Analyse the documentation that can comprise a commercial agreement for the supply of goods or services

  • Invitation to tender or request for quotation
  • Specification
  • Key performance indicators (KPIs)
  • Contractual terms
  • Pricing and other schedules (such as for health and safety records, details of supplier’s staff, use of sub-contractors, non-disclosure/confidentiality agreements)

1.2 Analyse the legal issues that relate to the creation of commercial agreements with customers or suppliers

  • Invitations to treat or invitations to negotiate
  • Rules relating to offer and acceptance, consideration, intention to create legal relations and capacity to contract
  • The battle of the forms and precedence of contract terms
  • Risks presented by contracting on supplier’s terms or through oral contracts
  • The Vienna Convention on the International Sales of Goods
  • Misrepresentations made pre-contract award

1.3 Compare types of contractual agreements made between customers and suppliers

  • One off purchases
  • Framework arrangements and agreements
  • The use of mini-competitions
  • Call offs
  • Services contracts
  • Contracts for the hire and leasing of assets

2.1 Analyse the content of specifications for procurements

  • Drafting specifications and developing market dialogue with suppliers
  • The use of standards in specifications
  • Typical sections of a specification
  • Standardisation of requirements versus increasing the range of products
  • Including social and environmental criteria in specifications
  • The role of Information Assurance in developing specifications

2.2 Appraise examples of key performance indicators (KPIs) in contractual agreements

  • Defining contractual performance measures or key performance indicators (KPI)
  • The use of service level agreements
  • Typical KPI measures to assess quality performance, timeliness, cost management, resources and delivery

3.1 Analyse contractual terms for contracts that are created with external organisations

  • The use of express terms
  • The use of standard terms of business by both purchasers and suppliers
  • The use of model form contracts such as NEC, FIDIC, IMechIEE

3.2 Recognise examples of contractual terms typically incorporated into contracts that are created with external organisations

  • Key terms in contracts for indemnities and liabilities, sub-contracting, insurances, guarantees and liquidated damages
  • Terms that apply to labour standards and ethical Sourcing

3.3 Recognise types of pricing arrangements in commercial agreements

  • The use of pricing schedules
  • The use of fixed pricing arrangements
  • Cost plus and cost reimbursable pricing arrangements
  • The use of indexation and price adjustment formulae
  • The use of incentivised contracts
  • Payment terms
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