Wednesday, August 25, 2010

Contract concepts Part III

This is Part III of our series on contract concepts.

Today: "The Elements Of A Contract"

A contract is mutual agreement, either oral or written, that obligates two or more parties to perform to a specific scope for a specified consideration usually in a specified time frame. The operative idea here is mutual agreement.

A contract cannot be imposed unilaterally on an unwilling supplier. In effect, as project manager you cannot unilaterally declare the project to be in contract with a supplier, have an expectation of performance, and then return later and claim the supplier is in breach for not performing. At first blush this may sound absurd, but unacknowledged purchase orders and email directives are not contracts until they are accepted by the performing party.

Therefore, it is generally understood in the contracting community that the following five elements need to be in place before there is a legal and enforceable contract:

• There must be a true and valid offer to do business [with a supplier] by the project or contracting authority

• There must be a corresponding acceptance of the offer to do business by the supplier’s contracting authority

• There must be a specified 'consideration' [something of value to be exchanged] for the work to be performed. Consideration does not need to be in dollar terms. Typical contract language begins: “In consideration of _________, the parties agree…………”

• The supplier must have the legal capacity and ability to perform. That is the supplier may not materially misrepresent their ability to perform.

• The statement of work must be for a legal activity. It is not legal to contract for illegal activity.

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