1. Diploma in Procurement & Supply Negotiating and Contracting in Procurement and Supply Session 2 Legal Issues

2. Session Learning Outcomes On completion of this session you should be able to:  Assess the legal issues that relate to the creation of commercial agreements with customers or suppliers Syllabus reference 1.2

3. Legal issues –Commercial agreements are legally binding –Contractual disputes may need to be settled through legal process –Settlements for breach of contract can be high

4. Caveat emptor –The legal principle of procurement –‘Let the buyer beware’ –The onus is on the purchaser to carry out proper checks when entering into contracts –Purchasers must also take reasonable care when creating and managing commercial agreements

5. Elements of a legally binding contract –Offer –Acceptance –Consideration –Intention –Capacity Agreement

6. Offer To be valid, an offer must be:- –A definite, unequivocal or unambiguous statement of willingness to be bound in contract –An offer that the offeror intends to be bound by –Be communicated successfully to the offeree, in such a way that he/she is aware of it –‘Open’ (still in force) when the offeree accepts it

7. Is the offer ‘open’ for acceptance? –If the offer is stated only to be open for a specific time period, it will ‘lapse’ after the expiration of this time –If the offer was made subject to a condition, it will ‘lapse’ on failure of that condition –An offer can be revoked at any time before it has been accepted –An offer is terminated by a counter offer –An offer is terminated by rejection

8. Offer or invitation to treat? An invitation to treat is not an offer. The following represent an invitation to treat:- –An advertisement for a contract opportunity –A supplier’s price list –A price stated on a supplier’s website –A price tag on an item in a shop

9. –Acceptance should be communicated –Any form of acceptance is valid, whether oral, written or inferred from the conduct of the parties, ie acceptance by performance –Unconditional acceptance leads to agreement –An unconditional acceptance of an offer implies that any stipulated terms and conditions are acceptable Acceptance

10. –‘Consideration’ is something of value –The law is not concerned with the actual value involved, provided something of value is exchanged or promised that is sufficient –Consideration must not relate to something which the party is already obliged to do –Consideration cannot relate to past actions Consideration

11. Intention –Both parties must have the intention to create a legally binding contract –In commercial transactions, for example between purchasers and suppliers, the presumption is that the parties intended to create a legal relationship

12. Capacity relates to the ability, legally, to enter into a contract, either directly or as an ‘agent’ on behalf of another party. Some considerations:- –Minors – in the UK the ‘age of consent’ to be legally bound by a contract is 18 years –Mental disorder – people suffering from mental illness are unlikely to have the capacity to enter into a legally binding contract –Ultra vires – contracts which are not connected to the main activities of a company (as set out in the company’s Memorandum of Association) may not be legally enforceable –Authority – the parties entering a contract must have the authority to commit to the contract, for example to act as an agent of behalf of another party Capacity

13. Terms and conditions –For a contract to be valid it is not necessary to have terms and conditions –It is, however, prudent to ensure that terms and conditions are always in place (and agreed with the supplier) on every contract

14. Battle of the forms –The ‘battle of the forms’ only applies where there is not prior agreement between the parties to adopt mutually accepted terms and conditions –Where terms and conditions have not been agreed, the principle of ‘who fires the last shot’ applies –Usually the supplier wins this battle

15. Here is a typical process. Imagine the purchaser and supplier have not agreed specific terms and conditions (Ts&Cs). –The purchaser sends an enquiry to the supplier, making reference to the purchaser’s Ts&Cs –The supplier replies with a quotation, including its TS&Cs –The purchaser places the order and again refers to its own Ts&Cs –The supplier acknowledges receipt and again refers to its TS&Cs –The supplier despatches the goods and issues a delivery note which again states its Ts&Cs –Finally, the supplier issues its invoice which refers to its Ts&Cs Precedence of contract terms - the battle of the forms

16. Avoiding the battle of the forms –The battle of the forms creates uncertainty and may leave the purchaser at risk –The purchasing organisation should seek to eliminate uncertainty by ensuring that its terms and conditions have been accepted as part of the contract –This can be achieved by ensuring that the supplier is signed into an agreement to always supply to the purchaser’s terms and conditions

17. –The different parties to the agreement might have different interpretations of what was agreed –Misunderstanding may lead to conflict and contractual disputes –May to lead to potentially agreeing to disadvantageous terms –Lack of written terms against which compliance and performance can be measured –Lack of transparency and audit trail for contract award decisions –Lack of ‘evidence’ in the event of litigation Risks of oral contracts

18. Misrepresentation –Misrepresentation arises where one party to a contract enters into a contract because of information provided by the other party which transpires to be false –Contracts may become voidable (ie rescinded) –Uberrimae fidei (of the utmost good faith) – the non-disclosure of material facts can be significant in some contracts (eg a contract for insurance)

19. International trade transactions There are many considerations for purchasers when transacting internationally, for example:- –Jurisdiction, ie whose legal system will be used in the transaction? –Language issues –Different taxation systems –Fluctuating exchange rates –Different customs and practice, including documentation

20. Incoterms –Commercial terms published by the International Chamber of Commerce (ICC) –Widely used in international commercial transactions –Primarily concerned with establishing which party is responsible for specific activities, costs and risks relating to the transportation and delivery of goods –Intended to remove uncertainty arising from potentially different interpretation of the rules, customs and practices in different countries around the world

21. The Vienna convention –The United Nations Commission on International Trade Law (UNCITRAL) has devised a framework to provide at least a degree of harmonisation in international trade transactions –The framework has not been adopted by all of the world’s trading nations –It does however attempt to address a number of key issues for importers and exporters

22. –When does an offer or acceptance become effective in an international trade transaction? –When do title, property and risk (in the goods sold) pass from the supplier to the purchaser? –What are the rights of either party if the goods do not conform to the contract as agreed? The Vienna Convention – key issues

23. What to do now When you’ve worked through all the learning materials and associated reading relating to this session, follow the link below to assess your learning