Contracts and the elements of Contracts, Role of contracts in Business

1. Overview of Contracts
Management

2. All Contracts are
Agreements, But not all
Agreements are Contracts

3. Introduction
O Contracts are the basis of many of our daily activities
O They provide the means for individuals and businesses to
sell and otherwise transfer property, services, and other
rights
O Without enforceable contracts, commerce would collapse.
Definition of a Contract :
O A contract is an agreement that is enforceable by a court
of law or equity
O If one party fails to perform as promised, the other party
can use the court system to enforce the contract and
recover damages or other remedy

4. Examples of Contracts
O Credit Card Agreement
O Signed agreement related to a job
O Online agreement when starting a Facebook or
email account
O An agreement to buy something from a friend
O Buying something from a store
O Taking a seat in a bus
O Going to a restaurant and taking snacks
O When a coin is put into the slot of a weighing
machine

5. What does it mean to Contract?
Contracts are about:
OBargaining
OComing to an agreement
OBeing willing to be legally bound to your side of
that agreement, as long as the other party is
bound to theirs

6. Intention to create legal
relations
O If it can be shown that it was not the intenion of the
parties to create a legally binding relationship, there
is no contract
O Presumption: if the agreement is with family or
friends, the agreement was not intended to be
binding; commercial agreements – the other way
round

7. Parties to a Contract
O Offeror – The party who makes an offer to enter into a
contract
O Offeree – The party to whom an offer to enter into a
contract is made
Offer
Acceptance
Offeror Offeree
Offeror makes an
offer to the offeree
Offeree has the power to
accept the offer and create a
contract

8. Essentials Elements of a Valid
Contract
1. Agreement.
2. Enforceability by
law.
3. At least 2 parties.
4. Proposal.
5. Acceptance.
6. Intention to legal
relations.
7. Free consent.
8. Contractual
capacity.
9. Consideration.
10. Lawful objects.
11. Possibility of
performance.

9. Elements of a Contract

10. Elements of a contract
O Offer: This is the first element and part of creating a contract. Offer is
when a person or entity gives a proposal to another with the aim of
entering into a valid contract. Therefore, a contract is formed when an
offer made by the offeror is accepted by the offeree.
O Acceptance: It occurs between two parties when one accepts
another’s offer. If any new terms are suggested this is regarded as a
counter offer which can be accepted or rejected.
O Consideration: Consideration consists of either a benefit to the
promisor or a detriment to the promise. It is a present exchange
bargained for in return for a promise. Most common types of
consideration:
O Tangible payment (e.g., money or property)
O Performance of an act (e.g., providing legal services)

11. Elements of a contract –
Contd.,
O Agreement: To enter into a contract, the parties must
agree to the terms and conditions of the contract.
O Legality: When entering into a contract, the parties must
be in accordance with the law and they should not act in
any illegal manner which was not mentioned in their
contract.
O Capacity: It is the legal capability of the parties to enter a
contract and carry out their agreed tasks . A persons
ability to sign a contract in terms of the age and mental
capability.

12. Offer
O An offer is an invitation to make a contract
O Examples?
O Displaying a take it or leave it contract online
O Bidding on ebay
O Putting a price tag on an item in a store
O Offers can go back and forth (but don’t have to) until…

13. Acceptance
O The point at which one party agrees to the other
parties offer.
O Validity of Acceptance
1)it must take place while the offer is still in force;
2) it must be on the same terms as the offer
3) it must be unconditional
4) it must be communicated to the offeror
O Examples
O Clicking that you accept the online contract
O Winning an ebay auction
O Buying the item from the store

14. Counter-offer
O Acceptance: Only when all the terms of the offer are
agreed to
O If you propose a change to the terms of an original
offer, you are making a new offer – this is called a
counter-offer
O Counter-offer – a rejection of the original offer; there
can be no contract until the counter-offer is
accepted

15. Special cases
O When the offer consists of a promise to confer a
benefit on whoever may perform a specified act, the
offeror waives the requirement of communication.
O Example :
If the offeror offers a reward for information, a person
able to supply the information is not expected to accept
the offer formally.
The act of giving the information constitutes the
acceptance, the communication of the acceptance, and
the performance of the contract

16. Consideration
O Generally, courts will only enforce a contract if both
sides are getting something.
O What each side gives the other is called consideration.

17. Activity / Discussion -
Is this a contract?
In each of the following examples, ask yourself
if there is mutual consideration?

18. Is this a contract?
OYou order a book of Amazon.com. Your
credit card is charged, but no book ever
shows up.
OWas there a legally enforceable contract?

19. Is this a contract?
OLast year, your uncle promised you an iPhone for
your 18th birthday. When you turned 18, he gave
you his old broken basic cell phone.
OWas there a legally enforceable contract?

20. Is this a contract?
OYou signed up for a week long summer
basketball camp which cost $100. You
paid and went to the camp. When you got
to the camp, they just had you watch
football movies all day.
OWas there a legally enforceable contract?

21. Negotiation and drafting
activity
O We are going to negotiate and draft a contract
O Negotiating and drafting contracts is something that a
lot of lawyers do—including hopefully me.
O The goal is to come to an agreement.
O This requires each side to compromise, so that they
can get what they really want—to make a deal.

22. When drafting be sure to
 Include all the terms
 Don’t be afraid of creative solutions
 Use specific binding language:
 “Shall” not “Will”
X shall pay Y $10.
Y shall wash X’s car.
 Not:
X will pay Y $10.
Y will wash X’s car.

23. Contracting- Tendering – UNICEF Ex.,
• Invitation to Tender (ITT): An invitation to
third parties to submit offers
• Tendering is the beginning of the
contracting process and serves as an ITT
Invitations to Bid (ITB)
Requests for Proposals (RFP)
Request for Quotations (RFQ)
 An ITT must be distinguished from an
“Offer”. The responses to the different
forms of ITT would constitute the “Offer”
and issuance of a contract would be
UNICEF’s acceptance.
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24. Tender Process

25. Example of a Tender

26. THE ROLE OF AN AGENT
O Relationship that arises between 2 parties
O Principal – a person on whose behalf an agent acts
O Agent – a person appointed to act for another,
usually in contractual matters
O How it arises
O Expressly, by conduct, by necessity
O Three parties
O Principal, agent, third party
O Agent acts for principal in relationship with third party

27. THE ROLE OF AN AGENT
OAgent acts on behalf of another (the Principal)
OMay have authority to bind principal in
contract or simply responsibility to assist
principal to achieve some business objective
OGoverned by common law rules and, in some
cases, by statute
OMolded by both common law and law of equity
OTraditionally distinguished from employment
law

28. NATURE OF
RELATIONSHIP
O Agent is one who is employed to act on behalf of another
O Agent can bind principal
O If done within scope of agent’s authority
O General rules of contract apply to agency relationship
O Capacity of agent
OAgent can be minor and bind a principal if the
principal is an adult

29. AGENCY
CONTRACTUAL RELATIONSHIPS
EXAMPLE:
PRINCIPAL
THIRD
PARTY
AGENT
Authority to Enter into Contract
on Behalf of Principal
(Contract Usually Between
Principal and Agent)
Negotiation
of Contract
on Behalf of
Principal
(Within
Scope of
Authority)
RESULT
PRINCIPAL
THIRD
PARTY
AGENT

30. AGENCY
RIGHTS OF THIRD PARTIES
PRINCIPAL
DISCLOSED PRINCIPAL
UNDISCLOSED PRINCIPAL
AGENT THIRD PARTY
Right of Action
Authority Contract on Behalf
of Principal
PRINCIPAL AGENT THIRD PARTY
Right of Action Against Agent or Principal
Authority Contract on Behalf
of Undisclosed
Principal

31. LEGISLATIVE FRAMEWORK
O Contract management falls under the umbrella of Supply
Chain Management which is regulated, directly and
indirectly, by a plethora of legislation and prescripts. The
following are some of the critical pieces of legislation:
O Constitution of the country;
O Public Finance Management Act (PFMA);
O Preferential Procurement Policy ;
O Preferential Procurement Regulations
O Construction Industry Development Board ;
O State Information Technology Agency
O Access to Information
O Promotion of Administrative Justice
O Prevention and Combating of Corrupt Activities.
O Conflict of Interest 31

32. CONTRACT MANAGEMENT PRESCRIPTS
O The following prescripts have been issued by the National, state,
Provincial Treasuries relating to contract management:
O National Treasury:
O National Treasury Contract Management
Framework; and
O National Treasury Contract Management Guide.
O Provincial Treasury:
O Contract Management Strategy of the State and
Provinces.
O Other prescripts issued periodically that have contract
management implications (circulars, practice notes and instruction
notes).
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33. SUPPLY CHAIN MANAGEMENT VALUE CHAIN
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• Needs
analysis
• Planning &
budgeting
• Specificatio
ns
design/scop
ing
• Bidding
strategy
Pre-
bid
• Invitation to bid
• Evaluation/
• Adjudication
• Award
Bidding
• Contract
management
Post-
award
• Where does contract management fit into the SCM value
chain?

34. CAUSES OF CONTRACT MANAGEMENT FAILIURE
O Poor planning;
O Poor specifications;
O Poor contracting;
O Lack of tools/systems for managing contracts;
O Poor or non-management of contracts and contractors;
O Non-payment or delays in payments;
O Poor or no risk management;
O Poor or no oversight and governance;
O Poor management of price adjustments and variation orders;
O Non-application of penalties on o poor or non-performing
contractors;
O Poor or ineffective document management;
O Lack of skills/inadequate resourcing of contract management units;
O Lack of ethics; and
O Fraud and corruption.
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35. CONTRACT MANAGEMENT PROCESS/ACTIVITIES
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CONTRACT AWARD
FINALISED
CONDUCT POST-
CONTRACT AWARD
NEGOTIATIONS
DRAFT SERVICE LEVEL
AGREEMENT/ FORMAL
CONTRACT
SIGN-OFF SERVICE LEVEL
AGREEMENT/ FORMAL
CONTRACT
COPIES OF SERVICE LEVEL
AGREEMENT/ FORMAL
CONTRACT AVAILED TO
RELEVANT ROLE PLAYERS
ORIGINAL SERVICE LEVEL
AGREEMENT/ FORMAL
CONTRACT PLACED IN
SAFE CUSTODY-
DOCUMENT MANAGEMENT
PLAN FOR MANAGING
CONTRACT (RISK
MANAGEMENT/ CONTRACT
MANAGEMENT TOOL)
MANAGE CONTRACT AND
CONTRACTOR
PERFORMANCE
GOVERNANCE AND
OVERSIGHT
CONTRACT CLOSE-OUT
AND REPORTING

36. CONTRACT MANAGEMENT PROCESS/ACTIVITIES (Cont.)
O Monitoring of contractual performance milestones utilising contract
management tools/systems;
O Provide additional monitoring and support for SMMEs;
O Risk management;
O Price adjustments;
O Managing variations to the contract;
O Managing and monitoring payments;
O Dealing with poor and/or non-performance by contractors;
O Enforcement of the terms and conditions of the contract;
O Applying contractual default penalties;
O Managing cessions of contracts and/or payments;
O Document management; and
O Providing support during litigation.
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37. DEPARTMENTAL REQUIREMENTS FOR EFFECTIVE CONTRACT
MANAGEMENT
O Contract management framework;
O Supporting procedures and protocols;
O Contract management unit;
O Adequate number and skilled staff;
O Contract management systems/tools;
O Contract register;
O Active risk management;
O Support from executive management;
O Support from legal services;
O Effective dispute resolution mechanisms; and
O Effective relationships, internally and externally.
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38. Service Contracts
A contract that directly engages the time and effort of a
contractor to perform an identifiable task, rather than to furnish
an end item or good. Service contracts can be nonpersonal or
personal, professional or nonprofessional.
•Performance-based acquisition is the preferred method for
obtaining services.
•Rely on the private sector for commercial services.
•Do not award a contract to perform inherently governmental
functions

39. Government Contract Life-
Cycle

40. Contract Performance &
Administration

41. Steps in Contract Administration
Planning
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