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Basic Contract Law for successful projects


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The objectives of this seminar were to:-

Enable project professionals to reach contract close quicker with a superior contract in place.

Assist project professionals to interpret and manage contracts with more vigour.

De-mystify legal terminology.

Enable project professionals to brief and constructively challenge their lawyers.

Published in: Business
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Basic Contract Law for successful projects

  1. 1. Basic Contract Law for Successful Projects APM London 11 March 2013Lawyers & Parliamentary Agents
  2. 2. Basic Contract Law for successful projects• Welcome• Protecting your Position Pre-contract• Intellectual Property• Contract Formation and Good Practice• Refreshments• Unfair Contract Terms & Best Endeavours• Public Procurement Law – Rules and Risks
  3. 3. Protecting your Position Pre-contract Huw Morgan, PartnerLawyers & Parliamentary Agents
  4. 4. Protecting your position pre-contract• Confidential information• Contract negotiations• Heads of terms• Letters of intent
  5. 5. Confidential Information• Commercial position• The very existence of a project might be confidential• Feasibility studies and site visits• Correspondence• You cannot consider the possibility of a breach of confidence too early
  6. 6. • Legal Position• The Law recognises a secret!• Confidential information is protected• But what is confidential information?
  7. 7. What is Confidential Information?• Is the information public property?
  8. 8. What is Confidential Information?• Is the information public property?• Has any value been added?
  9. 9. What is Confidential Information• Is the information public property?• Has any value been added?• Was the information transmitted in confidence?
  10. 10. Please vote now using your keypadsWere the technical details of ‘Invisigrip’ described byMr Seager confidential information?1. Yes2. No
  11. 11. • Mr Seager won• Invisigrip details were confidential• The details were not in the public domain and were transmitted in confidence
  12. 12. Please vote now using your keypadsWas the ‘sales information’ used by Mr Fowlerconfidential information?1. Yes2. No
  13. 13. • Mr Fowler won• The sales information was not confidential• The sales information was never treated as confidential or transmitted confidentially
  14. 14. • Practical Protection• Be clear what is confidential and treat it as such• Legal Protection• Consider a confidentiality agreement
  15. 15. Confidentiality Agreement• It does not make all information confidential• Permitted disclosure• Permitted uses• Duration• Termination of the project
  16. 16. Please vote now using your keypadsWhich statement will give you the best protectionduring your pre-contract negotiations?1. Without prejudice2. Subject to approval3. Subject to more complete documentation4. Subject to contract
  17. 17. Heads of Terms• Records the underlying principles of the deal• Cover the key issues • Time • Cost • Quality• Recognises a watershed in the negotiations• Saves time and money in drafting
  18. 18. Binding or Non-binding? “These Heads of Terms are not intended to be legally binding between the parties except as expressly set out in the Heads of Terms”
  19. 19. Heads of Terms• Cons • hostage to fortune • duplication • parties may treat it as a substitute for the contract
  20. 20. Heads of Terms• Pros • record underlying principles of the deal • provides less wriggle room • recognises a watershed in the negotiation • a useful summary of the whole deal
  21. 21. Letters of Intent• Why?• Commercial issues• Pitfalls
  22. 22. Please vote now using your keypadsWhich of these phrases would encourage you tocommit funds to an IT upgrade prior to signing thecontract?1. I may possibly give you the contract2. I instruct you to purchase the IT upgrade and will pay you for it3. I promise to give you the contract
  23. 23. Commercial issues• I, the Customer, will pay you, the Supplier, for Materials up to [financial limit]• If the contract is not signed • I will still pay for the materials • They will become mine • I will not pay for loss of profit
  24. 24. Pitfalls• “I promise to give the Contract”• The Customer may be liable to pay the Supplier for work carried out and loss of profit upon the entire contract if it does not go ahead
  25. 25. Pitfalls• “I may possibly give you the Contract but please go ahead”• The Customer pays for the work carried out but without recourse if performed poorly• The Customer pays upon the basis of “Quantum Meruit” – “what he deserves”
  26. 26. Protecting your position pre-contract• A properly drafted Letter of Intent is itself a contract but limited • In time • In cost • In work/materials/services
  27. 27. Protecting your position pre-contract• Is any information confidential?• Is correspondence subject to contract?• Is the purpose of the Heads of Terms clear?• Is a Letter of Intent needed?
  28. 28. Huw Morgan, 0117 314 5293
  29. 29. Intellectual Property Doug Locke, PartnerLawyers & Parliamentary Agents
  30. 30. Types of right• Trade marks• Copyright• Patents
  31. 31. Trade marksCanberra Harwell
  32. 32. Copyright
  33. 33. PatentsGame playing apparatus comprising sheet material defining aconfined playing area, a plurality of columns of loci delineatedon said playing area, the loci being of such size and spacing asto permit the placing of different portions of the human anatomyon different loci, different groups of loci being of differentcolors, a chance controlled selection device comprising aspinner board bearing indicia designating different group colorsand different ones of said portions of the human anatomy and aspinner or pointer pivotally mounted centrally on the board andadapted to be spun and then allowed to come to rest to selectindicia designating a group color and a portion of the humananatomy.
  34. 34. Please vote now using your keypadsWhich of the following do not exist?1. Moral rights2. Database rights3. Olympic association rights4. Cattle variety rights5. Plant variety rights6. Rights in Peter Pan (that will never expire)
  35. 35. Asserting rights• Deterrent• Reduces uncertainty 8Copyright 8Design right• Registration
  36. 36. Collaborations• Deal with intellectual property in a written agreement• “50/50” ownership• Background and foreground rights• Be specific• Don’t agree to assign/license what you don’t have
  37. 37. Enforcement of rights• Who may enforce?• Who must assist?• Who pays?• Who gets compensation?
  38. 38. Competition law• Intellectual property is “anti-competitive”• Things to avoid: • Price fixing • Dividing up the market
  39. 39. Summary• Clear written agreements• Register trade marks
  40. 40. Doug Locke, 0117 314 5602
  41. 41. Contract Formation and Good Practice Huw MorganLawyers & Parliamentary Agents
  42. 42. Essential ElementsOffer
  43. 43. Offer• Specific• Complete• Capable of acceptance• Contain the key terms of the contact• Non negotiable• Intended to be binding
  44. 44. Invitation to Treat• simply invites other party to make an offer• not binding
  45. 45. Essential ElementsOffer Acceptance
  46. 46. Acceptance• An offer must be accepted without qualification• A counter-offer extinguishes the original offer• Acceptance should be communicated, but sometimes conduct may be considered acceptance
  47. 47. Offer or invitation to treat?The display of goods for sale in shops:
  48. 48. Please vote now using your keypads… The display of goods for sale in shops:1. Offer2. Invitation to treat
  49. 49. Offer or invitation to treat?Vending machine:
  50. 50. Please vote now using your keypads… Vending machine:1. Offer2. Invitation to treat
  51. 51. Essential Elements ConsiderationOffer Acceptance
  52. 52. Essential Elements ConsiderationOffer Intention to create Acceptance legal relations
  53. 53. Offer and AcceptanceBritish Road Services Ltd v Arthur V Crutchley & Co
  54. 54. • British Road Services v Arthur V Crutchley & Co. • BRS collect Whisky in Edinburgh • Delivered to a warehouse in Liverpool • Whisky stolen overnight • BRS reimbursed the owner of the Whisky • Who was liable as between BRS and AVC ?
  55. 55. Offer and Counter Offer• British Road Services v Arthur V Crutchley & Co. • BRS claimed to have sent a Contract to AVC • AVC said they hadn’t received it • BRS presented a delivery note to the warehouse office on arrival • AVC stamped it “received on AVC Conditions” • BRS unloaded the Whisky
  56. 56. Offer and AcceptanceRTS Flexible Systems Limited v Molkerei Alois Müller Gmbh & Co
  57. 57. RTS v Muller• Muller commissioned RTS to build two new production lines• Work started without a signed Contract• Letter of Intent dated 1 March 2005• Letter of Intent expired 27 May 2005• July price agreed at £1,682,000• July MF/1 terms and Schedules almost agreed
  58. 58. • No signed Contract• November 2005 parties fell out• RTS wanted to be paid• Muller counterclaimed for failure of the new production line• Was there a contract and if so on what terms ?
  59. 59. Please vote now using your keypadsWhat was the contractual position between RTS andMuller?1. No contract between them2. Contract on limited terms (i.e. No MF/1 or Schedules)3. Full Contract on MF/1 and Schedules
  60. 60. Reasons• Supreme Court said full M/F Terms• No Contract – unconvincing as a price had been agreed and work carried out• Limited Contract terms – Almost all terms of the MF/1 and Schedules agreed do this didn’t reflect the facts
  61. 61. Reasons• Full Contract on MF/1 and Schedules• All terms of real importance agreed• Counterpart clause “contract not effective until each party has executed a counterpart and exchanged it with the other”• Court found that the parties had waived this restriction by their conduct in carrying out and paying for part of the works
  62. 62. Who won ?• RTS had the benefit of the limitation clause in the MF/1• Muller had the benefit of the technical Schedules which they said RTS had breached• Both parties were in Court for five years before the matter was resolved.
  63. 63. RTS v Muller“The moral of the story is to agree first and to start work later” Lord Clarke
  64. 64. Good Practice• Deed – 12 years liability• Under hand – 6 years liability• Storage• Execution – effective from dating• Commencement of the Services• Effective Date
  65. 65. Contract Amendments• Can you amend a contract in manuscript?
  66. 66. Manuscript amendments
  67. 67. Please vote now using your keypadsIs a contract legally binding if amended in manuscript?1. Yes2. No3. It depends
  68. 68. Manuscript Insertions2.1 The parties agree that the commencement date shall be the date in the AppendixAppendix2.1 – The date shall be ………………………
  69. 69. Huw Morgan, 0117 314 5293
  71. 71. Unfair contract terms & Best endeavours Doug Locke, PartnerLawyers & Parliamentary Agents
  72. 72. Unfair Contract Terms Act (UCTA)• General principle – parties free to contract on any terms• Unfair Contract Terms Act (UCTA) limits a party’s ability to restrict or exclude its liability• No restriction of liability for (i) death or injury resulting from negligence or (ii) fraud
  73. 73. UCTA ProhibitionsUCTA also prohibits:• the restriction of liability caused by negligence unless the term is reasonable• in contracts on a party’s written standard terms, clauses which permit that party to restrict liability for breach of contract unless the term is reasonableness
  74. 74. UCTA Reasonableness TestTo be reasonable, a clause must be:“fair and reasonable having regard to thecircumstances which were, or ought reasonablyto have been, known to or in the contemplation ofthe parties when the contract was made”
  75. 75. UCTA Reasonableness FactorsReasonableness Factors:• Bargaining strength• Opportunity to avoid• Knowledge• Availability of insurance cover
  76. 76. UCTA Consequences• Either valid or struck out – no middle ground• If struck out, normal damages rules apply• Divide up clauses
  77. 77. Frans Maas v Samsung (2004)
  78. 78. Frans Maas v Samsung (2004)• Samsung claimed £2.6 million from Frans – theft of 26,000 mobile phones from Frans’ warehouse• Samsung – theft was an “inside job”• Frans – British International Freight Association (BIFA) standard terms of contract were incorporated• BIFA terms - Frans’ maximum liability based on weight, not value• Frans – BIFA terms capped liability at £25,000• Samsung – Cap on liability was unfair and in breach of UCTA
  79. 79. Please vote now using your keypadsDoes UCTA apply in principle to the clause stating thatFrans should only pay £25,000?1. Yes2. No
  80. 80. Frans Maas v Samsung (2004)• Clause subject to UCTA• Reasons: • Restricts liability in respect of negligence • Restricts liability in respect of breach of contract
  81. 81. Frans Maas v Samsung (2004)Court held:• Theft was an inside job• Frans liable for actions of employees and negligent security• Losses subject to application of limitation clause
  82. 82. Please vote now using your keypadsApplying UCTA, what should Frans pay to Samsung?1. Nothing2. £25,0003. £2,600,0004. None of the above
  83. 83. Frans Maas v Samsung (2004)• Court held that clause was fair and reasonable: • No inequality of bargaining power • Routine term in freight industry • Samsung could have agreed higher limit• Samsung awarded £25,000 – less than 1% of original claim
  84. 84. Yuanda v WW Gear (2010)
  85. 85. Yuanda v WW Gear (2010)• Contract for fitting of curtain walling• Incorporated Gear’s “standard amendments to contract” – minor variations agreed between parties• Clause 9A – if Yuanda commence adjudication then Yuanda would be liable for both parties’ costs irrespective of outcome• Yuanda – 9A in breach of UCTA as: • Contract formed on Gear’s standard terms • Clause an unreasonable restriction• Gear – No breach of UCTA as contract was a negotiated deal and not on Gear’s written standard terms
  86. 86. Please vote now using your keypadsWas the contract on Gear’s written standard terms andso subject to the provisions of UCTA?1. Yes2. No
  87. 87. Yuanda v WW Gear (2010)No – Court held that:• To be standard terms, must be terms that the company uses for all its contracts without alteration• Gear’s standard terms (but not the relevant clause) had been varied by negotiation• No longer standard terms• UCTA did not apply
  88. 88. St Albans v ICL (1995)
  89. 89. St Albans v ICL (1995)• ICL supplied computer system to St Albans Council• Contract negotiated and minor amendments made to ICL’s standard terms• Software faulty and not enough tax collected• St Albans claimed £1 million in damages• ICL standard clause limited liability to £100,000
  90. 90. Please vote now using your keypadsHad the parties contracted on ICL’s written standardterms?1. Yes2. No
  91. 91. St Albans v ICL (1995)• Amendments to ICL’s standard terms only very minor so still contracting on standard terms
  92. 92. Please vote now using your keypadsWas the cap on liability clause fair under UCTA?1. Yes2. No
  93. 93. St Albans v ICL (1995)• Cap on liability clause unfair: • ICL was a large company with substantial insurance • The limitation of £100,000 bore no relation to ICL’s insurance cover of £50 million • ICL was in a strong bargaining position due to urgency • St Albans had not been offered any inducement to accept limitation • St Albans had no opportunity of getting better terms
  94. 94. Enforceability of limits of liability• A clause that imposes a higher limit liability will stand a better chance of being enforceable• A clause that purports to impose a lower limit of liability is less likely to be enforceable• Divide up limitations of liability• Offer alternatives• Is the limit justifiable?• Each contract turns on its facts
  95. 95. Enforceability of limits of liability• Courts consider what exclusions are in the customer’s own terms• Beware: • dealing with smaller customers • dealing with customers who have little choice but to buy from you
  96. 96. Enforceability of limits of liability• Preamble/recital may assist – for example:• “The supplier has obtained insurance cover in respect of its own legal liability for individual claims not exceeding £100,000 per claim. The supplier’s liability is therefore limited to £100,000 and the buyer is responsible for making its own arrangements for the insurance of any excess loss.”
  97. 97. Endeavours• Best endeavours• Reasonable endeavours• All reasonable endeavours
  98. 98. EndeavoursJet2 v Blackpool Airport
  99. 99. Please vote now using your keypads“All reasonable endeavours”?1. More than “reasonable endeavours”, but less than “best endeavours”2. The same as “best endeavours”3. Meaningless
  100. 100. Jet2 v Blackpool Airport“Jet2 and Blackpool Airport will use their bestendeavours to promote Jet2’s low cost servicesfrom Blackpool Airport, and Blackpool Airport willuse all reasonable endeavours to provide a costbase that will facilitate Jet2’s low cost pricing.”
  101. 101. Endeavours• Jet2 operated flights outside Blackpool Airport’s normal hours.• Blackpool Airport made a loss on those flights.• New management arrived at Blackpool Airport. No more out-of-hours flights.
  102. 102. Endeavours• “Jet2 and Blackpool Airport will use their best endeavours to promote Jet2’s low cost services from Blackpool Airport, and Blackpool Airport will use all reasonable endeavours to provide a cost base that will facilitate Jet2’s low cost pricing.”
  103. 103. Please vote now using your keypadsDid Blackpool Airport have to stay open for the out-of-hours flights?1. Yes2. No
  104. 104. Endeavours• “Endeavours” clauses rarely give a clear answer.• If possible, be explicit in advance.
  105. 105. Doug Locke, Partner 0117 314 5602Lawyers & Parliamentary Agents
  106. 106. Public procurement law – rules and risks David Hansom, Partner
  107. 107. Overview• Introduction to procurement in context• What rules apply and when?• What to do if you are unhappy• The future
  108. 108. Introduction to procurement• EU law requires public contracts to be competitively tendered• Public procurement regime applies to all ‘contracting authorities’• Detailed EU rules apply to some purchasing – can be complex and are driven by case law• Pitfalls for the unwary
  109. 109. Introduction to procurement• 3 levels of rules : bigger spend = more detailed • EU treaty principles of equality of treatment, non discrimination and transparency (apply to all) • Authority specific internal purchasing rules (apply to all) • Detailed EU rules (apply to higher value purchases but only to certain services)
  110. 110. Please vote now using your keypadsWhen were the most recent amendments to the publicprocurement rules in the UK?1. 20062. 20083. 2011
  111. 111. Public Contracts Regulations - thresholdsContract type Contract ValueSupplies – the purchase and £173,934 ex VAThiring of goodsServices – the purchase of £173,934 ex VATservices. Not all services covered(Part A / Part B)Works – done for you or to £4,348.350 ex VATspecification Values reset every two years by EU – above effective 1 January 2012
  112. 112. Below threshold or exempt contracts• Limited exemptions to the rules such as • Land purchase or disposal • Research and development contracts• Less onerous rules for “Part B” residual services and below threshold contracts • Catering, education, health and social care contracts are all Part B services
  113. 113. If the EU rules do not apply• Authorities still need to follow internal procurement rules e.g contract up to £25k, seek three bids and choose lowest price?• EU advert needed only if cross border interest• Needs “relevant and proportionate” advertising and then fair and transparent mechanism to appoint bidder
  114. 114. Ways to market- EU rules• Three ways for public sector to buy • Bespoke new procurement process • Set up new framework or call off existing • Buying collaboratively and sharing services
  115. 115. Bespoke procurement• 4 routes – open, restricted, competitive dialogue, negotiated• Open and restricted most common • Similar except Restricted has a pre qualification stage • Straightforward spend, commodities or supplies but no negotiation on contract terms • Government now mandating open for central government• Competitive dialogue • For particularly complex contracts• Negotiated • Effectively closed off
  116. 116. Timescales under the rulesStage Open Restricted Competitive Competitive negotiated dialogue 37 days (30 if 37 days (30 if 37 days (30 ifPQQ None electronic) & electronic) & electronic) urgency grounds urgency grounds 52 days (45 if 40 days (35 ifTender No statutory No statutory electronic) electronic) & urgency grounds minimum minimum 10 days (15 if 10 days (15 if post), 10 days (15 if post), 10 days (15 ifStandstill post), extended extended if ends extended if ends post), extended if if ends on non on non working on non working ends on non working day day day working day All routes - contract award notice within 48 days of award
  117. 117. Bespoke new procurement• Framework agreements under any route• Minimum timescales to reply to advert, complete tender• Evaluation criteria must be clear and transparent• Minimum 10 day “standstill” period after choosing winner and notifying losing bidders• Minimum levels of information must be provided to all unsuccessful bidders• You can challenge breach of rules
  118. 118. Frameworks and shared services• Framework is a contract setting up the basic terms with one or more suppliers with no guarantee of minimum work levels• Direct call off or mini competition• Single or multiple supplier• Can use existing frameworks instead of new process• Common issues • Prices and contractors are fixed for term – 4 years max • Limited scope to change terms and conditions • Is the authority entitled to use it?
  119. 119. Practical tips for successful bidding• Do • Understand the process, timings and evaluation • Be clear on minimum hurdles and requirements to make sure you can meet them • Check and double check your responses • Check credit rating etc before you bid and get them amended if wrong
  120. 120. Challenging procurement decisions• Challenges and complaints about procurement increasing• Economic crisis means fewer new opportunities• Considerable competition for those remaining• Frameworks and long term contracts cause exclusion from market• Often failure to win on retender can mean business closure
  121. 121. Challenging procurement decisions• There are two legal routes to challenge • Under the Public Contracts Regulations 2006 – bidders only and strict time limits • Judicial review – wider reach but remedy of last resort – full three months to bring• Breach of implied contract?• Also complaints to Cabinet Office/ European Commission etc – no time limits and free!
  122. 122. Please vote now using your keypadsWhat remedies do you have as an unhappy losingbidder?1. Damages2. Automatic suspension before award, damages before and after award3. Civil Financial Penalties4. All of the above
  123. 123. Remedies• Under new rules • Before contract award – injunctive proceedings, automatic suspension of award decision, damages • After award – cancellation, damages, unlimited Civil Financial Penalty (fines)
  124. 124. Remedies available• For Part B services or smaller value procurements • Damages claims, bad publicity, • Judicial review - court could stop process• For EU procurements • Before award – all above plus suspension of award and fines • Post award – all above plus cancelled contract/shortening and fines
  125. 125. Time limits to challengeType of Old rules (claim pre New rules (claim fromclaim 30/09/11) 1/10/11)Cancellation 6 months from entry of contract: Provisions unamended VEAT – 10 days CAN – 30 days if no OJEU Telling all bidders – 30 days (promptly) and within 3 months of 30 days from the date of bidderDamages bidder date of knowledge knowledge
  126. 126. Automatic suspension• Suspension of contract award procedure• Triggered by standstill letter• Must not award if claim form issued in respect of award decision – automatically ineffective if so• Must apply to Court to have suspension lifted• Or will stay in place until first hearing
  127. 127. Automatic suspension• BUT – Court taking cautious approach• Suspension only upheld if challenger can meet standard test for injunction under American Cyanamid principles ie • Strong, not just arguable case • Damages as adequate remedy • Balance of convenience • Status quo
  128. 128. Automatic suspension• MOST cases so far have approached in this way • Indigo v Colchester College • Exel Europe v University Hospitals Coventry • Halo Trust v SOS International Development • Only different case in Northern Ireland • First4Skills v NI Dept for Education & Learning refusal to lift suspension to ensure continuity of similar claims
  129. 129. What to do if you are unhappy• Do • Engage with the authority during the process • Interrogate scoring and evaluation criteria immediately – are they clear on hurdles and minimum requirements? • Seek information where you are entitled to it • Raise concerns quickly – very strict time limits to challenge • Seek advice if you want to challenge• Do not • Make vexatious claims – risk of costs
  130. 130. Hot topics and cases• Some key trends in case law • Transparency • Mears v Leeds City Council – must disclose all evaluation criteria sub criteria and weightings • Traffic Signs v Dept for Regional Development (NI) – relevance and proportionality of criteria – logic
  131. 131. Managing when things go wrong• Apcoa v Westminster City Council – authority can always terminate procurement process. Should be clear in tender documents• Mermec v Network Rail Infrastructure - time limits will be strictly interpreted
  132. 132. Future reforms• Reforms to the procurement rules? • More flexibility to negotiate • Quicker processes • Part A/B services distinction abolished • SMEs and new entrants • UK position – more freedom to negotiate, exemption for 3 years for new start up social enterprises • New directive drafted – 2014 in force?
  133. 133. Summary• Key area of current Government focus• Understanding procurement is key to access pubic sector contracts• Use the rules to help you understand procurements and be quick to follow up if not happy• More changes coming soon• Training for teams
  134. 134. David Hansom, Partner 0207 665 0808Lawyers & Parliamentary Agents
  135. 135. Basic Contract Law for Successful Projects APM London