30 October 2008 | Features
We asked legal experts to define the most contested or confusing legal terms in procurement. Here's what they said
AGENT:
In ordinary business usage, "agent" describes any situation in which one person is the public face of another. For instance your expert in Beijing might be called your "purchasing agent" there, not to say anything about your legal relationship but just to say that they act for you. But in UK law "agent" has a precise meaning, creating real risk. Your agent's acts are, in law, your acts, with the advantage that they must (theoretically) do what you say but the disadvantage that you are fully liable to third parties for those acts. A word to use carefully.
Dick Jennings, solicitor, RDY Jennings & Co
CHANGE OF CONTROL:
A "change of control" provision offers protection if ownership of the other party to a contract is transferred. It will often give a party the right to terminate the agreement or renegotiate terms; therefore what constitutes "control" to give effect to this right needs to be carefully defined. This type of provision will be important to buyers if ownership of a supplier is transferred, particularly if the new controlling party is a direct competitor, changes the way business is conducted, or if personality clashes prevent the parties working effectively together. Buyers should note the provisions could also apply in the event that their own organisation changes hands.
Alicia Young, partner, Hugh James
CONSEQUENTIAL LOSS:
This is a term covering types of contractual loss. By using this term, parties try to exclude liability for certain losses under contracts (such as loss of profit). But the courts attach different meaning to the term than businesses do, which can result in some losses being claimable under the contract that the party intended to exclude. It is important that parties are specific when using the term "consequential loss" and expressly state which losses come under the exclusion or limitation.
Emma Wright, associate, Walker Morris
CONSIDERATION:
This is the value paid for a promise and is a central concept in contract law. For example, if you sign a contract with someone to buy his house for an amount of money, his consideration is the house, which he promises to give to you. Your consideration is the money that you pay for the house. A contract saying that he would give you his house for nothing would not be valid by itself because you aren't giving him any consideration. In basic terms, the offeree must give something back to the offeror in return for his promise.
Paul Carter Hemlin, founder of consultancy Contract Management Direct
CONTRACT AWARD:
Be careful when you hear about public contracts being awarded. In public procurement, "contract award" is the point when the public law decision is made to proceed with a particular contractor's bid. It will trigger the duty to tell the unsuccessful bidders about the decision (the "Alcatel" notice), giving them an opportunity to challenge the decision before the contract is signed. Contract award is not, therefore, the time when the contract is entered. That follows the compulsory standstill period triggered by the contract award decision. (See "standstill period").
Jeremy Swain, senior associate, Denton Wilde Sapte LLP
CRITERIA:
Buyers should be aware that in most public procurements for non-commodity items there will be a two-phase procedure with two sets of criteria. Selection criteria are used to evaluate candidates in the first round response. Those selected are invited to tender in a second round. Award criteria are then used to score the tenders and decide the winner. To stay on the right side of the law the two sets of criteria must not be confused. "Experience" criteria can also be a real problem. In general, "experience" should only be a criterion in the "selection" phase. If you include it as an award criterion, you might be breaking public procurement law.
Mark Bassett, associate, Denton Wilde Sapte LLP
FORCE MAJEURE:
A "force majeure" (superior force) provision usually provides that if a party does not perform an obligation under the contract (for example, delivery of goods) for reasons outside that party's control (such as war or natural disaster), the other party will not make that party liable for non-performance. There is no hard and fast rule about what constitutes "force majeure". It is essential therefore that the meaning is fully defined in the contract and that the defaulting party is required to mitigate any effects. More often than not a force majeure provision will allow the parties to terminate the agreement if the event continues for a specified period.
Alicia Young, partner, Hugh James
INDEMNITY:
This is an extension of liability. Without an indemnity, if you breach the contract you are normally liable to pay damages for the reasonably foreseeable loss of the other party. An indemnity tries to catch all loss, not just reasonably foreseeable losses. It is great to get an indemnity but you should avoid giving one to another party, as it will increase what you are liable for. Indemnities often prolong negotiations because a supplier will not want to agree to greater liability. It is best then only to ask for indemnities for specific focused issues.
Kirsten Whitfield, associate, Wragge & Co LLP
PARTNERSHIP:
Buyers often want a co-operative relationship with suppliers and talk of "partnering" and "partnership sourcing". But Section 1 of the Partnership Act 1890 says: "Partnership is the relation which subsists between persons carrying on a business in common with a view of profit" - which two companies "partnering" in the same supply chain are certainly doing in a sense. However, under Section 9 of the Act every "partner" is fully liable for the joint business. If your supplier goes bust this could lead to a very difficult conversation with its liquidator as to why your company shouldn't settle its bills. So best use the term cautiously in public.
Dick Jennings, solicitor, RDY Jennings & Co
REASONABLE:
The courts decide what is reasonable and this changes in line with current "trends" and precedents in similar cases. Although waiting weeks for a document to be delivered might have been reasonable 150 years ago, it would not be today. What is reasonable in the context of the buyer-supplier relationship will normally be assessed objectively. But if they have worked together for years on the same terms with mutual agreement, this could be taken into account (for example in J Spurling Ltd v Bradshaw where there was a series of transactions, it was held to be reasonable that the same terms would apply to all further contracts).
Alan Ma, partner, Maxwell Alves Solicitors
STANDSTILL PERIOD:
This is a relatively new requirement that buyers often fail to understand or take account of. It requires contracting authorities to allow at least 10 calendar days between the decision to award a contract or conclude a framework agreement and the date on which they propose to enter into that contract. A standstill period begins with the dispatch of the "Alcatel" notice and allows bidders to challenge award decisions before the contract has been signed. During this time possible remedies include damages, setting aside the award decision or interim measures such as the correction of alleged infringements. After a contract is signed, the only redress available is damages.
Ohad Soudry, senior associate, Hammonds LLP
SUBJECT TO CONTRACT:
This term on a document means it is not legally binding and has no legal force. It can be used when pre-contract correspondence or a draft agreement is sent to another party. If it were omitted and the document amounted to an "offer" in law, there is a risk the other party might "accept" the offer and there would then be a legally binding agreement. By adding "subject to contract" that risk is removed. It also confirms the parties intend to agree a contract but does not imply any legally effective commitment to enter into such a contract.
Susan Singleton, solicitor, Singletons
THRESHOLD:
It is tempting to think that you only need to worry about public procurement law if you are at or over the value threshold. It follows that as a public buyer you can mistakenly believe that below threshold you are free to do as you wish. This broad division is too simple. European case law is clear that even below the threshold a suitable degree of publicity is necessary, taking into account the value of the contract and its potential interest to others. Except for the most modest contracts, as a public buyer you cannot escape the long arm of public procurement law simply by being below the threshold.
Jeremy Swain, senior associate, Denton Wilde Sapte LLP
TIME IS OF THE ESSENCE:
This means a contractual obligation must be performed on time. It is used in contracts to ensure time is an important obligation. If the contract is silent then in most cases the obligation on the supplier is to aim to be within a reasonable time of any agreed date. If time is of the essence and the supplier delivers goods later than the date stated in the agreement, the other party is entitled to the remedies in the agreement. This may include damages or even termination of the agreement.
Susan Singleton, solicitor, Singletons
TRANSPARENCY:
This is an overriding obligation that applies to procurements by public authorities. It is a legal requirement established by the Public Contracts Regulations 2006 and its breach entitles tenderers to sue for damages or prevent the award of the contract. Ironically, the precise meaning of "transparency" is unclear. Failing to disclose tender criteria or applying new criteria in reaching a decision are established breaches. But the extent to which errors or inaccuracies will fall within the concept is yet to be tested. Claims must be made quickly as a three-month cut-off period applies from the date of breach.
Aidan Steensma, solicitor, CMS Cameron McKenna
WARRANTY:
A warranty is a contractual commitment. In its purest legal sense, it is a term of the contract, which if breached, will allow a claim for damages but not termination. But the word is commonly misused. In many contracts it is used when the parties intend to be able to terminate the contract, not just claim damages, if that "warranty" is breached (for example, where you have "warranty services" during a "warranty period"). A well-drafted contract will make it clear exactly what the consequences and remedies are for breaching a warranty.
Kirsten Whitfield, associate, Wragge & Co
Click here for part two of the legal glossary
