5 February 2009
After the popularity of the first SM legal glossary, we went back to the experts and asked them to add more legal procurement terms. This is what they came up with
Competitive dialogue: This is a relatively new procedure, which not all public sector buyers may be familiar with. It should not be confused with the negotiated procedure. Be aware that it may only be used for "particularly complex contracts" where the buyer considers that the open or restricted procedures would not allow the award of the deal. The reasons for its use must be recorded in writing. It allows negotiations to take place, but only during a concentrated phase of the procedure. If you negotiate essential terms of the contract with the preferred bidder after the close of the dialogue, you may be subject to a legal challenge.
Ohad Soudry, senior associate, Hammonds
Assignment: This is the transfer of an obligation by one person (the assignor) to another (the assignee), getting them to perform the action on your behalf. Usually if a supplier seeks to assign some of its rights and obligations it will need to seek the permission of the purchaser (the obligor). An agreement must show intent to transfer rights and the rights assigned must be certain. The assignor remains liable for the original obligation in its contract with the obligor unless there is an agreement in their contract to the contrary. [In contract law, the doctrine of privity states that only the parties to a contract have the right to sue for a breach.]
Paul Carter Hemlin, founder of consultancy Contract Management Direct
Comfort letter: Arguably a most mis-named document. It would invariably not be expressly called a "comfort letter". Indeed, the term has no single, specific legal meaning. Broadly, it is written assurance in a form that is intended to provide "comfort" to the recipient. An example is a letter from a seller's parent company or bank, intended to reassure the buyer about the seller's capacity or desire to perform its duties. Depending on the drafting, however, it may provide no legal protection for the recipient: where's the "comfort" in that?
Jeremy Swain, senior associate, Denton Wilde Sapte
Equal treatment: In addition to acting with
transparency, a contracting authority's other principal duty when procuring contracts for goods, works or services is to treat bidders equally, objectively and in a non-discriminatory manner. For example, one bidder should not be given a higher mark than another for a particular criterion if their attributes were the same. More obviously relevant to the origins of the rules: authorities should not discriminate on the basis of where a bidder is from. Unequal treatment entitles an aggrieved bidder to sue for damages or delay (if not prevent) the conclusion of the contract.
Rupert Choat, partner and solicitor advocate, CMS Cameron McKenna
Deed: A deed is a formal legal document "executed under seal" or executed in a particular way. It must either bear the company seal or be expressed to be a deed and signed as one. For deeds entered into before 6 April 2008 two directors' signatures were required or that of a director and company secretary. The law has changed and now only one director's signature is needed as long as it is witnessed, although the other route still remains valid. When signed by an individual, such as a sole trader who is not a registered company, a deed is only valid where the individual's signature is witnessed. Deeds do not require "consideration" and their limitation period is 12 years.
Susan Singleton, solicitor, Singletons
Expert determination: This is a form of dispute resolution in which parties to a dispute agree to let a suitably qualified third party decide. Usually the parties' agreement to expert determination is in the contract between them, although such an agreement can be concluded at any time. The parties can choose the qualifications which the expert should have to be able to decide the dispute. They should also specify whether the expert's decision is just a preliminary assessment in a multi-stage dispute resolution process. If the decision is final there is only a limited right of appeal.
Zara Skelton, senior associate, Denton Wilde Sapte
Jurisdiction: This is the power of a particular court to hear a claim. When a court has "exclusive" jurisdiction only that court can hear it. Commercial contracts commonly include exclusive jurisdiction clauses. When there is more than one court that can hear a matter they have "concurrent" jurisdiction. With a jurisdiction clause you can, if you wish, exclude alternative places for litigation, which can be important if you don't want to find your dispute being heard in a foreign court. If you would rather refer disputes to arbitration than to court - it will probably cost you more, but will be private - you could choose to include an arbitration clause instead.
Mark Bassett, associate, Denton Wilde Sapte
Letters of intent: Before a formal contract is entered into or can legally apply, parties often enter into letters of intent. The problem is that it can cause confusion as it comprises no more than the name suggests - for example, statements of the parties' intentions. A letter of intent imposes binding obligations on its signatories when it can be evidenced that it intends to create a legal relationship and that it is more than a bare agreement to negotiate in good faith. The extent of its legal effect is largely dependent on the precise wording used.
Alan Ma, partner, Maxwell Alves Solicitors
Limitation of liability: This is one of the most important clauses in a contract. It limits a party's liability for loss suffered by another party, whether caused by negligence, breach of contract or other legal duty. This is achieved by imposing a cap on that amount and excluding certain types of loss (for example, indirect loss or loss of profits). Limitation of liability clauses are subject to a test of reasonableness. Therefore, any limit should be a sensible assessment of the potential loss and accurately reflect the resources (including any insurance cover) available to meet such liability.
Belinda Doshi, partner, Field Fisher Waterhouse
Manifest error: Even if a public authority tenders with equal treatment (see 'equal treatment') and transparency (Feature, 30 October), a challenge to its contract award decision will still succeed where it commits a "manifest error" as to how it assessed the bids. It is given a "margin of appreciation" and the error must be one that is easily perceived. In one case an authority incorrectly tendered for places on a framework by comparing the overheads and profit that bidders would add to the cost of carrying out any call-off contract on the manifestly erroneous assumption that construction costs would be the same whoever did the work.
Rupert Choat, partner and solicitor advocate at CMS Cameron McKenna
Liquidated damages: This term is commonly used to describe a pre-agreed amount of damages payable by a party, should it commit a specified breach of contract. Conversely, the term 'unliquidated damages' is commonly used to mean damages which are not agreed in advance,eg, those which the courts might award. The liquidated damages specified in the contract must be a genuine pre-estimate of the loss that would result from the breach. If it is not a genuine pre-estimate, it will referred to as a 'penalty' and not enforceable in court (see below).
Erica Lynam, solicitor, Wragge & Co
Penalty: Because courts won't enforce most contract promises (see 'specific performance') purchasers often need to create a big stick of their own. An obligation of the supplier to pay large sums on late or faulty performance does nicely. The temptation is to call that a 'penalty clause' since, well, that's the whole point. Don't! Courts will only enforce such a clause if it imposes a reasonable pre-estimate of the loss that you'd suffer from non-performance. To them, 'penalty' means anything greedier. And the people with funny wigs on reckon only they have the right to smite people. So a 'penalty clause' is automatically unenforceable.
Dick Jennings, solicitor, RDY Jennings & Co
Novation: This is the substitution of a new contract for one already existing. The new contract may be between the same parties or it may involve the introduction of a new party. If A owes B £50 and B owes C £50, novation would occur if all three agree that the debts would be extinguished if A pays C a new debt of £50. A novation also takes place when the original parties continue their obligation to one another, but a new agreement is substituted for an old one.
Paul Carter Hemlin, founder of consultancy Contract Management Direct
Time at large: Time becomes large when the obligation to complete within the specified time of a contract is lost. The phrase seems to suggest that a supplier has as much time as he wants to finish the works but this is not the case. Instead, the obligation becomes to complete within a reasonable time limit. When time becomes large the buyer's right to deduct liquidated damages for late completion is lost. However, the buyer can sue for general or unliquidated damages for late completion taking into consideration the supplier's entitlement to a reasonable time.
Alan Ma, partner, Maxwell Alves Solicitors
Supply chain rights: This clause is essential if the identity of the sub-contractor is important for the successful delivery of the services. It allows a customer to retain control over the supply chain by restricting the contractor's ability to appoint sub-contractors to carry out its contractual obligations. This may amount to a complete prohibition on the contractor's ability to sub-contract, a partial restriction to pre-identified entities or a requirement to obtain the customer's prior consent. The contract may also specify the grounds on which the customer may withhold its consent and any material terms to be included in the sub-contracts.
Michelle Levin, associate, Field Fisher Waterhouse
Specific performance: Everyone told you contracts were legally enforceable. They were lying. Courts hate enforcing contracts. They prefer allowing them to be breached, then awarding damages for the breach. But damages are a poor substitute, often a useless one. Where a court does order someone to do something to perform contractually it is usually an order of specific performance. But that is an equitable remedy only, not available where damages would do instead, nor to enforce personal service by someone, nor where constant supervision would be needed. Not, in other words, for just the promises typically at the heart of long-term procurement contracts.
Dick Jennings, solicitor, RDY Jennings & Co
Side letter: A side letter is a simple and effective way of amending an agreement after it has been signed. They are also used where parties do not want a particular aspect of a deal to appear in the main agreement. Side letters can be legally binding upon the signatories. Therefore they are frequently used to alter standard terms and conditions or to record minor amendments to a prior agreement. To avoid any doubt, side letters should refer to the original agreement (preferably to the relevant clause which is to be changed), state what changes have been agreed, when the changes will take effect and must be signed by both parties. As a practical point, it is a good idea to store the side letter alongside the original agreement so it is not forgotten about in the future.
Richard Palmi, trainee solicitor, Wragge & Co
Quantum meruit: Quantum meruit is a legal principle which enables the provider of goods or services to recover fees for the provisions of those services, meaning literally "as much as he has deserved". However it will not necessarily enable those working "subject to contract" or at their own risk to recover fees. It can be used where the contract is silent about the amount to be paid. It has also been applied in relation to some letters of intent and can enable a supplier where there is no contract to obtain "restitution" - payment for work done but only where certain stringent conditions are made and the buyer benefits from the work.
Susan Singleton, solicitor, Singletons
