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What is a Contract, also termed as Agreement

Quite simply, Contract or an Agreement is:

  1. An agreement, based on an intent, between two parties whereby Party 1 supplies goods, performs works or provides services (known as “Consideration”) to Party 2 with obligations clearly stated; and
  2. Party 2 agrees to pay (known also as “Consideration”) Party 1 for the goods, works or services that it receives, with obligations clearly stated.
  3. Obligations of Party 1 and Part 2 are clearly stated.
  4. This agreement has to be recognized by law or else there will be no Contract or the contract will be null and void. (For example a Contract to cause physical/bodily harm to a person or contract to sell illicit drugs are not recognised by law.)
  5. Parties must have the capacity to contract (defined by countries’ civil code).
  6. Individuals entrusted with the responsibility of entering into a Contract from the Client as well as the Contractor must be authorised to do so on behalf of their respective companies. (It thus is important to verify capacity of individuals acting on behalf of companies such as Power of Attorneys.)
  7. Party/parties should not have entered into a Contract under duress or undue influence.

When the above conditions are satisfied, there is said to be a binding (enforceable in law) Contract in existence between the Parties.

Internationally this form of Contract is binding on both parties for a certain period of time e.g. six (6) years following completion. There is another form of Contract known as Seal or Deed where the Contract is binding on both parties for a period of twelve (12) years following completion in some countries. A Contract under seal (like the seal of a Notary) is considered a more formal Contract. Generally, valuable consideration is necessary to make an enforceable Contract but for a Contract under seal, no consideration is necessary. During the early and mid 1900’s and earlier, a seal on a Contract or promise amounted to good consideration for that promise, despite the fact that the promisor puts the seal on the Contract. However in today’s evolved legal environment, intention of the parties is given more importance when it comes to deliberating upon disputes and it makes little if any difference if a Contract was under seal or not. This information is provided for academic interest only as, the laws of the country where a Contract operates should be examined for a fuller understanding.

The Contract or Agreement comes into existence as an end product of the process of Tendering, concluded formally or informally, orally or in writing.

The primary objective in the process of Tendering for Works and Services is to get the best value for money from the overall cost to company point of view. The overall cost could include technical capabilities on offer, completion duration, life cycle cost, commercial/ contractual terms and conditions and any other considerations. Considering these issues, selection of the Contractor should thus be on the basis of technically capable, contractually compliant and lowest quoted price Tender/offer.

In our daily lives, all of us deal with Contracts day-in-day-out, knowingly or unknowingly, formally or informally. However the key to a smooth or successful Contract conclusion and completion is in dealing with issues leading upto its conclusion based on the above principle of best value for money. In the absence of doing so we sometimes might tend to mis-emphasise and mis-construe its so called core principles, with a short term commercial decision or without a “holistic” approach. For example how many times have we awarded a Contract for house construction to the cheapest one instead of to the one who completes it on time however little expensive it might apparently look, in comparison or not awarding to the one who uses good quality products. These are some of the very issues that should merit consideration in the best value for money approach.

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