The Concept of the Battle of the Forms and How to Resolve It - Case Study Example

Etihad Airways Ground Handling Agreement: Developing Contracts in Procurement and Supply Name Institution Abstract This report presents an assessment of the Etihad Airway’s “Standard Ground Handling Agreement” that form a terms of agreement between Etihad Airlines and the Handling Company. The terms and conditions ensure management of the risks, such as that of increased costs by restricting the money it reimburses to the Handling Company and possibilities of additional charges. The contract also ensures compliance with ethical standards, by preventing criminal activities, such as bribery and corruption. When the “the battle of the forms” arises while making a contract with a cargo-handling company, I would combine the use of the ‘last shot rule and the “Knock-out Rule. Etihad combines several monitoring methods effectively to ensure that the cargo handling company achieves the contract outcomes. These include the KPIs, such as timeliness of deliveries, Contract-specific audits, and lastly the Contract reports. Etihad’s strategy for managing costs is, however, too restrictive and does not address the changing customer needs through ensuring continuous improvement of the cargo handling processes. It lacks a customer-related factor. The contract also specifically centres on ensuring timeliness rather than extension of time to avoid delayed flights (Paragraph 3.1). The contract’s ethical guidelines are also not comprehensive enough as they only seek to address the issue of corruption, while forgetting to address other issues related to cargo handling procedures such as preventing detrimental social and environmental impacts as well as modern slavery (Paragraph 11.1). It is recommended that Etihad adopt a customer-service-related measure for cost management in to ensure that the Handling Company’s logistics is customer-focused. The contract’s ethical guidelines should also address all issues related to cargo handling procedures such as social, economic, and environmental concerns. Table of Contents Abstract 2 Table of Contents 3 Introduction 4 1. Terms and conditions and management of the risks of: 4 1.1 Increased costs 4 1.2 Poor quality 6 1.3 Extension of time 8 1.4 Unethical practice 8 (2) The concept of the “battle of the forms” and how to resolve it 9 (3) How the Terms and Conditions ensure monitoring and management of performance measures 12 3.1 Key performance indicators 12 3.2 Contract-specific audits 13 3.3 Contract reports 14 Conclusion 14 Bibliography 16 Introduction A contract is essentially a keystone to Etihad Airways’ business transaction. It enables the company to achieve sufficient governance structures as well as to uphold transparency by defining the contractual relationships and risk management measures it expects the contractor to perform. Additionally, it specifies quality standards, specifies the prices and the services and products to be provided. Additionally, it specifies certain conditions linked to the services and products while seeking to reduce exposure to risks. This report presents an assessment of the Etihad Airway’s “Standard Ground Handling Agreement” that forms a terms of agreement between Etihad Airlines and the Handling Company. 1. Terms and conditions and management of the risks of: 1.1 Increased costs The link between the expenses the handling company accrues and the services it provides to Etihad has been made intuitively. With such a structured model for addressing additional charges that the contracted Cargo Handler is likely to make to Etihad, the Cargo Handler is left to efficiently address costs of the services it provides. For instance, The Cargo Handler has to use lean strategies to cut cost, as any extra charges is not likely to be reimbursed by Etihad. For instance, Paragraph 2.1 requires that Etihad will not pay additional charges from the Handling Company, specifically for cargo consumables such as pallet consumables like spreader boards, pallet plastic and wooden skids. Paragraph 2.2 deals with additional charges for “IATA IMP messages, Etihad-specified data capture” Paragraph 2.3 seeks to minimise additional costs for services provided at night or during the weekends or public holidays. Paragraph 2.4 seeks to minimise extra charges for extra manpower or overtime for any services that the Cargo Handler delays Therefore, it is perceivable that rationale of cost management is to address the affected costs areas, although dependent on the decisions, challenges, and environment that the Handling Company is supposed to operate in while delivering its services to Etihad. At any rate, the major problem in the contract’s logistics costing is that it lacks a customer-related factor that influences the costs of the services. Rather, it focuses too extensively on costs associated with the services, time, environment of operation, equipment, and challenges, while overlooking the customer-related costs. Such a model would make the Cargo Handler to lean towards minimizing costs rather than being a customer-centred contractor. This is likely to lead to a greater rate of annoyed customers. It is recommended that Etihad adopt a customer-service-related measure for cost management in its logistics. A preferable model includes adopting a straight-forward cost calculation that is rooted in the method of dividing logistics activities while excluding customer-service-related costs that the logistic activities indirectly influence (Ellstrom et al, 2007). Etihad attempted to address this issue in Paragraph 6.1, where it specifies that any disbursements that Cargo Handler makes on behalf of Etihad will be reimbursed at the cost price. However, Etihad restrains the customer-related activities of the Cargo Handler, as it expects that reimbursement will only be made when the activities are as a result of its written instructions. 1.2 Poor quality Etihad focuses its management strategies on addressing the changing customer needs through ensuring continuous improvement of the cargo handling processes. Te objective is to realise an enriched quality concept that brings about an integrative element throughout the activities that the Cargo Handler deals with. Within this context, it is healthy to argue that Etihad is convinced that the processes of procuring and managing material resources play an important role in promoting quality, given that the quality of the products and serviced that Cargo Handler supplies ultimately decides whether Etihad’s reputation of quality is sustained. It is for this reason that the Terms and Conditions of the contract include some aspects of certification standards. For instance, Paragraph 5.4 requires that the Carrier be IOSA certified and that the Handling Company has to offer services subject to demands of the certification. The certification demands that organization attains sustainable success through the implementation of a quality management system intended to continually improve performance, by considering critical quality standards. At any rate, the Contract stills plays a central role in ensuring proficient implementation of the procurement processes and managing material resources, as it clearly defines the rationale of the processes, determines the manner in which each activity can be attained in each particular sub-processes, such as Paragraph 5.2, which demands that the Handling Company should train its personnel on Etihad’s specific cargo handling provisions, procedures and processes, while including any mandatory issues needed for developing the product and services. Beyond this, the contract also identifies and assesses the benefits in the cargo handling activities. Therefore, basing on a systemic approach, it could be argued that the procurement process seeks to ensure there is a balance between the material resources and the needs available to ensure that the Cargo Handler operates efficiently and effectively. Due to this, the procurement and service management satisfies several conditions such as, ensuring that all cargo-handling services meet the specified supply requirements. The cargo handling services are provided in the requisite quality and at the right time, subject to demands by Etihad Airways. For instances, Paragraph 5.1 requires that the Cargo Handler carries out the services in compliance with the airline’s operating instructions. In return, Etihad provides it entire manuals to the Cargo Handler with the appropriate operating instructions. Accordingly, the Cargo Handler performs all services in conformity with a jointly contracted Service Level Agreement. In return, Etihad assess and evaluates the cargo handling process, as showed in Paragraph 5.5, which requires that the contracted Cargo Handler demonstrates that it operates an equipment preventative maintenance programme and that Etihad audits the program whenever necessary. At the end of its, the focus is on ensuring customer satisfaction, as ultimately reinforced by Paragraph 5.8, which demands that the Cargo Handler protects, controls, services as well as reports on Etihad’s specific equipment needed for servicing its customers such as specialized ULD, pallet plastic, Cool blankets, straps, and tie-down rings, Overall, it could be argued that for Etihad to ensure that it realizes a competitive advantage, its procedures of procuring and managing material resources are undertaken in compliance with the principles of the total quality management, provision of the cargo handling services required, at the right time, quantity, quality, and at the lowest possible price. 1.3 Extension of time The contract specifically centres on ensuring timeliness rather than extension of time to avoid delayed flights. Indeed, Paragraph 3.1 stresses that when the flight arrives according to schedule, the Cargo Handler has to ensure that it completes it to ensure that the departure schedule is complied with. In case of delayed flight, Paragraph 3.2 requires that the Cargo Handler ensures that in spite of the time of the time the aircraft arrives, the Cargo Handler completes the service in correspondence with the flight’s departure schedule. Hence, it is clear that Etihad’s avoidance of extension of time in preference to timely completion of the services is its key criterion of for ensuring success to its customers, who value airlines that stick to schedule. Such a disciplined management endeavour is required to assist in controlling costs and quality of Etihad’s services. This is tantamount to arguing that the Etihad’s customer’s objectives are achieved using management efforts that identify the control of time, quality, and cost (Bowen & Hall, 2002). 1.4 Unethical practice The contract is concerned with preventing criminal activities. For instance, Paragraph 11.1 requires that contracted Cargo Handler should not provide or ask for any tip, gift, hand-out or any other consideration of reward or money relating to any service with the Carrier. The contract is intended to ensure that the Etihad works in conjunction with the suppliers in a way that ensure efficient governance of procurement with the outcome of forming an environment that does not tolerate criminal conduct, such as bribery and corruption. At any rate, the contract’s ethical guidelines are not comprehensive enough as they only seek to address the issue of corruption, while forgetting to address other issues related to cargo handling procedures such as preventing detrimental social and environmental impacts as well as modern slavery. It also fails to ensure that the contracted Cargo Handler complies with the labour conditions or safeguards human rights. It should embrace an ethical management approach whose bigger picture that captures all the relevant stakeholders’ environmental, social, and economic performance (Chartered Institute of Purchasing & Supply 2013). (2) The concept of the “battle of the forms” and how to resolve it The concept of battle of the forms comes about when two parties negotiate the terms of a contract, where each party wishes to contract based on its own terms, as indicated in its ‘terms and conditions’ (Ruhl, 2003). For instance, the idea of the battle of the forms would arise when Etihad offers to buy services from a cargo handling company on its standard terms, while the cargo handling company also maintain it would accept the offer based on its own standard terms. For instance, once I make offer (on behalf of Etihad) in the form of terms of contract form, the cargo handling responds with its own terms of contract form. In such situations, as well as at the common law as demonstrated in the case law of Butler Machine Tool Co., Ltd. v. Ex-Cell-O Corp. (England) Ltd, such a discrepancy between the two conflicting contractual forms prevent the offeree's (in the case the cargo-handling company, from accepting the offer. At such a situation, there would be contract – as the elements of ‘offer’ and ‘acceptance’ of the contractual terms are not satisfied (Magmus, 2007). I would ensure that the agreement is carried out under my own terms by “firing the last shot", a concept that denotes that the last party puts forward its terms and conditions that the cargo handling company does not openly reject. According to Ruhl (2003), the ‘last-shot rule’ is a principle traditionally practiced under the common law that requires that a contract would not exist provided that ‘offer and acceptance’ elements are not fulfilled. The use of the rule in the case of Etihad is since the country’s courts handle the issue of ‘contract’ under the general rules of offer and acceptance, where a contract becomes legally enforceable once the terms of the acceptance match precisely to the “terms of the offer.” Still, at the common law, an acceptance that does not conform to the terms of the offer would be viewed as a rejection of the offer and would be perceived to be a counteroffer (DiMatteo, 2005). Under this scenario, when the cargo handling company presents its standard contract terms that are in conflict with that of Etihad, the company would be treated to have rejected Etihad’s offer. At any rate, the rule of ‘offer and acceptance’ has some exceptions. For instance, “An ambiguous or meaningless would be ignored, while a word implied by law would be allowed. At the common law, as indicated in the case law of Butler Machine Tool Co., Ltd. v. Ex-Cell-O Corp. (England), Ltd, acceptance of the offer would be expressed absolutely by the words of acceptance or absolutely through a conduct. Therefore, when it comes to the ‘battle of the forms’ the rule would often lead in the creation of the contract through conduct, where Etihad would make an offer that the cargo handling company rejects due to its own conditions. However, when the company eventually delivers the services, delivery of the goods to Etihad by cargo-handling company is tantamount to acceptance of the offer made by Etihad through a conduct. Based on the ‘last shot rule,’ the acceptance would not necessarily have to correspond to the wordings of the offer precisely. I will submit my purchase order along with the full payment alongside my own terms and conditions, containing a prevailing clause, to out rule the cargo handling company’s likely counteroffer with its own terms of contract. Put differently, the last shot rule suggest that the last contractual form sent ahead of offeree’s performance becomes the governing document. I will incorporate a ‘prevail clause’ in the standard terms of the purchase order. The clause would declare that Etihad’s standard terms must form part of the contract and that any terms or conditions made by cargo handling company must rely on Etihad’s terms and conditions. In which case, Etihad’s standard terms are to prevail during the contract. When the ‘last shot rule’ proves ineffective due to the cargo handling company’s persistence, I would resort to the “Knock-out Rule,” which is a principle intended to address the complexities of the ‘battle of form’s.’ It provides that a contract would still be legally enforceable despite the differing general terms and conditions presented by the offerer and the offeree – or when the offer and acceptance to not match precisely (Ruhl, 2003). At this rate, the terms or words that differ get to knock each other out and instead become replaced by the existing rules of the international commercial law, in this case the International Institute for the Unification of Private Law ("UNIDROIT") Principles of International Commercial Contracts (1994) (Ruhl, 2003). The UNIDROIT Principles seek to tackle the issue of the battle of the forms, specifically Article 2.22, which requires that when contracting parties to a contract use standard terms that conflict, a contract would be concluded based on “the consented terms as well as any standard terms that are common in substance,” except for when one of the parties has explicitly indicated that it does not wish to be bound by such a contract (Rose, 2000). Hence, all the Etihad and the cargo handling standard terms are dropped and are replaced by the gap-filler provisions of the prevailing national or international contract laws. (3) How the Terms and Conditions ensure monitoring and management of performance measures A fundamental issue when it comes to Etihad’s contract management as regards the cargo handling contract is how it monitors of the contractor’s performance to make sure that all standards are complied with as indicated in the contract. Etihad has several contract terms and conditions, which see to it that it monitors and evaluates performance measures. Accordingly, it seeks to combine several monitoring methods effectively to ensure that the cargo handling company achieves the contract outcomes. 3.1 Key performance indicators Etihad’s contract terms seeks to develop the Key Performance Indicators (KPIs). Based on the KPI, the actual performance of the cargo handling company can be assessed against the KPIs over the lifetime of the contract (Department of Housing and Public Works, 2014). Indeed, there are certain basic qualities linked to effective performance measures. Etihad’s key performance target includes ‘timeliness’. For instance, Paragraph 3.1, requires that the Handling Company should always provide timely services to ensure that Etihad’s flights are based on the schedule. Paragraph 3.2, also demands that whether the arrival of the flight is up to the schedule, the cargo handling should still see to it that despite the time of the arrival of Etihad’s aircraft, the cargo-handling company’s services should still be according to the schedule. The delivery schedule that contractual terms establishes between Etihad and the Handling Company is intended to support Etihad’s airline program objectives of delivering cargo at the correct time. By monitoring the compliance of the cargo-handling company with the contract delivery schedule, Etihad is also able to maintain its quality performance to the customers. 3.2 Contract-specific audits Etihad also uses contract-specific audits to manage certain risks that may come about from engaging a certain cargo-handling company and to pursue the proper risk management actions. Indeed, the requirement for a contract-specific audit is explicitly stated in the contract documents as a term for the contract. The contractual terms also require the cargo handling company to have the capability for auditing its records to allow Etihad to its performance. For instance, Paragraph 16.1 requires the Handling Company to keep detailed and accurate records that relates performing the contract, such as financial information that relate to the calculating and paying charges. Paragraph 16.2 further requires the Handling Company to allow Etihad access to the audit reports at any reasonable time. These two terms and conditions offer Etihad an opportunity to monitor the Handling Company’s ongoing efficiency to ensure good performance. 3.3 Contract reports The contract terms that Etihad specifies also require the cargo handling company to offer written reports on performance. Overall, the report is intended to offer additional mechanisms for monitoring and managing contractor’s performance. For instance, Paragraph 1.4.7 requires the cargo-handling company presents to Etihad a detailed report of performance that corresponds to Etihad’s Service Level Agreement. This is intended to allow for rapid responses to the likely problems. This would allow the risk managers at Etihad to adjust its plans in order to reduce and handle potential exposure to cost and time over-runs. Paragraph 4.4 also demands that the Handling Company maintains and monitors records of the ULDs it transfers to perform serviceability checks. Conclusion In general, the Terms and Conditions risk are well designed, and pursues an objective-driven approach, which enables Etihad’s cross-functional management to make decisions regarding cargo-handling contract with the contractor. Additionally, it facilitates the execution of a combination of short- and long-term plans and actions to ensure a desirable degree of performance. This report presents an assessment of the Etihad Airway’s “Standard Ground Handling Agreement” that form a terms of agreement between Etihad Airlines and the Handling Company. The terms and conditions ensure management of the risks, such as that of increased costs by restricting the money it reimburses to the Handling Company and possibilities of additional charges. The contract also ensures compliance with ethical standards, by preventing criminal activities, such as bribery and corruption. When the “the battle of the forms” arises while making a contract with a cargo-handling company, I would ensure that the agreement is carried out under my own terms by applying the concept of the ‘last shot rule. I would submit my purchase order, the full payment alongside new terms and conditions, containing a prevailing clause, to out rule the cargo handling company’s likely counteroffer with its own terms of contract. When the ‘last shot rule’ proves ineffective due to the cargo handling company’s persistence, I would resort to the “Knock-out Rule. Etihad seeks to combine several monitoring methods effectively to ensure that the cargo handling company achieves the contract outcomes. These include the KPIs, such as timeliness of deliveries. The second include Contract-specific audits, by requiring that the Handling Company audits its activities and keeps detailed and accurate records that relate to contract performance. The last includes the Contract reports (Paragraph 1.4.7), which requires the cargo handling company to offer written reports on performance. Problems However, Etihad’s strategy for managing costs is too rigidly restrictive and does not address the changing customer needs through ensuring continuous improvement of the cargo handling processes. It lacks a customer-related factor. The contract also specifically centres on ensuring timeliness rather than extension of time to avoid delayed flights (Paragraph 3.1). The contract’s ethical guidelines are also not comprehensive enough as they only seek to address the issue of corruption, while forgetting to address other issues related to cargo handling procedures such as preventing detrimental social and environmental impacts as well as modern slavery (Paragraph 11.1). Recommendations It is recommended that Etihad adopt a customer-service-related measure for cost management in to ensure that the Handling Company’s logistics is customer-focused. A preferable model includes adopting a straightforward cost calculation that rooted in the method of dividing logistics activities while excluding customer-service-related costs that the logistic activities indirectly influence. The contract’s ethical guidelines should be comprehensive enough such as they address all issues related to cargo handling procedures such as preventing detrimental social and environmental impacts as well as modern slavery. Bibliography Bowen, A. & Hall, K. (2002). Perceptions Of Time, Cost And Quality Management On Building Projects. The Australian Journal Of Construction Economics And Building 2(2), 48-56 Chartered Institute of Purchasing & Supply (2013). Ethical and Sustainable Procurement. Retrieved from: Department of Housing and Public Works. (2014). Procurement guidance: Managing and monitoring suppliers’ performance. Retrieved from: DiMatteo, L. (2005). International Sales Law: A Critical Analysis of CISG Jurisprudence. Cambridge: Cambridge University Press Ellstrom, D., Rehme, J., Bjorklund, M. & Aronsson, H. (2007). Logistics cost management models and their usability for purchasing. Retrieved from: Magmus, U. (2007). Last Shot vs. Knock Out -- Still Battle over the Battle of Forms Under the CISG. Retrieved from: Rose, F. (2000). Essays on International Commercial Law in Honour of Francis Reynolds. Retrieved from: Ruhl, G. (2003). The Battle Of The Forms: Comparative And Economic Observations. U. Pa. J. Int'l Econ. L 24(1), 189-224 Read More