Analysis of the Requirements for Formation of Contract - Coursework Example

In order to consider the position regarding the tender process, it is necessary to consider the requirements for formation of contract. The law of contract stipulates three fundamental requirements for the formation of a legally enforceable contract; namely; offer, acceptance and consideration (it is important to note that contracting parties must have legal capacity to enter into a contract and it is presumed from the facts given that capacity is not an issue in this case). This was asserted by Lord Wilberforce presiding in the case of New Zealand Shipping Co Limited v A M Satterhwaite, The Eurymedon {1975]AC 154]). An “offer” in the context of contract law has been described as “an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed, the “offeree” (Treitel., G.H. 2007). The “expression” may take different forms and in the current scenario there was clearly a request to submit tenders (Chitty, 2007). Furthermore, the law distinguishes between an offer and an invitation to treat, which is not an offer but an indication of willingness to negotiate a contract (Gibson v Manchester City Council [1978] 1 WLR 520). However the facts of the current scenario suggest that the tender was distinctly intended to be legally binding if the parties bidding satisfied the express terms of the tender requirements. The central issue of contention here is the timing of acceptance and whether failure to accept or comply with the requirement that all “tenders will be considered” was valid. There are three ways in which a procurement decision can be challenged under the Public Contracts Regulations 2006 (“the Regulations”). Firstly, the mistake which led to both Dave and Charlie’s tender not being considered could be regarded as a fault in the tendering procedure, however both parties would have to have acted immediately and seek legal advice to challenge this (Chitty, 2007). Another ground would be judicial review however procurement decisions are generally not subject to judicial review unless there has been bad faith or a special public law element (Murdoch, 2000). Moreover, procurement decisions are regarded as the exercise of contractual powers and therefore Brian will be given a degree of flexibility and freedom in deciding who to award the contract to within the Regulations (Hackett & Robinson., 2002). With regard to Charlie, the failure was due to the problems in the post room obstructing receipt of the Charlie’s bid by the requisite deadline and not related to the decision making process and therefore it is unlikely to succeed in a claim for judicial review. Similarly, provided that in reaching its decision Brian complied with the requirements of Regulation 30, which asserts that “a contracting authority shall award the public contract on the basis of the offer which – (a) is the most economically advantageous from the point of view of the contracting authority; or (b) offers the lowest price”; it may be difficult to for Charlie to challenge the procurement decision to award the contract to Eric as Eric’s tender was lower than Charlie’s. On the other hand, Charlie may be able to challenge the decision if he can establish that the decision was discriminatory and non-transparent or alternatively based on contract principles. If we consider the acceptance rule Charlie may argue that whilst the technical error prevented the email arriving by the requisite deadline, it was accepted as soon as it had been sent in accordance with the “postal rule” (Chitty, 2007) . The general presumption as illustrated in the case of Adams v Lindsall (1818) IB ALD 681; 106 ALL ER 250) is that if post was the normal and anticipated method of acceptance, then the contract will be formed when the letter is posted and not when it is received by the offeror. On this basis, Charlie’s tender arrived before the deadline and Brian had an obligation to consider the tender. However, as stated above the Regulations provide that a contractor can offer the contract based on the lowest price and Charlie’s was not the lowest. With regard to Charlie therefore, the alternative method to challenge the procurement decision would be to claim for breach of contract. It has been argued that a procurement process may give rise to an “implied contract” between the contractors and the tenderers (Murdoch, 2000). On this basis, Brian may potentially be liable for breach of implied contract if it had excluded Charlie from a process, when there was a right to have its tender (submitted on time) considered, which the terms of the tender request clearly stipulated (Murdoch, 2000). This will include an obligation of Brian to evaluate the bids in accordance with the tender documentation or an obligation to act fairly during the process. Charlie would have to prove actual loss had incurred from the breach (Treitel, 2007). However, it is highly unlikely in the current scenario as Dave’s bid was also prevented from consideration due to the postal delays and it will be very difficult to prove discrimination in consideration of the bids. With regard to Dave the same principles are applicable as his tender was delayed the post. On the basis of the postal rule his sealed bid was received before the deadline. Moreover, Dave’s position is strengthened on grounds of the fact that his bid would have been the lowest bid. In summary, although generally difficult to challenge procurement decisions, Charlie and Dave may be able to challenge the decision on the grounds that the effect of acceptance and the problem prejudiced their bid and should have been accepted, however it will be very unlikely. Alternatively, its main recourse would be to challenge the decision under the doctrine of implied contract however it would have to prove actual loss caused from Brian’s decision to award the contract to Eric. Alternatively, if Brian’s company does not fall within a definition of a “public services contract” under the Regulations, then the Regulations’ tender process requirements will not be applicable and the general rules of contract will be applicable. On this basis, it is evident that the terms of the offer clearly stated that all tender bids would be considered and the lowest bid would win the contract. Both Charlie and Dave’s bids arrived before the requisite deadline in accordance with the postal rule and therefore Brian had an obligation to consider their bids and failure to do so constitutes breach of contract. However, both Charlie and Dave would have to establish that they suffered loss as a result of the breach which was not too remote. The principles of remoteness were set out in the case of Hadley v Baxendale ([1854] 9 Exch 341), which provided that that following losses are recoverable: 1) All losses flowing as a natural consequence of the breach; and 2) All losses which were in the contemplation of the parties at the time the contract was made. However, in the current scenario, the losses would be minimal and both Charlie and Dave would have a positive duty to mitigate their losses. With regard to Brian’s legal position vis-à-vis Eric, it is evident that at the outset, the contract was agreed with Eric in April for the sum of £3000. In June, when Eric notified Brian that he would not be able to meet the time requirements under the contract unless Brian could pay him another £1500, at this point Eric was in breach of the supply obligations under contract. Additionally, if the time stipulation in the contract between Brian and Eric went to the “root of the contract”(Treitel, 2007), and thereby constituted a condition at this point Brian would have been entitled to terminate the contract and bring a claim against Eric for direct losses (Treitel, 2007). However, Brian also had a duty to mitigate his breach and as demonstrated in the case of Brace v Calder ([1895] 2 QB 253), part of the duty to mitigate involves taking steps to find an alternative method of performance of the contract. As such, Brian agreed to pay Eric a higher price to ensure supply. Accordingly, in line with the reasoning in the case of Vitol SA v Norelf Ltd ([1996] AC 800), Brian conduct clearly points to acceptance of the breach and affirmation of the contract. Furthermore, Brian agreed to pay a higher price and Eric accepted this as a condition precedent in carrying out performance of contractual obligations. Accordingly, this agreement to a new price constitutes a mutually agreed variation to the existing terms of the contract (Chitty, 2007). However, subsequently, Eric and Brian agree that Brian will only pay an extra £1000 leaving the total contract price at £4000, which Eric accepted in “full and final settlement”. This further varies the contract and constitutes a valid mutually agreed variation to the contract. As such, Eric is only entitled to £1000 and in threatening to sue Brian for £500 will in fact constitute breach of contract by Eric. BIBLIOGRAPHY John Adriaanse (2004). Construction Contract Law: The Essentials. Palgrave Macmillan. Chitty on Contracts (2007). 29th Edition Sweet & Maxwell. D. G. Cracknell (2003) Obligations: Contract law. Old Bailey Press. M. Hackett., & Ian Robinson., (2002) Pre-contract Practice and Contract Administration for Building. Blackwell Publishing. J Murdoch., (2000). Construction Contracts: Law and Management. 3rd Edition Spon Press. G H. Treitel., (2007). The Law of Contract. 12th Revised Edition Sweet & Maxwell. John Uff (2005). Construction Law. 9th Edition Sweet & Maxwell. M Waring., (2008). Commercial Dispute Resolution. College of Law Publishing. Legislation: Public Contracts Regulations 2006 Procurement Directive 2004/18/EC 31 March 2004 for Public Contracts Websites www.rics.org www.riba.org www.ribabookshops.org Read More