Contracting Process

Continued
PRMG 155 – Procurement Management

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Contracting Process
• This Topic continues examining the activities to be done in the
contracting process; the last two activities are examined, which are
preparing the Contract Documents and awarding the Contract.

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Contracting Process
• Receive tenders and open envelopes
• Issue clarification, where necessary
• Evaluate tenders and select the winning tenderer
• Negotiate with the shortlist of tenderers, or the
winning tenderer
• Seeking required approvals
• Prepare the Contract Documents
• Award the contract
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 Bid Documents

Input by Tenderer

Tender Documents

Input by Parties

Contract Documents
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Contract Documents
• The Contract documents typically include the following:
• Contract Agreement
• Letter of Acceptance
• Letter of Tender
• Special Conditions of Contract
• General Conditions of Contract
• Specifications
• Drawings
• Bill of Quantities (completed)
• All documents should be signed and stamped.
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Contracting Process
• Receive tenders and open envelopes
• Issue clarification, where necessary
• Evaluate tenders and select the winning tenderer
• Negotiate with the shortlist of tenderers, or the
winning tenderer
• Seeking required approvals
• Prepare the Contract Documents
• Award the contract
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Award the Contract
 When does the Contract come into existence?
Unless otherwise agreed or required by the law,
the contract comes into existence when the
contractor receives the letter of acceptance.
 A signed contract is not necessarily required.

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 Sample Letter of Acceptance
Subject: Tender for Contract XXX

Dear Sir,
I refer to your tender for the above contract and I am pleased to inform you that your
tender has been accepted for the Accepted Contract Amount of XXX.
May I take this opportunity to thank you for participating in this process. You are requested
to furnish the Advance Payment Guarantee and the Performance Guarantee, in accordance
with the Conditions of Contract.

Yours Sincerely,
Head of Procurement Department
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Offer and Acceptance
 Agreement is composed of an offer and an acceptance.
 In order to see whether a contract has been made the
law looks to see whether one party has made an offer
to do or refrain from doing something, and, if so,
whether that offer has been accepted by the other
party.

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Acceptance
 For acceptance of an offer to lead to a binding
contract, the acceptance must be unconditional
and it must be communicated to the person who
makes the offer.
 Acceptance can also be effected by conduct, but
not by mere silence and inaction.

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Counter-Offer
 The acceptance of an offer must be unconditional. In
order to be unconditional the terms of the acceptance
must correspond precisely with the terms of the offer.
 If the person to whom the offer is made introduces new
term/s that is either contrary to a term of the offer or
that is not contained in the offer, the acceptance is not
unconditional and forms a counter-offer and does not
bring a binding contract into existence.

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Counter-Offer Cont.
 The effect of a counter-offer made in this way is to
destroy the original offer. Thus, the original offer
cannot be accepted afterwards, unless the party
putting forward the original offer accepts.
 The counter-offer is subject to the same rules about
acceptance as the original offer.

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Counter-Offer Cont.
• Qualified Acceptance, an acceptance which is made
'subject' to anything does not give rise to a contract.
• Though this may eventuate when the matter to which
it is subject occurs.
• For example, if an acceptance is made 'subject to
planning permission being received', then a contract
would arise on the receipt of planning permission.
• This practice can give rise to problems, and possibly
claims, and is therefore to be avoided.
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Case Studies

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Acceptance – Case Study
• An employer offers to employ a contractor to do
specified works on specified terms for a specified price,
and the contractor without further negotiations and
without consenting to the specified price, does the
work. After a while, the contractor requested a higher
price than the specified one.
• Is the contractor entitled to change the specified price?

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Acceptance – Case Study Cont.
• Answer: No, the contractor will be deemed to have
accepted the employer’s offer by his conduct, and will
not afterwards be able to seek a higher price.

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Acceptance – Case Study
 You have received tenders on 1 February for the construction of
a garage. The lowest tender is in the sum of LE 500,000.00 and
the construction period is 10 months. Draft a letter of
acceptance to be sent to the tenderer with the lowest tender.

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Acceptance – Case Study Cont.
 Unless you have agreed to change any conditions with the contractor, your
letter of acceptance need say no more than this:
Dear Sirs,
Re: Construction of Garage at XX
We hereby accept your tender dated 1 February, pertaining to the above
mentioned subject.
Sincerely yours, You may add (however, not necessarily):
- in accordance with the bidding documents sent
to you on 1 January.
- with the following terms:
. Price = LE 500,000.00
. Duration for completion = 10 months
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Counter Offers – Case Study
Continuing on from the previous case, before sending the last letter, you decided to decrease the
duration of the last activity, so that the construction of the garage would last a period of 8 months.
Accordingly, you send the following letter to the tenderer, instead of the last one:
Dear Sirs,
We accept your tender dated 1 February in accordance with the bidding documents sent to you on
1 January, subject to the following amendment:
The period for completion of the works shall be 8 months from the date of commencement.
Sincerely yours,
The contractor did not acknowledge your letter but commenced work and completed in 10 months.
You claim damages for delay. The contractor claims that his offer to complete in 10 months entitled
him to take that time to complete the works and he was not liable for damages. Which conditions
apply? Is the contractor liable to pay damages for delay?
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Counter Offers – Case Study
Cont.
Answer: The contractor did not send any written notice that
he accepted to complete in 8 months instead of 10 months.
However, since the contractor commenced work, he has
accepted the counter offer by conduct and he is bound to
complete in 8 months. Accordingly, the contractor would be
liable to damages for delay.

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Counter Offers – Case Study
Summary
 The lesson learned from the above cases is what
is called `the battle of the forms’, i.e. the battle is
usually won by he who fires the last shot.

 Mutual consent is the best way to avoid conflict

and expensive litigation to resolve the problem.

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Counter-Offer, Qualified Acceptance –
Case Study
Company X advertises to sell a product in the local paper.
Company Y comes to see the product and is prepared to buy it
for LE 300,000, the advertised price, as long as it can take
delivery of the product that day. Company X advises that it
cannot make delivery until one week later. Company Y wants
the product that day. Company X insists on delivery one week
later.
• Is there a binding contract?
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Counter-Offer, Qualified Acceptance –
Case Study
• No, there is agreement on the product and the
price, but not on the delivery date. The result is
that there is no contract at all.

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Invitation to Treat
 Sometimes the communication does not amount to
an offer, but it furthers the bargaining process.
 If the communication is an invitation to treat, it
cannot legally be accepted. There can be no offer and
acceptance, and no legally enforceable contract.

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Invitation to Treat – Case Study
Harvey v Facey [1983] AC 552
• The claimants sent a telegram to the defendants, which stated:
“Will you sell us X farm? Send us by telegram lowest cash price.”
• The defendants replied:
“Lowest cash price for X farm is £900”
• The reply to this from the claimants was:
“We agree to buy X farm for £900 asked for by you”
• This last communication was not replied to and the defendants subsequently refused to
sell the property to the claimants. The claimants sued the defendants, arguing that a
contract had been agreed, and that the defendants were legally bound to sell the property
at the agreed price of £900.
• Is there a binding contract between the claimants and the defendants?
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Invitation to Treat – Case Study
Harvey v Facey [1983] AC 552
Held:
• No contract existed.
• The initial telegram was simply an inquiry to see if the owners
of the property were willing to sell and to discover what their
bargaining position would be.
• The claimant's reply was simply an indication of what the lowest
price was, not an offer of a definite price. This reply, then, was
not an offer, open for acceptance to form a legally binding
contract, but was an invitation to treat, an invitation to further
the negotiation process.
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Tender
 Is the advertisement for tenders or RFP an offer or invitation to Treat?
The advertisement for tenders is usually regarded as an invitation to treat
• The company advertising for tenders can choose which tender to accept.
• This consideration may not be guided exclusively by price, but other factors
such as timescales, quality of service, damages, reputation of the tenderer, …
• The analysis might be different where, for example, the request for bids
includes an obligation to accept the most competitive bid.
 Is the Submitted Tender an offer or invitation to Treat?
A tender is an offer.

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Letter of Intent
Does the Letter of Intent constitute acceptance?
 The effect of a letter of intent depends on the
wording of the letter rather than its heading.
 A ‘letter of intent’ per se is not necessarily an
acceptance.

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Letter of Intent Cont.
 Any ‘suggestion’ or ‘request’ to start work or
even an ‘instruction’ to do some such work
should not be acted upon unless accompanied
by some undertaking as to payment.
 This would thus set up a ‘mini-contract’ which
would be absorbed into the main contract if and
when it comes into existence, or stand on its
own feet if not.

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Unsuccessful Tenderers
• Once the winning tenderer confirms acceptance,
your company policy might require that the
unsuccessful tenderers be notified.

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Letter to Unsuccessful Tenderer
Subject: Tender for Contract XXX
Dear Sir,

Thank you for your tender for the above contract. The evaluation process
has now been completed and we wish to inform you that on this occasion
your tender has not been successful.
May we take this opportunity to thank you for participating in this process
and we look forward to the opportunity of working together in future.

Yours Sincerely,
Head of Procurement Department
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Procurement vs. Contract
• Procurement is the mechanism by which suppliers
of works, services or goods are selected.
• Contracts are the means by which risks and
responsibilities are allocated between the buyer
and the seller.

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Topic Exercises
Exercise 1 – Arrange the following
documents, in accordance with their priority
 Bill of Quantities
• General Conditions
 Drawings
• Special Conditions
• The Contract Agreement
• The Letter of Tender
• The Letter of Acceptance
 Specifications

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Exercise 2
• Answer the following activities related to the
award of the Contract.

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Activity 1
• Following an exchange of correspondence (offer and
counter offer), the prospective Buyer stated in a letter ‘we
confirm that we have accepted your offer…if you could
take into consideration the points we have raised’. Is there
a binding contract?

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Activity 2
• The pursuer sent a communication to the defender in the following terms:
• “I am offering to construct the building Y and have pleasure in quoting you
$3,000,000. I shall be glad to hear if you accept, and await your esteemed
reply.”
• The defenders accepted, but then argued that the initial communication
was an invitation to treat, not an offer.
• Is there a binding contract?

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References and Further Reading
• Brook, Martin, Estimating and Tendering for Construction Work,
(3rd Edition, Elsevier Ltd., Great Britain, 2004)
• Fisk, Edward, Construction Project Administration, (5th Edition,
Prentice-Hall, United States of America, 1997)
• MacRoberts, Solicitors, MacRoberts on Scottish Building
Contracts, (2nd Edition, Blackwell Publishing Limited, 2008)
• Murdoch John and Hughes Will, Construction Contracts Law and
management, (4th Edition, Taylor & Francis, London and New
York, 2008)

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