http://www.isurv.

com

Introduction

Keating on Construction Contracts (10th edition) states that:

'The essence of a building contract, like any other contract, is agreement. In deciding
whether there has been an agreement and what its terms are, the court looks for an offer to
do or forbear from doing something by one party and an acceptance of that offer by the
other party, turning the offer into a promise.'

This section provides an overview of the key role played by offer and acceptance when
negotiating a contract and underlines the care parties need to take not to inadvertently make
or accept an offer until they are ready to do so.

Offer

The normal test for determining whether parties have reached an agreement is to ask whether
an offer has been made by one party and accepted by the other.

An offer is a promise by one party to enter into a contract on certain terms. An offer may be
made to an individual, a group of persons, or even to the world at large (Carlill v Carbolic
Smoke Ball Co [1893] 1 QB 256 ). It must be:

- specific;
- complete;
- capable of acceptance; and
- made with the intention of being bound by acceptance.

Therefore, an offer must contain the basic terms of the agreement and evidence an intention
that no further bargaining is to take place.

Any reservations or conditions should be made at the time of the offer. A party may not, after
the offer has been accepted and consideration has been provided, qualify or amend the offer.

If the parties later fail to agree on the matters left outstanding, this could potentially have the
effect of causing the contract to be set aside if it is unworkable or void for uncertainty. Often in
construction, a failure will not have this effect. For example, it may be possible to resolve the
uncertainty by the use of implied terms, such as the implication of a reasonable time for
completion.

When is an offer actually made?

When parties negotiate with a view to making a contract, many communications may pass
between them before a final offer is made. But which communication is the final offer?

A communication by which a party is invited to make an offer is commonly called an invitation

Page 1.
Copyright 2020 isurv
http://www.isurv.com

to treat. It is distinguishable from an offer primarily on the ground that it is not intended to
become binding as soon as the intended addressee communicates their assent to its terms.
As will be seen in the following examples, the touchstone is the existence of an intention to be
bound. The wording of the statement is not conclusive. A communication may be an invitation
to treat even though it contains the word ?offer?.

In practice, the distinction between an offer and an invitation to treat is difficult to draw. It will
largely be determined by whether the facts indicate the presence or absence of an intention to
be bound. Helpfully, presumptions, which may be displaced by evidence of contrary intention,
have been established in a number of circumstances. The key presumptions to note in a
construction context are:

- Requests for tenders: An invitation to tender is not an offer to contract or an offer

to award the contract to the highest bidder, unless specifically stated otherwise.
Instead, an invitation to tender should be regarded as an invitation to treat. It is
generally only when a contractor submits a tender that an offer is made. If this
tender is accepted by the employer, a contract is formed. Care should be taken in a
tender process to ensure that statements do not go beyond an invitation to treat and
in fact constitute an offer that can be accepted by a bidder (see Harvela Investments
Ltd v Royal Trust Co. of Canada [1984] 2 All ER 65). However, an employer?s
invitation to tender requires it to consider all tenders submitted within the
requirements of the invitation to tender (see Blackpool and Fylde Aero Club Ltd v
Blackpool BC [1990] 1 W.L.R. 1195).
- Quotation: A quotation or a statement as to price is normally regarded as an
invitation to treat. However, in some instances, an estimate, if accepted, may be
construed as an offer.
- Advertisements: Advertisements of bilateral contracts (e.g. goods for sale) are
normally invitations to treat. However, advertisements of unilateral contracts (e.g. a
price refund if a product is defective) are generally offers (see Carlill v Carbolic
Smoke Ball [1893] 1 QB 256).

Standing offers

Contractors may be invited to tender to carry out work on a periodic basis, as and when
required by the employer. If a contractor tenders for such work, this work may be regarded as
a standing offer to carry out the works as and when required by the employer. Unless there is
a valid agreement to keep this standing offer open, a contractor may withdraw it at any time in
relation to future orders, but not in relation to orders that have already been placed (Great
Northern Railway v Witham (1873) L.R. 9 C.P. 16). Depending on the facts, such invitations
may be construed as ?standing offers?.

Rejection of offers

A rejection terminates an offer, so that it can no longer be accepted. A counter-offer also

operates as a rejection and a purported acceptance may be a counter-offer if it substantially
varies the proposed terms (Trollope & Colls v Atomic Power Constructions Ltd [1963] 1 W.L.R.
333). An attempt to accept an offer on new terms (not contained in the offer) may be a
rejection accompanied by a counter-offer.

If the offeree makes a communication in the form of a question as to the offeror?s willingness
to vary the terms of the offer, this may constitute a counter-offer (and hence a rejection) or it
may be a mere inquiry or request for information made without any intention of rejecting the
offer. Whether a communication is a counter-offer or a request for information (or simply the
submission of further information that should be included within the contract: see Anchor 2020

Page 2.
Copyright 2020 isurv
http://www.isurv.com

Ltd v Midas Construction [2019] EWHC 435 ) depends on the (objectively ascertained)
intention of the offeree.

A rejection only takes effect when it is communicated to the offeror. If the rejection is overtaken
by a subsequently despatched acceptance which reaches the offeror first, the latter will take
effect. If the offeror receives the rejection first, he or she is not bound by a subsequently
despatched acceptance, but may choose to be.

Revocation of offer

An offer may be withdrawn at any time before it is accepted unless:

- consideration has been given to keep it open (see Routledge v Grant [1828] 130 ER
920); or
- the offeror is estopped from acting inconsistently with the existence of the offer.

To be effective in law, a withdrawal must (in general) be communicated to the offeree, i.e. the
offeror must have actual notice of the withdrawal. If the offeror receives an acceptance before
the offeree receives the purported notice of withdrawal, there will be a binding contract.
However, the communication need not come from the offeror: it is sufficient if the offeree
knows from any reliable source that the offeror no longer intends to deal with him.

The general rules require qualification in a number of situations including:

- A letter to a commercial organisation is sufficient. It will be treated as having been

opened in the ordinary course of business, even though it was not actually opened.
- The general rule may be displaced by the offeree?s conduct. For example, if the
offeree has moved without notifying the offeror, a letter sent to its last known place
of business will be sufficient notice of withdrawal.
- For a withdrawal of offers to the public, it is sufficient to take reasonable steps to
bring the withdrawal to the attention of the public, such as through an advertisement,
even though it does not in fact come to the attention of them all.

Termination of offer

Ways in which an offer may be terminated include lapse of time, occurrence of a condition,
withdrawal, rejection, death or supervening incapacity.

(a) Offer terminated through lapse of time

- Express time limit: An offer that expressly states that it will last for a specified time
only cannot be accepted after that time. The most common application of this rule is
to offers taking the form of options. On a similar principle, an offer that stipulates for
acceptance in a specified way (e.g. ?by return of post?) must be accepted in the
specified manner or by some other no less expeditious method.
- Lapse of reasonable time: Where an offer does not expressly state its duration, it
will come to an end after the lapse of a reasonable time. What is a ?reasonable
time? depends on all the circumstances.

This period may be extended if the conduct of the offeree within that period indicates an
intention to accept and this is known to the offeror. Such conduct may be insufficient to amount
to acceptance (e.g. if the offer requires written acceptance) but may nevertheless prolong the
time for giving proper notice of acceptance.

(b) Death

Page 3.
Copyright 2020 isurv
http://www.isurv.com

Generally, the death of either party should not terminate an offer, except where the offer is one
to enter into a contract that, because of its ?personal? nature, would be determined by the
death of either party.

Battle of the forms

The phrase ?battle of the forms? means an offer followed by a series of counter-offers. The
usual rule to solve this situation is the ?last-shot? doctrine, which states that where conflicting
communications are exchanged, each is a counter-offer. A contract is formed when the last set
of terms are received without objection. If there is no objection by the other party, the terms
are agreed. If it cannot be shown that either party accepted the other?s terms, the parties have
reached deadlock. Where no certainty of agreement can be determined, it is likely that
statutory implied terms will govern the parties? relationship.

Building contracts are often prime candidates for this type of battle. It is not possible to lay
down a general rule that will apply in all cases where there is a battle of the forms. It depends
on an assessment of what the parties must objectively be taken to have intended. The general
rule is that the traditional offer and acceptance analysis is to be applied in battle of the forms
cases. That has the great merit of providing a degree of certainty which is both desirable and
necessary to promote effective commercial relationships (Tekdata v Amphenol [2009] EWCA
Civ 1209 ).

Careful drafting is required to avoid losing a battle of the forms ? it must be made clear which
terms are referred to. Merely stating that A is entering into the contract ?in accordance with the
offer? will be interpreted to refer to the last counter-offer from B, not A?s initial offer. Much will
also depend on notice ? if A has been given reasonable notice of B?s offer, the contract will be
on B?s terms. (See Cockett Marine Oil DMCC v ING Bank [2019] EWHC 1533 (Comm) ,
where B?s communication constituted a counter-offer, which A accepted by accepting the
goods, and B?s terms and conditions became part of the contract.)

Clauses that provide that 1 set of terms will always apply, irrespective of any terms
subsequently submitted, are known as ?prevail clauses?. Prevail clauses can work, but usually
won?t work if both contracts contain the same prevail wording, as the 2 prevail clauses in both
sets of terms will simply cancel each other out.

Negotiations for a contract

When parties have been negotiating a contract but do not execute a formal contract, the
question arises as to whether a contract exists. Parties may reach agreement on essential
matters of principle, but leave important points unsettled so that their agreement is incomplete.
In answering this question, the court will have regard to all negotiations to identify the terms of
the contract. If, however, a transaction has been fully performed, there may be a concluded
contract even though it is not strictly possible to identify the coincidence of offer and
acceptance (Tekdata Interconnections v Amphenol Ltd [2009] EWCA Civ 1209 ).

Keating on Construction Contracts (10th edition) suggests that a contract will have come into
existence if the following key questions can be answered in the affirmative:

- ?In the relevant period of negotiation, did the parties intend to contract? (Edwards v
Skyways Ltd [1964] 1 WLR 349)
- At the time when they are alleged to have contracted, had they agreed with sufficient

Page 4.
Copyright 2020 isurv
http://www.isurv.com

certainty upon the terms which they then regarded as being required in order that a
contract should come into existence?
- Did those terms include all the terms that, even though the parties did not realise it,
were in fact essential to be agreed if the contract was to be legally enforceable and
commercially workable? (Rossiter v Miller (1878) 3 App. Cas. 1124)
- Was there a sufficient indication of acceptance by the offeree of the offer as was
then made complying with any stipulation in the offer itself as to the manner of
acceptance??

On such an approach, the court?s task is to review what the parties said and did, and from that
material to infer whether the parties? objective intentions, as expressed to each other, were to
enter into a mutually binding contract.

(For further commentary see also Negotiations and their legal effect, Obligations at tendering
stage ? negotiations and Introduction).

?Subject to contract?

Agreements that include the wording ?subject to contract? are normally regarded as
incomplete until the formal contract has been executed by the parties. The agreement means
what it says; it is subject to and is dependent upon a formal contract being entered into and
gives rise to no legal obligations until the contract is finalised.

Failure to include the term ?subject to contract? in negotiations can lead to a binding
agreement (Harvil Roofing Ltd v Lakehouse Contracts [2017] EWHC 3310). Use of such
wording will not be effective in all cases, as it may be deemed to have been waived by
performance. For example, where ?subject to contract? appears in the standard footer of
every email in a lengthy chain of correspondence it is unlikely to override clear words
indicating offer and acceptance; or in cases where performance has already taken place (RTS
Flexible Systems Ltd v Molkerei Alois Muller [2010] UKSC 14 ) the parties may have effectively
waived the ?subject to contract? requirement by their subsequent conduct.

Failure of condition precedent

An offer that expressly provides it is to determine on the occurrence of some condition cannot
be accepted after that condition has occurred. If an offer to buy goods is made after the offeror
has examined them, there will be an implied condition that the goods will remain in
substantially the same state at the time of acceptance. Such an offer can no longer be
accepted if the goods are seriously damaged after the offer is made.

Practical tips

When negotiating a contract, the key is to ensure that you do not make an offer until you are
ready to be bound by it. Key practical tips to bear in mind include:

- During negotiations, ensure all correspondence is clearly marked ?subject to

contract?. Make sure the wording is placed prominently in the correspondence and
not hidden in standard disclaimer wording at the foot of an email.
- If you do make a binding offer, make sure it is in writing and that it states clearly and
expressly:
- the terms of the offer;
- when the offer expires; and
- the prescribed manner of acceptance.

Page 5.
Copyright 2020 isurv
http://www.isurv.com

- Be mindful of the risk of incorporating the other party?s standard terms, to ensure
you do not contract on these by inadvertently accepting the other party?s
counter-offer and terms.

Page 6.
Copyright 2020 isurv