Business Law For The Contractual Obligation

Tendering Process and Contract Formation

Describe about the Business Law for The Contractual Obligation.

1. Request for tender (RFT) issued by a party for inviting tender is an invitation to treat, and not an offer by party filing RFT. When other party submit tender in response to that RFT is considered as an offer made by that party, and no contractual obligation arises until that offer is accepted by the party who invites tenders. This process was considered as traditional contractual analysis, and there is no legal relationship between the parties till the tender is accepted by the party who inviting tenders. However in some specific situations court impose legal obligation on party who mere invite tenders by filing RFT (PWC, 2016).

In case Hughes Aircraft Systems International v Air services Australia (1997) 146 ALR 1, Justice Finn replaces the traditional contract analysis process in case of tender in Australia by finding that in some cases filing RFT also creates legal obligation on parties, and give rise to the contract which is legally binding (Hayford, 2006; Doyles, 2005).

Whether tender is a process contract- a process contract arises when principal take steps to convey the tenderer that principal bound himself from the conditions of tender. In case process contract is arises, and principal fails to comply with the conditions mention in the RFT then it will be considered as breach of process contract. In case of breach of process contract, tenderer have cause of action against the principal in following two situations:

In case, when RFT contains such terms that states that principal accept the tender which is best and lowest.

In case, when RFT states any condition which is followed in tender processes and it will be considered as failure if such condition is not followed whether by principal or tenderer.

Whether or not RFT is considered as process contract is depend on the terms and conditions mention in RFT, and other obligations that will impliedly or expressly accepted by the parties (Malllesons & King, 2013).

In the present case, university files RFT for supplies of green seeds for its surrounds, with closing date of 1^st June. In its RFT University does not mention any condition which creates any legal obligation on party who inviting tenders except closing date that is 1^st June. Following are the legal obligation of universities in these three tenders:

In case of Greenland, they hand delivered their tender on 29^th may, and they offer green seeds on the second lowest bid, but university did not mention in RFT any condition regarding lowest or best bid, and reject this tender because of rumors about its unreliability. Therefore Greenland has no cause of action against the university because no tender process contract is existed between the parties.

In case of Enviro, the tender is posted on 15^th may and received by university on 17^th may but due to negligence of administrative assistant the offer is not put in box on time and because of that administrative officials considered only two tenders. Offer made by Enviro is the best and lowest offer. There is binding relationship between parties during pre award period in case of negligence, and principal owned duty of care towards tenderer. Therefore in this case Enviro has cause of legal action against university.

Obligations in Tender Contracts

In case of plant forever, university accepted the offer of plant forever but the acceptance did not conveyed to the company, and company enter into another contract. There is general rule regarding communication of acceptance that is acceptance is communicated when it is received by offeror (ACL, n.d.). We can understand this with the help of case law that is Brinkibon v Stahag Stahl und Stahlwarenhandelsgessellschaft mbH. Therefore, in this case there is no binding contract between university and plant forever, and university has no cause of action against company.

2. There are number of goods and services which are exchanged through medium of contract. As per the contract law, a contract is formed when one party made an offer to another party and other party accepts that offer. It is necessary for valid contract that both parties have legal capacity to enter into a contract, both have intended to create legal relationship between them, and there must be consideration (ACL, n.d.).

Many Private enterprises and government agencies sell and purchase goods and services through tender process in Australia, and before entering into a valid contract these enterprises issue request for tender (RFT). RFT is a published notice issued by the party who invites tender by the public for selling and purchasing goods by submitting the tender in accordance with the conditions stated in the RFT. RFT is not an offer it is just an invitation to treat and we can understand this with the help of case law Pratt Contractors Ltd v Palmerston North City Council.

When other party submit tender on behalf of that RFT is considered as an offer made by party who submit the tender to the party who file RFT for inviting the tender, and if party accepts the offer made by party who submit the tender then it is considered as valid contract made between two parties (Trescox Lawyers, n.d.).

When party call for tenders it will be considered as invitation to treat, and submission of tender is considered as an offer made by party who submit the tender. There is no legal relationship exist between parties unless principal accepts the offer. Before acceptance bidder can withdraw or amend its offer made to the principal. Similarly principal also has chance to negotiate with the bidders after receiving tenders (Clendons, 2016). There are number of obligations in tender contracts, some of them are stated below:

It is the duty of the principal that he consider the tender if tenderer submit the tender on time or before the time. It is the contractual right of tenderer that his tender must be considered by the principal once if he submits it on time.

It is necessary that principal treat all the tenders fairly and equally, and this is also the implied duty of principal that he fulfills all the conditions of the tender. It is an obligation of principal that he treats all the bidders in equal terms and fairly.

It is the right of principal that he rejects the non compliance bids made by bidder (MAV, 2008).

Legal Liability in Tendering Process

Legal liability in tendering process- there are number of remedies available for tenderer which gives statutory effect in tendering process. There should be fair dealing in this process and equal treatment with all bidders.

This process is most difficult and crucial to deal, and this is the process through which enterprise is able to select the best service provider on terms of cost, quality and capability. It is necessary that this process is conducted in professional manner, equal, and in honest way. Industry commission fined that tender process is the key to derive benefits of contracting process. Benefits derived from contracting services by client agency and communities are depending on the effectiveness and efficiency of tendering process. If tendering process is not designed properly then this will reduce the benefits of tendering process (Parliament of Australia, n.d.).

In the present case, on 1^st October Footloose Pty Ltd issue notice in Daily News newspaper for selling the shoes at special discount that is $2000 for hundred pairs, and for bulk orders big discounts are available. This notice is just an invitation to treat, and not an offer.

On 2^nd October Famous footwear offer for purchasing 500 pair of shoes for $2000 per hundred pairs, but no acceptance is conveyed by the Footloose Pty Ltd to Famous Footwear. Submission of tender on behalf of notice issued by Footloose Pty Ltd in newspaper is treated as offer. Therefore, in this case there is no contract because no acceptance is conveyed by the Footloose Pty Ltd to Famous footwear.

On 4^th October James Shoes send Fax to Ms. Simon in reply of notice issued by Footloose Pty Ltd in newspaper, and states that they wish to purchase 2000 pairs of shoes on $30000 including GST and delivery. On 6^th October Ms. Simon replied that Footloose will sell 2000 pairs for $ 30000 excluding delivery. James immediately replied that he want to meet to discuss following terms, and want to know the earliest delivery date.

On 10^th October both parties conduct discussion on telephone and agreed that James shoes would take delivery of sandals from footloose on 1^st November. In this case footloose accept the offer made by James shoes on behalf of notice issued by Footloose Pty Ltd, and footloose accept the offer of James shoes. Therefore, there is valid contract between parties and both parties have legal obligation for this contract.

3. Implied contract- implied contracts can be considered as legal substitute of contracts. An implied contract is not written or spoken contract either it is an agreement which is created from the actions of the parties. In this there is neither written record nor any agreement which is verbal in nature. Implied contract is an implied warranty which is provided by law. Implied contracts and terms are implied by common law and statute. Generally in common law terms are implied. For example: the common law implies a term which requires that parties must do such acts which are necessary to perform the contract (ACL, n.d.).

Usually, it is advisable to the parties that agreement must be in writing to the extent it is possible, but there are number of occasions when agreement arise between parties even there is no writing or verbal agreement between parties or there is no offer and acceptance. There are many ways through which implied agreements are arise between parties such as:

When both parties showed by their actions that contract is exist between them. When both the parties did not sign any contract but they start to deal with each other in such away as there is contract enforced between them.

When there is history of dealing between the two parties, then it will be considered as implied agreement on the bases of dealings or mutual understanding between the parties (Australian Government; The Treasury, n.d.).

Whether agreement is implied or not is based on the circumstances. There are two types of implied contract that is implied in fact and implied in law.

A contract which is implied by fact is that contract in which the circumstances implied that agreement is conducted between the parties even though there is no express agreement between the parties. For example, when patient goes to the doctor for treatment then there is implied agreement between doctor and patient that patient pay a fair price for the service, and if patient refuses to pay fees then this will be considered as breach of contract by patient.

For a contract to be implied it is necessary that it must be:

• It is reasonable and equitable.
• It is necessary that contract must be efficient for the business.
• Contract must be so obvious that it enforced without saying.
• Contract must be efficient.
• It is necessary that expression of parties is clear (Wang, Briers, Reinecke, 2012).

We can understand this with the help of case law that is Byrne v Australian Airlines Ltd (1995) 185 CLR 410.

Contract implied by law is known as quasi contract but this contract is not in fact contract.

In the present case, Richard Anderson is a talented chemist at Cube Laboratory Pty Ltd. His contract for 5 years is due to expire on 30^th June. In last week of February he received offer of job from headhunters for the chief chemist’s position at a rival lab. If Richard accepts this job then he has to relocate his family interstate. On 1^st March Richard approached warren, the chief chemist at Cube and said that he received good offer from headhunters but he would like to stay here, and for this warren replied “Richard, you are an important part of this team. You’ve played a big part in our recent success and we’re keen to keep that going.” From this sentence Richard forms an impression that cube want to extend the contract for next five years, and he reject the offer from headhunters.

On 25^th June Warren said Richard that because of liquidity problem cube was retrenching large number of staff and forced to retrench Richard also. Later Richard find job in a university but at fraction of salary he was earning in previous job. In this warren makes an impression from his words that he extend the contract for next five years with Richard, and this impression forms implied contract between warren and Richard. Therefore in this Richard can claim damages from cube because of this impression he reject the offer of headhunters also, and forced to work in university at lower salary.

References:

ACL. Agreement. Retrieved on 6^th December 2016 from: https://www.australiancontractlaw.com/law/formation-agreement.html#acceptance.

ACL. Formation. Retrieved on 6^th December 2016 from: https://www.australiancontractlaw.com/law/formation.html.

ACL. Terms of a contract. Retrieved on 6^th December 2016 from: https://www.australiancontractlaw.com/law/scope-terms.html#implied.

Australian Government; The Treasury. How is an agreement made by implication. Retrieved on 6^th December 2016 from: https://www.treasury.gov.au/Policy-Topics/Business/Small-Business/Legal-Topics/Contracts/Agreement-making/Implication.

Brinkibon v Stahag Stahl und Stahlwarenhandelsgessellschaft mbH (1983).

Byrne v Australian Airlines Ltd (1995) 185 CLR 410.

Clendson, (2016). Law of Tendering. Retrieved on 6^th December 2016 from: https://www.clendons.co.nz/resources/background-papers/law-tendering/.

Doyles, (2005). Hughes Aircraft Systems International v Air services Australia (1997). Retrieved on 6^th December 2016 from: https://www.mosaicprojects.com.au/casewatch/1064%20Hughes%20v%20Air%20Services.pdf.

Hayford, O. (2006). Recent developments in tender process contracts. Retrieved on 6^th December 2016 from: https://www.claytonutz.com/knowledge/2006/may/recent-developments-in-tender-process-contracts.

Hughes Aircraft Systems International v Air services Australia (1997) 146 ALR 1.

Mallesons, W. & king (2003). From concept to completion: when is a request for tender actually a contract. Retrieved on 6^th December 2016 from: https://www.lexology.com/library/detail.aspx?g=1d499d4a-5fc2-4f09-a705-c0d8c7cfc2f1.

MAV, (2008). BEST PRACTICE GUIDE FOR TENDERING AND CONTRACT ANAGEMENT. Retrieved on 6^th December 2016 from: file:///C:/Users/Guest/Downloads/VCCI-Best-Practice-Guide-for-Tendering-and-Contract-Management.pdf.

Parliament of Australia. The tendering process. Retrieved on 6^th December 2016 from: https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Finance_and_Public_Administration/Completed_inquiries/1996-99/contracting/report/c02.

Pratt Contractors Ltd v Palmerston North City Council.

PWC, (2016). Legal risk in the tender process. Retrieved on 6^th December 2016 from: https://www.pwc.com.au/legal/assets/investing-in-infrastructure/iif-35-legal-risk-tender-process-feb16-3.pdf.

Trescox Lawyers. Law surrounding the tender process. Retrieved on 6^th December 2016 from: https://www.tresscox.com.au/page/our-news/newsletter/law-surrounding-the-tender-process/.

Wang, S. Briers, D. Reinecke, I. (2012). Enforcing promises by implying terms in commercial contracts. Retrieved on 6^th December 2016 from: https://www.claytonutz.com/knowledge/2012/december/enforcing-promises-by-implying-terms-in-commercial-contracts.