Purchasing Contracts
a practical guide
Purchasing Contracts is intended to be of assistance to those whose work is with contracts for the procurement of goods and services.
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Purchasing Contracts is intended to be of assistance to those whose work is with contracts for the procurement of goods and services rather than yet another contract law textbook.
This second edition contains additional chapters including one on the special rules governing purchasing by public bodies and utilities.
The subjects of misrepresentation, exemption clauses and electronic contracting are amongst those that have been updated and covered in more detail. The bill currently going through Parliament on bribery is also dealt with.
Purchasing Contracts is intended to be of assistance to those whose work is with contracts for the procurement of goods and services.
Graham Fuller is a visiting lecturer on procurement law and other subjects at the WMG an academic multi-disciplinary unit at the University of Warwick; and a regular presenter at conferences for the Institute of Purchasing and Supply.
As a graduate in law he was called to the bar and practised for seven years until he became Senior Crown Counsel to the Hong Kong Government. He later became Senior Legal Adviser to Rolls-Royce plc, advising on matters including international joint ventures, technology transfers and purchase contracts.
Contents iii
Tables of authorities. xv
Preface xxi
About the author. xxii
CHAPTER 1: Written contracts and the purchaser. 1
1.1 Oral contractsand those made by conduct 1
1.2 Some contracts have to be in writing. 1
1.3 Commercial purchase contracts. 2
1.4 The benefits of written contracts. 2
1.5 Written contracts and disputes. 4
1.6 The golden rule in writing a contract 5
1.7 The consequence of having contracts in writing. 5
CHAPTER 2: Prior commitment 7
2.1 The need to place sub-contracts before the prime contract 7
2.2 Working upon a speculative basis. 7
2.3 A sense of security. 8
2.4 Termination for convenience clauses. 9
2.5 Exclusions from the termination for convenience clause. 10
2.6 Limitations of liability for termination.. 10
2.7 Partnership.. 11
CHAPTER 3: Misrepresentation. 13
3.1 The nature of a misrepresentation.. 13
3.2 Rescission.. 13
3.3 Bars to rescission.. 13
3.4 Damages for misrepresentation.. 14
3.5 Different kinds of misrepresentation.. 14
3.6 Damages in lieu of rescission.. 15
3.7 Summary of remedies for misrepresentation.. 16
3.8 Controlling liability for misrepresentation.. 16
3.9 Exemption clauses and misrepresentation.. 17
3.10 Entire agreement and prior representation clauses. 17
3.11 Effectiveness of prior representations provisions. 18
CHAPTER 4: Formation of written contracts and the battle of the forms 21
4.1 Different kinds of written contracts. 21
4.2 Standard terms of sale and of purchase. 22
4.3 Let battle commence. 23
4.4 Putting standard terms in other documents. 24
CHAPTER 5: Negotiating the contract 27
5.1 The golden rule. 27
5.2 Getting ready. 27
5.2.1 What has already been said?. 27
5.2.2 A team leader. 28
5.2.3 Personalities. 28
5.2.4 Solo negotiators. 29
5.2.5 Whose draft?. 29
5.2.6 How tough should the draft be?. 30
5.2.7 Make sure it all goes in the contract 31
5.2.8 “Parking” a draft clause. 31
5.2.9 Supporting the troops in the front line. 31
5.2.10 Partnership.. 32
CHAPTER 6: Simplicity and clarity in contract drafting. 33
6.1 Improving presentation.. 33
6.2 20 tips for drafting better contracts. 33
6.2.1 Short paragraphs. 33
6.2.2 Break concepts down by tabulation. 33
6.2.3 The use of different paragraph widths improves the appearance of a contract and makes it reader friendly. 34
6.2.4 Defined terms are useful drafting tools. 34
6.2.5 Certain definitions are unnecessary because of section 61 of the Law of Property Act 1925 35
6.2.6 There is no need to state the obvious. 35
6.2.7 Here is another bad habit: 35
6.2.8 Is it better to say: 36
6.2.9 Be consistent. 36
6.2.10 Try to avoid unnecessary work. 36
6.2.11 If the contract is complex a recital may help. 37
6.2.12 Avoid archaic expressions such as: 37
6.2.13 Signatures. 38
6.2.14 Try to avoid the following: 38
6.2.15 Consider singulars and plurals. 38
6.2.16 Anxiety expressions. 38
6.2.17 The use of numerals or words to express numbers. 39
6.2.18 Contracts should be expressed in the active and not the passive voice. 40
6.2.19 Keep any choice of law clause simple. 40
6.2.20 Take particular care with notices clauses. 40
6.3 Words may not always bear their dictionary meaning. 41
6.4 Good drafting wins respect 41
CHAPTER 7: The specification. 43
7.1 The function of the specification.. 43
7.2 The duty to conform is strict 43
7.3 Purchase managers cannot ignore the specification.. 44
7.4 The draftsman’s eight duties. 44
7.4.1 To make it crystal clear to the experts who are responsible for the contract specification that all the purchaser gets for its money is what is set out in the specification.. 44
7.4.2 To ensure that the specification is sufficiently definite. 44
7.4.3 To scrutinise closely the specification for gaps. 45
7.4.4 To make sure the specification recognises any peculiarities of the goods and/or services that are being purchased 45
7.4.5 To see if there are matters contained in the specification which are also covered in other parts of the contract 45
7.4.6 To consider the special position of specifications for goods which contain references to performance 46
7.4.7 To be sure that in a contract for services sufficient details of the services are set out in the specification and that it has been made clear to the supplier whether there is anything out of the ordinary 46
7.4.8 To make sure that the experts have not over-specified the goods or services 46
7.5 Entire agreement and prior representation clauses. 47
7.6 Conflict and precedence. 47
CHAPTER 8: The Sale of Goods Act 1979. 49
8.1 The history of the Sale of Goods Act and its amendments. 49
8.2 Application.. 49
8.3 The function of the SGA.. 50
8.4 Formalities. 50
8.5 Price. 51
8.6 Conditions and warranties. 51
8.7 Purchaser’s acceptance of goods. 52
8.8 Title. 52
8.9 Transfer of title and risk. 54
8.10 Performance. 55
8.11 Other matters. 59
CHAPTER 9: The Sale of Goods Act 1979 – description, quality, fitness for purpose and samples 61
9.1 Correspondence with description.. 61
9.2 Quality and fitness. 61
9.3 Liability for quality and fitness only for business sales. 62
9.4 Aspects relating to quality. 62
9.5 Where the condition will not be implied.. 63
9.6 Statements may impact on the quality of goods. 63
9.7 Fitness for purpose. 64
9.8 Sales by sample. 64
9.9 Slight breaches of the conditions: restrictions on rejection.. 66
9.10 The de minimis principle. 67
9.11 Alternative remedies. 67
CHAPTER 10: The Supply of Goods and Services Act 1982. 69
10.1 A statutory framework for contracts not covered by SGA.. 69
10.1.1 Contracts for the transfer of title to goods. 69
10.1.2 Obligation to transfer good title. 70
10.1.3 An obligation that goods will correspond with their description 70
10.1.4 Quality and fitness. 71
10.1.5 Transfers of goods by reference to sample. 71
10.1.6 Slight breaches of the conditions: restrictions on rejection.. 72
10.2 Contracts for the hire of goods. 72
10.2.1 Contracts of hire covered by the SGSA.. 72
10.2.2 Bailor must have right to transfer possession.. 72
10.2.3 Conditions in hire contracts as to description, quality, fitness and samples 73
10.2.4 Slight breaches of the conditions: restrictions on rejection.. 73
10.3 Contracts for the supply of services. 73
10.3.1 Service contracts to which SGSA applies. 73
10.3.2 Service quality. 73
10.3.3 Acting in the course of a business. 74
10.3.4 The duty to use reasonable care and skill is not classified.. 74
10.3.5 The service provider does not have to be the best in the world.. .... 74
10.3.6 Time for performance. 75
10.3.7 Price of the service. 76
10.4 Excluding the Act 76
CHAPTER 11: Contracts for services. 77
11.1 Quality. 77
11.2 Service specifications. 77
11.3 Policing service contracts. 78
11.4 Termination rights. 78
11.5 One-off services. 79
11.6 Milestones and periodic reports. 79
11.7 Failure to complete the service. 80
11.8 Late performance. 81
11.9 Subcontracting. 83
11.10 Intellectual property rights. 83
11.11 Fidelity. 83
11.12 Price. 84
11.13 The purchaser’s duty to the supplier. 84
CHAPTER 12: Exemption clauses and the Unfair Contract Terms Act 1977 85
12.1 Definition of an exemption clause. 85
12.2 The approach of the courts to exemption clauses. 85
12.3 The Unfair Contract Terms Act 1977. 86
12.4 ‘Dealing as consumer’ 86
12.5 UCTA only applies where the defendant has a business liability. 87
12.6 Excluding liability for negligence. 88
12.7 Exemption clauses generally. 89
12.8 Standard terms of business. 90
12.9 Exemption clauses relating to title and similar. 90
12.10 Exemption clauses relating to correspondence of goods with description or sample or as to quality or fitness for purpose. 91
12.11 The requirement of reasonableness. 92
12.12 The onus of proof of reasonableness. 94
12.13 International supply contracts. 94
12.14 Choice of law... 95
12.15 Purchasers seeking to rely on exemption clauses. 96
12.16 The value of UCTA in contract negotiations. 96
12.17 Other restrictions on exemption clauses. 97
CHAPTER 13: Late delivery — no delivery. 99
13.1 Time of delivery or performance. 99
13.2 Where no time is stated.. 99
13.2.1 Different legal effects. 99
13.2.2 Termination for delay. 100
13.2.3 Delivery at a reasonable hour. 101
13.2.4 Time being of the essence. 101
13.2.5 Where only part is delivered.. 102
13.2.6 Where the contract provides for instalment deliveries. 103
13.2.7 Contracts for services. 104
13.3 Excusable delay. 105
13.3.1 Excusable delay clauses. 105
13.3.2 Qualifying an excusable delay clause. 106
13.4 A promise to try rather than one to commit 106
13.5 Frustration of contract 107
CHAPTER 14: Payment 111
14.1 Advance payments and credits. 111
14.2 The purchaser who fails or refuses to pay. 112
14.3 Liens. 113
14.4 Reservation of title. 113
14.5 Method of payment 115
14.6 Interest on late payments. 116
14.6.1 Commercial attitudes. 116
14.6.2 The scheme of the Act 117
14.6.3 Interest on advance payments. 118
14.6.4 Excluding the Act 119
14.6.5 Avoiding statutory interest by long credit periods. 120
14.6.6 Calculating the amount of statutory interest 120
14.6.7 Fixed sums in addition.. 120
CHAPTER 15: Assignment and subcontracting. 121
15.1 Assignment 121
15.1.1 The history. 121
15.2 Section 136 Law of Property Act 1925. 121
15.2.1 Equitable assignment 122
15.2.2 Inability to assign due to identity. 122
15.3 Subcontracting. 123
15.3.1 A general right to subcontract 123
15.3.2 Inability to subcontract due to identity. 124
CHAPTER 16: Amendment and Novation. 127
16.1 Contract amendment 127
16.1.1 The nature of a contract amendment 127
16.1.2 Amendments and the need for consideration.. 127
16.1.3 Oral agreements to written contracts. 129
16.1.4 Amendment clauses. 129
16.2 Novation.. 130
16.2.1 Novation agreements. 130
16.2.2 Novation by conduct 131
CHAPTER 17: Privity of contract and the Contracts (Rights of Third Parties) Act 1999 133
17.1 The doctrine of privity. 133
17.2 Rights and duties. 133
17.3 Exceptions to privity. 134
17.4 Agency as a means of avoiding privity. 134
17.5 The Contracts (Rights of Third Parties) Act 1999. 135
17.6 Crystallisation of third party rights. 136
17.7 Third party is subject to the same defences and rights. 138
17.8 Third parties relying on exemption clauses. 139
17.9 Excluding the provisions of the Act 140
CHAPTER 18: Damages for breach of contract 141
18.1 Damages in addition to or in place of termination.. 141
18.2 The object of damages. 141
18.3 No loss no damages. 141
18.4 Nominal damages. 142
18.5 Remoteness of damage. 143
18.6 Exceptional losses of profit 145
18.7 Exemption clauses. 145
18.8 Mitigation.. 146
18.9 Heads of damage. 147
18.10 Damages for annoyance and distress. 147
18.11 Liquidated damages. 147
CHAPTER 19: Other Remedies for Breach of Contract 151
19.1 Specific performance. 151
19.2 Injunctions. 152
19.3 Interim and ex parte injunctions. 154
19.4 Damages in lieu of an injunction.. 154
19.5 Action for an account 155
19.6 Modern injunctive remedies. 155
19.6.1 Mareva injunction (“freezing order”) 155
19.6.2 Anton Piller order. 155
19.7 Rectification.. 156
19.8 Remedies of an unpaid seller of goods. 156
CHAPTER 20: Dispute Resolution and limitation of actions. 157
20.1 Discussion.. 157
20.2 When talks break down.. 157
20.3 They’re not getting away with it 158
20.4 Arbitration.. 158
20.5 Litigation.. 158
20.6 Civil Procedure rules and protocols. 159
20.7 The advantages of arbitration.. 159
20.8 Disadvantages of arbitration.. 160
20.9 Advantages of litigation.. 160
20.10 Adjudication.. 161
20.11 Mediation and conciliation.. 161
20.12 Limitation of actions. 162
CHAPTER 21: Intellectual property rights. 163
21.1 The nature of IPR.. 163
21.2 The owner of IPR.. 164
21.3 Patents. 164
21.4 Copyright 165
21.5 Database right 167
21.6 Designs. 168
21.6.1 UK registered design.. 168
21.6.2 EU registered design.. 169
21.6.3 Transitional Provisions. 169
21.6.4 Unregistered design right 170
21.6.5 Unregistered design right in the UK.. 170
21.6.6 Unregistered design right in the EU.. 170
21.7 Trade marks. 170
21.8 Restrictions on passing off 171
21.9 A purchaser’s rights in a supplier’s IPR.. 172
CHAPTER 22: Confidential information. 175
22.1 The nature of confidential information.. 175
22.2 Different kinds of confidentiality. 175
22.3 Trade secrets. 176
22.4 Information needing express protection.. 176
22.5 General know-how... 176
22.6 The purchaser and confidential information.. 177
CHAPTER 23: Electronic commerce. 179
23.1 Purpose of this chapter. 179
23.2 Definition of e-commerce. 179
23.3 Misconceptions concerning e-commerce. 179
23.4 Offers, acceptances and invitations to treat 180
23.5 Whose terms apply?. 182
23.6 What happened to Argos. 182
23.7 Framework agreements. 183
23.8 Other considerations. 183
23.9 Electronic Communications Act 2000. 184
23.10 Regulation of Investigatory Powers Act 2000. 185
23.11 Consumer Protection (Distance Selling) Regulations 2000. 186
23.12 Electronic Commerce (EC Directive) Regulations 2002. 186
23.13 Provisions of the Electronic Commerce Regulations. 187
CHAPTER 24: Purchasing by Public Bodies and Utilities. 189
24.1 The directives. 189
24.2 Incorporation of the directives into the laws of the UK.. 189
24.3 The Public Contracts Regulations. 190
24.3.1 Application.. 190
24.3.2 The need to advertise. 191
24.3.3 The extent of the need to comply. 191
24.3.4 Different procurement procedures. 191
24.3.5 Choice of procedure. 194
24.3.6 Minimum Timescales. 194
24.3.7 Excluded procurements. 195
24.3.8 Standstill periods. 195
24.3.9 Framework agreements. 196
24.3.10 Ineligibility for award.. 196
24.3.11 Basis for contract award.. 197
24.4 The Utilities Contracts Regulations (“UCR”) 197
24.4.1 A more relaxed regime. 197
24.4.2 Thresholds. 198
24.5 The New Remedies Directive. 198
CHAPTER 25: Purchasing abroad. 201
25.1 Choice of law... 201
25.2 International contract law... 202
25.3 Choice of jurisdiction.. 203
25.4 International arbitration.. 203
25.5 Delivery. 204
25.6 Export licences. 204
25.7 Payment 206
25.8 Legal personality. 206
25.9 Language. 207
CHAPTER 26: Ethics in purchasing. 209
26.1 Duties of an employee as the employer’s agent 209
26.1.1 Secret profits. 209
26.1.2 Safeguarding property. 211
26.1.3 Conflicts of interest 211
26.1.4 Diligence. 211
26.2 Criminal liability. 212
26.3 New laws. 213
26.4 Corruption and codes of conduct 213
26.5 An anti-corruption culture. 214
26.6 The whistleblowers’ charter. 214
APPENDIX 1: Selected cases from the law of contract 217
APPENDIX 2: Damages – betterment or compensation?. 225
APPENDIX 3: Parking on the pavement 227
APPENDIX 4: Regus – a case study. 229
Index 233
Graham Fuller's book would be a useful addition to any purchaser s library. It deals in a logical manner with all of the law a buyer is likely to encounter.