Some Legal Aspects of Contract Management

Barrister Femi Falana, SAN

While procurement and contract managers are not expected to be legal experts, it is very difficult to manage a contract well without a basic understanding of the key elements to a contract and the meaning of significant terms and clauses.

There must be a distinction between a good contract manager and a bad contract manager:

  • A bad contract manager is not very well qualified and applies or thinks that they are following the rules for the sake of the rules even if it means a less than desirable outcome in business terms.
  • A good contract manager is well-qualified and asks how can we interpret the law responsibly and reasonably to ensure the best possible business outcome?

Law and rules were created to serve society rather than society serves the law and rules.

In this post we shall examine some of the legislative areas pertaining to contract management that every Contract Manager should be aware of:

 

Estoppel by Conduct

A rule of law that when person A, by act or words, gives person B reason to believe a certain set of facts upon which person B acts, person A cannot later, to his (or her) benefit, deny those facts or say that his (or her) earlier act was improper.

“A man shall not be allowed to blow hot and cold – to affirm at one time and deny at another – making a claim on those to whom he has deluded to their disadvantage and founding that claim on the very matters of the delusion.”

A rule of evidence which precludes a person from denying the truth of some statement previously made by himself”.

“An estoppel … happens where a man hath done some act or executed some deed which estops or precludes him from averring anything to the contrary.

Estoppel is the law’s way of saying “you can’t have your cake and eat it.”

One British judge said, in 1862

 

Common Law Provisions

There are also common law provisions which can impact on the form, legality and conduct of building contracts. These common law provisions include: ·

The legal requirements for formation of a contract,

  • including an offer,
  • acceptance of the offer,
  • payment of consideration,
  • the legal intent to form a contract and
  • the capacity of the parties to enter into a contract.

 

General obligations placed on both parties to a contract, for example that neither party should do anything that might prevent the other party from fulfilling their obligations under the contract.

 

Privity of Contract

The doctrine of privity of contract means that only the parties to a contract are legally bound by and entitled to enforce it. (Only they have rights within that contract). Consequently, a contract between A and B cannot impose obligations on C; conversely a contract between A and B cannot be enforced by C, even if the contact is intended to benefit C. This can be an issue where contracts are intended to benefit a third party and the third party is reliant upon this. Exceptions may be put in place to limit harsh results. The doctrine of privity of contract applies only to contractual rights and obligations, any non-contractual rights and obligations may not be enforceable.

 

Liquidated Damages

A sum of money (agreed-to and written into a contract) specified as the total amount of compensation an aggrieved party should get, if the other party breaches certain part(s) of the contract.

For example, if the builder fails to complete the contract within the specified time (including any agreed time extensions), the owner may be entitled to claim liquidated damages.

These benefits both parties for providing contractual certainty not requiring proof of loss simplifying disputes including performance providing a cap on liability. However, the quantified amount of liquidated damages must be a genuine pre-estimate of loss. If a court considers this amount to be excessive it may categorize it as being a penalty, leading to the clause becoming unenforceable and therefore the benefits will be lost.

As a contract manager you should always refer contract issues to your agency’s legal area, possibly just for a second opinion, to be sure that way you are interpreting a contract and the actions you wish to take are valid.

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About Gbolagade O. Adebisi 1575 Articles
For over 25 years, (Gbola)’s focus has been on Government and Institutional Business. His involvement has ranged from the Federal, State and Local Governments as well as Donor – funded programmes and projects. [...]

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