Contract Law Update for the Procurement & Contracting Professional
Ernest G. Gabbard, J.D., C.P.M., CPCM
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Contract/Procurement Law - AGENDA
Essential Contracting Principles Contract Formation
– Written vs. oral contract – Electronic contracts
Terms and Conditions
– Battle of the forms – What terms apply?
Contracts for Services
– Applicable law(s) – Legal differences
Contract Law - ISM-FASMG -June 2004
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Essential Contracting Principles
Uniform Commercial Code (UCC) :
– is not a code - state legislatures enact a version – is not uniform - nominal variations by state (except LA) – creates substantial implied rights warranties damages – applies to purchase/sale of “goods” – N/A to services contracts – N/A to software contracts?
Contractual and legal rights may be waived if not enforced or reserved
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Contract Formation
Written vs. oral contract
– State laws generally require “writing” IF: Sale of goods over $500.(changing to $5,000); Promise to pay debt of another; Sale of land or interest therein; Contracts not performed within one year; – UCC also requires “signature” for contract formation (UCC 2-201)
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Contract Formation - UCC
Written vs. oral contract
– UCC 2-201 “writing” requirement satisfied IF the intent to contract is apparent in communications;
– therefore, exchange of correspondence adequate
however, writing must be “signed” by party required to perform
– Writing and signature must be “tangible” – HOWEVER, UCC revisions are being proposed! 5
Contract Formation - UCC
Written vs. oral contract
– UCC revisions being proposed(not yet enacted): “writing” replaced with “record”, and specific reference to “electronic record” “signature” replaced with “sign”, which now includes “electronic sound, symbol or process” new 2-211 provides for legal recognition of contract established by electronic record. – Valid contracts may therefore be formed by electronic communications - what about e-mail? 6
e-Contracts - New Laws
What NEW laws also address e-contracts?
– Uniform Computer Information Transactions Act (UCITA) computer information only adopted in 2 states; 1 pending – Uniform Electronic Transactions Act (UETA) all “transactions”? sale of goods only ? adopted in 43 states; 2 pending (+ USVI) – Electronic Signatures in Electronic Commerce Act (E-SIGN) Federal statute for interstate & international commerce applies to commodities, services, software, etc. does not apply to intrastate transactions
Concern remains with lack of uniformity/consistency
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e-Contracts - Challenge
Lack of uniformity in laws
– – – – UCC changes will take years to enact in all states What about purchase of services (not UCC) ? What about purchase of software (UCITA) ? What about intrastate sales of goods (not ESIGN) ?
No court interpretations available on new laws
Recommend Electronic Commerce Agreement until legal requirements are well established
– pre-agreement to contract by electronic media
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Contract Terms and Conditions
Battle
of the Forms
– Purchaser sends Purchase Order with Terms and Conditions (T&C) – Seller acknowledges order - disagrees with Purchaser T&C – Whose terms prevail? – UCC 2-207 governs where no agreement
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Whose Terms Prevail?
Buyer’s P.O. Contains:
“Acceptance of order. This order is buyer’s offer to seller. Seller’s acceptance is expressly limited to the terms of the order and buyer hereby objects to any additional or different terms in seller’s acceptance. Seller accepts this order as written by executing and returning to buyer the acceptance or acknowledgement copy of the order, or by beginning performance.”
Seller’s Acknowledgement Contains:
“Seller’s acceptance of this order is expressly made conditional on buyer’s assent to the additional (or different) terms incorporated herein by seller.”
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Sample Response
Subject: PO Number Dear (Seller): Purchaser has received Sellers sales form, including terms and conditions which Seller proposes to apply to our subject purchase order. This letter will remind Seller that the referenced order was specifically limited to the terms and conditions printed on the subject order. Therefore, terms and conditions submitted by Seller on Seller’s sales form are hereby rejected. Whose Terms Apply? Seller terms do NOT apply Purchaser terms apply to extent NOT conflicting with Seller terms In event of conflict, Purchaser & Seller terms negate each other
– UCC provisions are utilized to fill in any resulting gaps
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Service Contracts
Legal distinctions (From commodities)
– UCC does not apply: No clear, uniform law
– requires more documentation
Battle of forms result uncertain “Buyer favored” clauses not available
– no UCC warranties of merchantability or fitness for purpose – no incidental or consequential damages
– Standard Purchase Order is generally NOT appropriate for services
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