Flashcards in 14. Contract Award Deck (7)
Describe the definition of a Letter of Acceptance.
As soon as practicable after the decision is made to accept a tender, a Letter of Acceptance, signed by the person authorised to do so by the Principal, should be sent out to the successful tenderer. As we saw earlier – a legally binding contract is formed when an offer made by one party is accepted unconditionally by another party. If the original conforming tender or an alternative tender is accepted without qualification or amendment, the Letter of Acceptance need only accept the nominated tender as submitted in order to form a legally binding contract. If an original offer has been amended or qualified in subsequent negotiations, the agreed changes must be documented and then proposed or acknowledged by the tenderer as a revised offer. The Letter of Acceptance can then unequivocally accept the amended tender to form a valid contract.
In addition to accepting a tender, what else should a Letter of Acceptance do?
• Nominate those enquiry documents and any documentation of amendments, minutes of meetings and qualifications which will be incorporated in the contract documents.
• Confirm that an Instrument of Agreement will be prepared by the Project Manager and, together with the updated contract documents, forwarded to the tenderer (now the Contractor) for signature.
• Point out that the Specification and Drawings issued with the enquiry documents are provisional and must not be used for construction purposes unless or until otherwise approved or amended.
• Indicate who will represent the Principal in all matters dealing with the contract. (Referred to as the ‘Project Manager’ in these notes.)
• Nominate that the date of the Letter of Acceptance is the Date of Acceptance of Tender or the Date for Commencement of Work, as appropriate.
• In the case of Lump Sum contracts, confirm the Lump Sum.
• Until the Agreement is signed, the Letter of Acceptance and the referenced documents will form the contract.
Describe the definition of a Letter of Intent.
Intent If for some reason it is not possible to issue a Letter of Acceptance immediately after a decision is made to accept a tender, a Letter of Intent may be sent to the successful tenderer as a precursor to the Letter of Acceptance. The purpose of a Letter of Intent, by advising the tenderer that the Principal intends to accept the tender, is to avoid unnecessary delays to the work under the contract by authorising the successful tenderer to commence preliminary planning and mobilisation. It must be emphasised that a Letter of Intent is not an acceptance. Unless the Letter of Intent makes specific provision, the successful tenderer would be unable to recoup the cost of such preliminary work in the event that the Principal decided not to proceed.
What should the Letter on Intent do?
• Advise the tenderer that it is the Principal’s intention to accept the nominated/amended tender within a stated period or by a certain date.
• Authorise the tenderer to proceed with certain nominated preliminary work up to a specified cost limit.
• Confirm that in the event that the Letter of Intent is withdrawn and the tender not accepted, the Principal will pay to the tenderer the cost of such of the authorised work undertaken on a basis to be set out in the Letter of Intent.
• State that when the Letter of Acceptance is eventually issued, the provisions therein will supersede those in the Letter of Intent; and
• Request the tenderer to acknowledge receipt of the Letter of Intent and confirm acceptance of the conditions therein.
What is the requirement of a formal contract?
Provided that the Letter of Acceptance identifies all the documents and encompasses all the provisions which comprise the agreement between the parties, a simple contract is formed by the issue of the Letter. While in law this may be sufficient to evidence the contract, the parties may, either as required by the terms of the contract or else through subsequent agreement, merge the simple contract into a formal one by signing a formal Instrument of Agreement.
How is the agreement prepared for a formal contract?
The Agreement itself need only be short document incorporating the respective promises of the parties, identifying the work under the contract and specifying the consideration. Most general conditions provide a pro-forma Form of Agreement. The Project Manager’s choice of the form of the Agreement will depend upon local legal requirements; in any case, the Principal’s legal advisers may wish to draw up the Agreement.