Legal aspect of Contract

 

Each nation possesses its own legal framework regarding contracts, which may lead to legal conflicts. The rise of globalization has facilitated international trade, wherein the involved parties are safeguarded by their respective national laws thus necessitating the harmonization of laws across different countries, which would prove beneficial for the parties engaged in mercantile contracts.

The European Union has established a cohesive system of contractual obligations for the European Economic Community. European nations adhere to the Rome Convention concerning Contractual Obligations within their jurisdictions. In many countries, international contracts are regulated by the "Contract of International Sale of Goods" [CISG], a multilateral treaty that provides standardized legal provisions globally.

Despite the existence of various conventions and legal frameworks governing contracts in different nations, the fundamental principles, whether pertaining to national, international, or multinational contracts, remain consistent or similar across the globe.

Types of Contract

There are various types of contracts depends on the purpose. The popular types are

-        Goods

o   Buy & Supply

o   Manufacture & Supply

o   Design, Manufacture & Supply

-        Works

o   Installation

o   Construction

Text Box: In some organisations, Works contract comes under Services contract

o   Erection

-        Service

o   Operation

o   Maintenance

o   O & M

o   Housekeeping

o   Consultancy

o   Technology Transfer

o   Human Resource

-        Combination of Goods, Works and Service

o   Supply & Installation

o   Buy/ Manufacture, Supply & Installation

There are various types of contracts, and the fundamental principle underlying all of these contracts remains consistent. I trust you have gained an understanding of what a contract entails. Subsequently, we will explore the stages involved in a contract.

Stages of Contract.

There are two main branches in contract management, they are

-        Contract Procurement and

-        Contract Performance

Each branch shall have its own stages. We shall discuss now these stages.

Stages in procurement

Planning

It is a critical step in contract management. It helps ensure that all aspects of the contract shall be executed as expected by the parties. A contract plan includes details such as:

– Make or Buy decision

– Quantity

– Specification [for Goods]

– Scope [for Service]

– Schedule of time

– Cost

 

Prior to commencing the contracting process, it is essential to determine whether the goods or services can be produced internally or should be outsourced. This evaluation is referred to as the 'Make or Buy decision.' In instances where the work constitutes a project, a feasibility study must be conducted. Given that our focus is on contract management, I will refrain from delving further into this topic and will proceed to the next. Once the decision is made to procure goods or services from an external agency, the quantity of goods or the extent of services required must be established based on necessity.

If the requirement pertains to a specific item, its complete specifications should be included with the tender documentation. In cases where the item to be purchased is new, its specifications must be developed. When procuring a service, a detailed scope of work must be articulated and included in the tender documents to ensure that the tenderer comprehends the requirements. Should the tenderer (contractor) find any aspect ambiguous, inconsistent, or contradictory, they are entitled to seek clarifications. It is imperative that there is a mutual understanding; otherwise, the parties may encounter difficulties that could lead to litigation. A separate article has been dedicated to the topic of Scope.

Another critical aspect of planning is establishing the timeline for contract execution. The contract period represents the maximum duration permitted for the completion of all activities related to the work. Timeliness is a fundamental aspect of the contract. Any delays may not only cause inconvenience but could also result in legal disputes.

For instance, if delays occur in a road construction contract, it will inconvenience the public. Given the heavy traffic on highways, delays in road construction may lead to losses for transport services, and prolonged delays could create significant disruptions for the employer. Similarly, if a contract is awarded for the supply of railway coaches and delays arise, the railway company may experience revenue losses.

The subsequent crucial aspect of planning involves determining the necessary funding. Estimation entails calculating the different quantities and anticipated expenses across various categories for the project. This process provides insight into the required costs and, consequently, the project's feasibility. Should there be insufficient funds, the project may be carried out in phases, the scope may be modified, or the quantity may be decreased.

Therefore, these represent the key activities during the planning phase of contract.

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