In our last article, we looked at the pitfalls involved in the tendering
process. In this issue we consider the
streetwise steps in checking a letter of intent and official order from the
client or builder.
Letters of intent
The letter of intent is a main source of subsequent problems. Such letters are often worthless.
Ideally, the subbie should look for :
·
Clear and unqualified acceptance in writing of the tender
(In this case, the letter would usually create
a binding contract)
·
Confirmation of price, and allied terms
·
Confirmation of programme, dates and periods
·
Confirmation of terms and conditions
At the very least, the subbie must
require:
o
Instruction to proceed and/or expend money on specific functions
(eg. commence working drawings and
procurement of quotations for specialist items")
o
Definite promise to pay for all works and/or services provided
up to a stated value, in the event of
the subcontract not proceeding.
o
Absence of “counter offers” and “additional
conditions”
Many projects start off on a vague basis, with glaring omissions as
regards price, programme and/or other terms.
These deficiencies are the seeds of subsequent dispute. Some temporary protection
can be engineered by a carefully framed reply.
However, it is dangerous to
expend substantial resources in the absence of a clear agreement. In essence,
all letters of intent should be treated with great caution.
Receipt of
order and/or subcontract agreement
The subbie must check that the value,
programme, details and conditions are those on which the tender was based
and/or subsequent agreements reached.
Check the small print on the reverse of the order. This is where clients and builders hide their onerous clauses.
Beware the client or builder who smuggles in his own payment or "set off" clauses even though
standard terms have been agreed.
Refusal to sign and return the acknowledgement slips cannot be relied
upon as evidence of non-acceptance.
Any “act” taken on the order can be construed as “acceptance by
conduct”.
Acceptance of
order or terms "by conduct"
Many subbies unintentionally accept onerous terms of an order by commencing
on site before terms are agreed. This
can be taken as “acceptance by
conduct" even though negotiations are still in progress. The subbie must protect his position by a
suitably framed letter (eg.
"Without Prejudice to our contractual position etc"). If you have to start work without agreed
terms, make this clear in writing,
stating your position regarding
outstanding matters. However, you may
still be at risk, despite this precaution.
Offer
and counter – offer -
the "battle of the forms'
When the builder accepts the subbie's quotation "in accordance
with our standard terms" he actually makes a "counter offer"
which supersedes the terms of the
original tender. If the subbie commences work without dissent,
his action may well denote “acceptance
by conduct”. This can also be so where
work is commenced with correspondence still passing to and fro. This is
sometimes called “battle of the forms”.
If the subbie does start work, having
confirmed his disagreement, there may
well be no valid contract at all, and any work done may have to be valued on a
“quantum meruit” basis.
The
term “quantum meruit” means "what it is worth". This is not to be confused with "cost
plus", but means a reasonable sum of money for work done in good faith,
but where there is no valid contractual agreement. This sometimes arises from
work done on a letter of intent basis,
where that letter was insufficient to constitute a binding agreement. Nevertheless, the subbie is
entitled to some reasonable payment.
Retrospective agreement
The
formal document will have retrospective
effect once signed. The conditions then
apply retrospectively to works which have already taken place on site, as
though the agreement had been signed on "day one".
This can be
fraught with problems. Frequently, the works have become subject to delays,
claims and variations during the period
whilst the agreement remains incomplete.
One party may wish these events to be reflected in the formal agreement.
This should not really be the position. What should, in theory, apply is that
claims, delays and variations should be dealt with under the terms of the
eventual agreement, as if that
agreement had been in force all along.
Incorporation of terms
The order
will often make reference to a set of terms and conditions (be they standard,
such as DOM/1, or otherwise) which do
not physically appear in the formal documentation. In such a case, the terms and conditions will usually govern the
conduct of the parties just as if they had been physically "signed and
bound in".
In the next article,
having negotiated the initial pitfalls,
I will give some streetwise tips for “starting off on the right foot”.
Back to Jack Russell Column Contents
John Russell
Contracts and
Training Consultant
Cheshire CW4 7DP
Tel: 07770 986444
Email: swsubbie@globalnet.co.uk