Professional ethics

Jahid Hasan
Assistant Professor, Dept. of IPE, SUST
Contract Definition

A voluntary, deliberate,
and legally binding
agreement between two or
more parties, usually in
writing

What is a
Contract?
A contractual relationship is
evidenced by
(1) an offer,
(2) acceptance,
(3) competent parties, and (4) a
valid consideration. Each party has
rights and duties.

2
 What is a Contract

 a: a binding agreement between two or more persons or parties ;

especially one legally enforceable
 b: a business arrangement for the supply of goods or services at a fixed

price -Merriam-Webster
 A contract is a legally binding agreement between two or more people that

is enforceable by law
 All contracts have several elements in common

Contract: An agreement between two or more parties to perform or to refrain

from some act now or in the future. A legally enforceable agreement.
Examples
 Credit Card Agreement
 Signed agreement related to a job
 Online agreement when starting a Facebook or
email account
 An agreement to buy something from a friend
 Buying something from a store
Types of contracts :

 Written contracts
 Verbal contracts
 Standard form contracts
 Period contracts
Written contracts

 Written contracts provide more certainty for both parties than verbal
contracts. They clearly set out the details of what was agreed. Matters
such as materials, timeframes, payments and a procedure to follow in
the event of a dispute, can all be set out in a contract.
 A written contract helps to minimise risks as it is much safer to have
something in writing than to rely on someone's word. A written
contract will give you more certainty and minimise your business
risks by making the agreement clear from the outset.
Benefits of a written contract:

A written contract can:  Set out how a dispute over payments or

performance will be resolved.
 Provide proof of what was agreed
between you and the hirer.  Set out how the contract can be varied.
 Help to prevent misunderstandings or  Serve as a record of what was agreed.
disputes  Specify how either party can end the
 Give you security and peace of mind by contract before the work is completed.
knowing you have work, for how long
and what you will be paid.
 Clarify your status as an independent
contractor by stating that the contract is
a 'services contract' and not an
'employment contract'.
 Reduce the risk of a dispute by detailing
payments, timeframes and work to be
Risks of not having a written contract

 When a contract is not in writing, you are exposing yourself and your
business to a number of risks including:
 The risk that you or the hirer misunderstood an important part of the
agreement, such as how much was to be paid for the job or what work
was to be carried out.
 The risk that you will have a dispute with the hirer over what was
agreed because you are both relying on memory.
 The risk that a court won't enforce the contract because you may not
be able to prove the existence of the contract or its terms
 When a written contract is essential

A written contract is essential:  Where the contract contains essential terms,

such as a critical date for the completion of
 When the contract price is large enough to
the work before payment can be made.
make or break your business if you don't get
paid.  Where you or the hirer need to keep certain
information confidential.
 Where there are quality requirements,
specifications or specific materials that must  When it is required by your insurance
be used. company for professional indemnity
purposes.
 Where there is some doubt that the hirer has
enough money to pay you.  Where there is a legal obligation to have a
written contract (eg. trade contracts for
 When you must have certain types of
building work in Queensland).
insurance for the type of work you are
doing.
 Verbal contracts

 Many independent contracting  quotes with relevant details

arrangements use verbal contracts,  lists of specifications and materials
which only work well if there are  notes about your discussion—for
no disputes. A handshake example, the basics of your
agreement may still be a contract contract written on the back of an
and may (though often with envelope (whether signed by both
difficulty) be enforced by a court. of you or not).
However, verbal contracts can lead
to uncertainty about each party's
rights and obligations. A dispute
may arise if you have nothing in
writing explaining what you both
Standard form contracts

 A 'standard form' contract is a pre-prepared contract where most of

the terms are set in advance and little or no negotiation between the
parties occurs. Often, these are printed with only a few blank spaces
for filling in information such as names, dates and signatures.
 Standard form contracts often include a lot of legal 'fine print' and
terms that you may not understand. They tend to be one-sided
documents that mostly benefit the person who prepared the contract
(for example, by shifting as much risk as possible to the contractor).
If you don't understand the fine print or any other part of the contract,
you should get advice. If you sign the contract, you will be required
to comply with the fine print even if you didn't actually read it.
Period contracts
 Some independent contractors and  If you are unsure about anything
hirers use a 'period contract', related to a period contract, get
which is a contract template that advice before you sign or agree to
sets out the terms for a business new work, even if you have
relationship where the contractor performed work for that hirer
is engaged to perform work from previously.
time to time.  In the building and
construction industry, these
contracts are called 'period trade
contracts'.
 The contract template will apply
each time the hirer offers work to
the contractor and the contractor
accepts it. 
UNILATERAL AND BILATERAL (1) the plaintiff must have furnished some
CONTRACTS service or property to the defendant,
• Every contract involves at least two parties (2) the plaintiff must have reasonably expected
-- the offeror/ promisor, who makes the to be paid and the defendant knew or should
offer/promise to perform, and the have known that a reasonable person in the
offeree/promisee, to whom the offer/promise is plaintiff’s shoes would have expected to be paid
made. for the service or property rendered by the
• Unilateral Contract: A unilateral contract plaintiff, and
arises when an offer can be accepted only by (3) the defendant must have had the
the offeree’s performance (e.g., X offers Y $15 opportunity to reject the services or property
to mow X’s yard) and failed to do so.
• Bilateral Contract: A bilateral contract
arises when a promise is given in exchange for • Quasi or Implied-in-Law Contract: A
a promise in return (e.g., X promises to deliver fictional contract imposed on parties by a court
a car to Y, and Y promises to pay X an agreed in the interests of fairness and justice, typically
price). to prevent the unjust enrichment of one party at
• Express Contract: A contract in which the the expense of the other.
terms of the agreement are fully and explicitly
stated orally or in writing.
FORMAL AND INFORMAL • Negotiable Instrument: A check,
CONTRACTS note, draft, or certificate of deposit --
• Formal Contract: A contract that each of which requires certain
requires a special form or method of formalities (to be discussed later).
formation (creation) in order to be • Letter of Credit: An agreement to
enforceable. pay that is contingent upon the receipt
• Contract Under Seal: A formalized of documents (e.g., invoices and bills of
writing with a special seal attached. lading) evidencing receipt of and title to
goods shipped.
• Recognizance: An acknowledgment
in court by a person that he or she will • Informal Contract: A contract that
perform some specified obligation or does not require a specified form or
pay a certain sum if he or she fails to method of formation in order to be
perform (e.g., personal recognizance valid.
bond). • The vast majority of contracts are
informal (without a seal).
Elements of a Contract

1. Agreement
2. Intention
3. Consideration
4. Capacity
5. Consent
6. Legality of form
7. Legality of purpose
1.Agreement
 Agreement occurs when an offer has been accepted
 Both must be clear, complete and unconditional
 They can be in writing, e.g. purchase of land or property
 They can be oral, e.g. at an auction
 They can be implied by conduct, e.g. at a checkout
An offer is terminated if there is:
 A counter offer

 A rejection of the offer

 A revocation (the person making the offer backs out)

Invitation to Treat
 Advertisements, price tags or shop displays are not legal offers, they
are an invitation to treat
 If a price is wrong it can be corrected
 The item does not have to be sold at the
mistaken price
2.Intention
 In order for a contract to take place there must be a willingness and
knowledge on both sides that they are entering into a contract
 Example: two people arrange to go out for dinner. If one doesn’t turn
up, can the other one sue?
 Answer: No, there was no intention
to form a contract
3.Consideration
 What one party gives to another
 There must be some sort of exchange
 It need not reflect the full monetary value of the item, but it must
have some measurable value
 Example: Mary buys a car from Tom for €14,000
Mary gets the car and Tom gets the money
4.Capacity
 Persons entering into a contract must have the legal ability to do so
 Exceptions:
 Under 18s
 Persons under the influence of drugs or alcohol
 Bankruptcy
 Company director who is acting “ultra vires”
 Diplomat can claim diplomatic immunity
5.Consent
 The contract must be made voluntarily
 It must not be entered into under duress
 Both parties must agree to what is in the contract
6.Legality of form
 This refers to the manner in which the contract is drawn up, e.g. oral,
in writing or implied by conduct
 Certain contracts must be in writing, e.g. sale of property, insurance
policy
7.Legality of purpose
 The contract must not break any laws
 Legally binding contracts must be for legal transactions
 Agreements to commit a crime will not be upheld in court
Terminating a Contract
A contract can be terminated or ended in any one of four ways:
1. Performance

2. Agreement

3. Frustration

4. Breach
1.Performance
 Both parties carry out their side of the contract
 Example: a builder builds a house and the owner pays the builder
2.Agreement
 Both parties agree to end the contract
 Example: the homeowner decides not to go ahead with the
construction of the new house and the builder agrees to cancel the
contract
3.Frustration
 Some unforeseen event makes it impossible to carry out the contract
 Example: the death of one of the parties to the contract
4.Breach
 One party to the contract breaks an essential condition of the contract
 Example: the builder stops construction before the house is completed
Remedies for Breach of Contract
1. Rescind the contract
Abandon the contract
2. Damages
The injured party can use for compensation
3. Specific Performance
The courts can order the original contract to be carried out, e.g. the
builder may be ordered to complete the construction of the house
Review of the Law of Contract
In this topic you have learned about:

 The elements in the law of contract

 Four ways to terminate a contract

 Remedies for breach of contract

Negotiation and drafting activity
 We are going to negotiate and draft a contract

 Negotiating and drafting contracts is something

that a lot of lawyers do—including hopefully me.

 The goal is to come to an agreement.

 This requires each side to compromise, so that they can
get what they really want—to make a deal.
When drafting be sure to
 Include all the terms
 Don’t be afraid of creative solutions
 Use specific binding language:
 “Shall” not “Will”
 X shall pay Y $10.
 Y shall wash X’s car.
 Not:
 X will pay Y $10.
 Y will wash X’s car.
EXECUTION AND VALIDITY OF • A void contract is a contract having no
CONTRACTS legal force or binding effect (e.g., a contract
• Executed Contract: A contract that has entered into for an illegal purpose);
been completely performed by both (or all) • A voidable contract is an otherwise valid
parties. By contrast, contract that may be legally avoided,
• An executory contract is a contract that cancelled, or annulled at the option of one of
has not yet been fully performed by one or the parties (e.g., a contract entered into under
more parties. duress or under false pretenses); and,
• Valid Contract: A contract satisfying all • An unenforceable contract is an
of the requisites discussed earlier -- otherwise valid contract rendered
agreement, consideration, capacity, legal unenforceable by some statute or law (e.g.,
purpose, assent, and form. By contrast, an oral contract that, due to the passage of
time, must be in writing to be enforceable).
CONTRACT INTERPRETATION

The key to contract interpretation is to give effect to the intent of the parties as expressed in their
agreement.

• Intent is generally to be ascertained objectively -- by looking at

(1) the words used by the parties in the agreement,
(2) the actions of the parties pursuant to the agreement, and
(3) the circumstances surrounding the agreement

as they would be interpreted by a reasonable person -- rather than the parties’ subjective intentions
(usually expressed after the fact).
• The Plain Meaning Rule: When a contract is clear and unequivocal, a court will enforce it according
to its plain terms, set forth on the face of the instrument, and there is no need for the court either to
consider extrinsic evidence or to interpret the language of the contract.
RULES OF INTERPRETATION –

Know these, they show up all the time… • Specific terms will prevail over general terms.
• Rules of Interpretation: • Handwritten terms prevail over typewritten terms,
When a contract contains ambiguous or unclear which, in turn, prevail over printed terms.
terms, a court will resort to one or more of the following • When the language used in a contract has more than
rules in order to determine and give effect to the parties’ one meaning, any ambiguity is construed against the
intent. drafting party.
• In so far as possible, the contract’s terms will be • An ambiguous contract should be interpreted in light
given a reasonable, lawful, and effective meaning. of pertinent usages of trade in the locale and/or industry,
• The contract will be interpreted as a whole various the course of prior dealing between the parties, and the
and its various provisions will be “harmonized” to yield parties’ course of prior performance of the contract.
consistent expression of intent. • Express terms are given preference over course of
• Negotiated terms will be given greater consideration prior performance, which is given preference over
than standard-form, or “boiler-plate,” terms. course of dealing, which is given preference over usage
of trade.
• A non-technical term will be given its ordinary,
commonly-accepted meaning, and a technical term will • Words are given preference over numbers or
be given its technical meaning, unless the parties clearly symbols.
intended something else.
 DEVELOPING
SPECIFICATIONS - SPECIFY THE
NEED
 Develop Bid or RFP Specifications (Scope of Work) –
 The element of a contract that is most likely to create

contract administration problems is the Scope of

Work.
 The Contractor’s ability to interpret the Scope of

Work determines contract performance.

DEVELOPING
SPECIFICATIONS - SPECIFY THE
NEED cont…
 Design Specifications:
 Describes specifics of a good such as dimensions, physical

requirements, materials, etc.

 This type of specification gives an agency control because

it determines exactly what the contractor must provide.

 However, it also places an additional burden on the agency

to ensure that the specifications are exactly as needed and

to inspect or test the item to determine compliance.
 DEVELOPING
SPECIFICATIONS - SPECIFY THE

NEED
Performance Specifications:
cont…
 This type of specifications is oriented to results and function.
 The responsibility for method or process becomes the responsibility of the
contractor.
 However, acceptance of goods or services procured through performance
specifications is the responsibility of the agency which greatly impacts
contract administration.
WHAT ARE CONTRACT RISKS TO
AGENCY – Protect the agency
 Proposal Risk –
 How well is the good/service described? Do the terms
and conditions adequately protect the agency? Make
sure that ambiguous language is avoided. Integrate
language regarding the method for evaluating contract
and contractor performance.
 Surety/Liability Risk –
 Requirements of contractor (licensing, certification,
etc.), bonds, insurance, data privacy, warranties, etc.
 Schedule Risk –
 Is timely delivery ensured?
WHAT ARE CONTRACT RISKS TO
AGENCY – Protect the agency cont…
 Contractual Risk –
 Are procedures for dispute, breach and change
order /modification procedures clearly outlined?
 Performance Risk –
 Is the definition of agency acceptance clearly
defined?
 Price Risk –
 Do payment terms fit the contract and minimize
risk? (progress or milestone payments as applicable,
etc.)
WHAT IS CONTRACT TYPE
Dependent upon the type of contract, different team
members, different processes
 Supplies/Goods  Software
 Capital Outlay  Lease

 Professional Services  Construction

 Non-Professional  One-time goods

Services purchase
SPECIAL TERMS AND CONDITIONS OF RESULTING
CONTRACT –
Eliminate risks
 What are both parties’ responsibilities?
 Details of inspection/rejection – Who will inspect/reject?
(Contract Administration Team member)
 Change order procedure – Must always involve purchasing
if a contract modification is required. (I.e, quantity
increase would not require a contract modification other
than an eVA purchase order change order. Changes to the
scope of the contract would require a contract
modification; i.e., add a building to a janitorial contract.)
 Key Personnel – Who will be involved? Who will evaluate
proposals? Who will lead? Define roles
SPECIAL TERMS AND CONDITIONS OF RESULTING
CONTRACT –
Eliminate risks cont…
 Breach/Termination procedure – outlined in the
APSPM derived from
The Virginia Public Procurement Act
 Dispute Resolution – Dictated by – The
Virginia Public Procurement Act,
Agency Procurement and Surplus Property Manual
 Warranties - Manufacturer or Commercial
 Acceptance – What constitutes acceptance
 Payment – Does vendor accept Small Purchase
Charge Card? Are payments $50k or less?