IACCM Contract Management Forum

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Bahrain National Gas Co. (B.S.C)
2019-04-25 11:24:29

Contract Agreement

We are in a debate within the organization that I work for and that is - whether it is a good (or best) practice to always execute a Contract Agreement (signed by both parties) while concluding a tendering/RFP process irrespective of the value of the Contract. As per our present practice, system generated Purchase orders are issued for material supply agreements (irrespective of value) and Contract Agreements are executed only for service agreements beyond a certain threshold value.

I believe some of you must be experiencing similar practice (and thus may be having similar question) in your respective organizations. Looking forward to having your views on the subject.

Best regards,
Pallab Mukherjee
 •  Pembina Pipeline Corporation  •   2019-04-25 17:04:20
I suppose this depends on what you mean by a Contract Agreement. If you have a Master Services Agreement in place that contains agreed legal terms and conditions, signed off by both parties, then the RFP process could proceed. However, depending on the types of good or service being sought, i.e a major construction project, then the terms and conditions within the Master Services Agreement may not be appropriate, its always best to consult a legal professional before you issue the RFP to ensure all legal provisions are either sufficient or addressed.
 •  AJA Global Consultancy Services, LLC  •   2019-04-25 19:08:57
Pallab, I may be missing something from your description of the issue; or what you describe as "execute a Contract Agreement (signed by both parties)..." could be the reason of my confusion.

It is not clear to me if your organization represents the buyer or purchaser side (who is the party making pressure to move ahead). But anyway, the practice you are describing seems to me as the typical recipe for potential claims. As Gary says in his reply: seek in-house legal advice.

Sorry I can not be of much help.
 •  Bahrain National Gas Co. (B.S.C)  •   2019-04-26 06:11:45
Hi Gary,
What I mean by the Contract Agreement is the Form of Agreement which is generally the first covering pages of any standard Contact wherein it is stated..

This Agreement is entered into on the xth day of ... by and between ......
followed by the list of documents that together constitute the Contract and showing the precedence of documents in the event of conflict between the documents.

A blank Form of Agreement is provided as a format along with the tender documents which is finally filled up and signed by us and the successful tenderer. The format when filled up and signed, we call it the 'Contract Agreement'. This document is used for tenders (for services, construction works, etc.) having reasonably high estimates where full tender package is used to invite bids.

On the other hand, for small supply orders ( spare parts, plant consumables, etc.) a system generated RFP document is used to invite bids and eventually a system generated PO is issued referring to RFP document and supplier's quotation.

Now let me rephrase my question as - is there any thumb rule ( example- bid estimate) that could be followed as a criterion to determine
• when a full fledged tender document to be used to invite bids and finally a Form of Agreement is signed off to conclude a Contract, and
• when a simple RFP document to be used to invite bids and and just a system generated Purchase Order is issued to the winning bidder, and no Contract Agreement is executed.

Hope, my question is more clear now.
 •  GSPC Group  •   2019-07-27 18:26:14
Hi Pallab,

In both cases, you can issue Purchase Orders/Letter of Awards and get the acceptance of the same form Contractors to make them agreements enforceable by law. As long as Contractors are accepting with agreed terms & conditions, I don't think there is a need to sign a Contract by both parties. Purchase Orders/Letter of Awards can be considered legally binding commercial documents in the court of law.

I have seen some of the tenders wherein it is mentioned that the Accepted PO/Letter of Award shall constitute a formation of Contract. Hence, there is no need to enter into a separate Contract Agreement as per tender issuing authority. Although I have seen some Contractors insisting for signing of Contracts for large value Contracts as they believe that Contracts would only be admissible in the court of law in case of any future disputes due to its nomenclature of 'Contracts'.

As a matter of practice, some buyers go for signing of Contracts for large value supply/works/service contracts and go for Purchase Orders for Small value supply/works/service contracts.

As per my opinion, there can't be any thumb rule for this issue. However, it is always better to take a legal opinion to avoid any future disputes.
Replies: 4
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