Contract Formation

2977 Words Dec 14th, 2012 12 Pages
Part A

Contracts are an integral part of business and everyday life, and are fundamental to construction as the industry relies on the formation of contracts for business agreements. “Contracts are based on the idea of a bargain, where each side must put something into the bargain. A contract may be defined as 'an agreement which is binding on the parties’” (Galbraith, 1998, pg78). There are a number of key components which must be present in the formation of such contracts.

Firstly, there needs to be an initial offer made by one party for the formation to begin. “An offer exists when one party effectively declares his readiness to be bound by a set of terms without any further negotiation” (Galbraith, 1998, pg79). It is
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the amount of pay which could be the same as that paid on a prior occasion”. One particular problem in construction is the 'letter of intent ', widely used between employers and contractors as a form of pre-contract agreement. Following on from the tendering negotiations, Adriaanse (2010, pg55) writes “the purpose of a letter of intent is to express an intention to enter into a contract at a future date”. These are the result of failing to negotiate on certain terms in time for the project start date, and are introduced to allow the commencement of work, keeping within the projects ' completion target. As these are often not legally binding contracts they cause disputes in the future if one of the parties does not carry out their duties, as in British Steel Corporation v. Cleveland Bridge & Engineering Co. Ltd (1981).

Owen ( 1998, pg50) writes that “all simple contracts must have consideration given by each party to the other as the price of each other 's promises. It may take the form of money, goods, services, promises not to sue etc.” For example party A must receive something from party B, in return for party A providing something to party B. However McKendrick (2007, pg88) states that “consideration must be sufficient but does not need to be adequate”, meaning for example something must be offered to the other party in return to satisfy the rules of consideration, but does not need to be of an equal value as

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