When is An Offer Not an Offer?

When is an offer not an offer but the award of a contract? When its a snake in the grass?

The TCC recently has to grapple with the rights of the parties under a framework agreement, in unusual circumstances.

What is a framework agreement?

A framework agreement normally allows an employer to instruct a contractor to carry out certain types of works and/or services on pre-agreed terms and rates. In this case, the framework agreement was part of a settlement following a dispute relating to a project in the Middle East.

The parties agreed to settle on the basis that the employer would award future contracts to the contractor. The terms were that there would be no less than 34,000 hours of construction design and engineering services, on agreed terms and at reasonable rates.  If the employer did not offer work then the agreement allowed the contractor to recover the ‘missing’ hours at £15 per hour.

The employer only asked for 250 hours of work, so the contractor sued for nearly £½m in lost fees.

Offer or award?

The court defined ‘awarding a contract’ as:

the process whereby the employer accepts the offer put forward by the contractor…It denotes a binding agreement. It is the granting of the contract by one party, with its binding rights and obligations, to the other.

The court contrasted this with ‘an offer’. It said:

In contract law, [an offer] is something which has happened much earlier in the process. You cannot have a contract award unless you have had an offer which has been accepted. The acceptance of the offer is then formalised by the award of the contract.

Interpreting the Framework Agreement

The employer argued that the settlement agreement merely contained an ‘offer to award’ the stated amount of services, and not an award of at least that amount.

The judge said he wanted to interpret and use the word the parties had used in the contract (award), with its consequences. He contrasted this with the word which the parties did not use (offer) and its consequences

the difficulty with arguing that the word ‘award’ actually means ‘offer’ is the obvious one: if that was what was meant, why did the parties not say so? To have used one clear word, which you now say should be taken to mean another word entirely, is a formidably difficult argument…

The judge held that the settlement was the award of a contract.

What should you do?

Use words accurately, and clearly state the background to and the purpose of the contract.

Case: Jacobs UK Ltd v Skidmore Owings & Merrill LLP [2012] EWHC 3293 (TCC)

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