Procurement and Contract Management in Adams v Cullen

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Procurement and Contract Management Adams v Cullen In early 2013 Edward Cullen approached the Adams Family to negotiate a long term lease of a disused warehouse site, in order to develop low cost housing. During early negotiations it was agreed that the project would be ready by June 2014, with Adams to cover construction costs until the apartments were ready to be sublet. In March 2013 Cullen’s solicitors sent Adams a draft lease agreement assuring them if they heard nothing more within 10 days that Cullen had, for his part, affirmed the terms and had executed the agreement. Not hearing from Cullen or his solicitors, Adams assumed the project was to go ahead and commenced work. In November 2013, without informing Adams, Cullen decided to the lease agreement put on hold, based on negative information gathered in a recent feasibility study. In January 2014 notified Adams that he would no longer be leasing the estate, on the basis he had not formally and legally executed the lease. At this point Adams had incurred considerable expense on the project, assuming that they had a legally binding agreement with Cullen, and still had a contractual agreement with Better Constructions. Promissory Estoppel offers Adams a path for legal recourse against Cullen. As they may sue for specific performance, enforcing Cullen to maintain his promise to lease the apartments. Promissory estoppel acts as a tool to rectify an injustice where a promise has been made by one party, which another party has relied upon to its detriment (Szantyr, 2011). In this case Adams has relied on the implied contractual agreement formed with Cullen to commence the project, establishing various contracts with third parties in the process. It could be argued that while no formal contract was commence between the two parties, Cullen knew of the work being undertaken by Adams and his inaction could circumstance constituted encouragement or inducement for Adams to continue work (Waltons Stores (Interstate) Ltd v Maher, 1988, p. 387). Therefore, Cullen’s withdrawal from the contractual agreement could equate to unconscionable conduct, thus becoming liable for legal action. By allowing Adams to undertake the work (employing contactors) under a false assumption that a contract had come into existence. Eastside Constructions v Adams Holdings Eastside Constructions (EC) is undertaking legal action on the basis that their tender should have been accepted, rather than that offered by Better Constructions, for the contract to design and construct a number of self-contained units. Their claim is that, due to their proven track record with this type of project and their lower priced quote, they should have been awarded the tender. However, traditionally the tender process is viewed as an invitation to treat and is no more than an invitation to make an offer, with no binding legal obligation to any particular contractor (Szantyr, 2011). Therefore Adams was free to select whichever contractor they would like. However, given that Adams Holdings issued specific selection criteria as part of the tender process it is possible for EC to enact legal proceedings. The request for tender becomes an obligation of good faith, requiring the inviter (Adams) to provide an equal opportunity to all tenders and review them correspondingly (NSW Department of Finance & Services, 2010). If it can be proven that Adams did not follow the evaluation procedure listed in their tender selection criteria, EC may have recourse to claim the costs of preparing its tender (Hughes Aircraft v Airservices Australia, 1997, p. 146). The outcome of this case is determinate on if it can be proven that Adams did not follow the selection criteria outlined in their request for tender. Better Constructions v Big Equipment Supplies The dispute of Better Constructions (BC) v Big Equipment Supplies (BES) sees BC suing BES for breach of contract. After BC were required to purchase building supplies (scaffolding supplies) from a third party, at an increased amount. BES advertised the items for a cost of $28,500, an offer was made by BC to purchase the goods over a series of monthly payments. BES rejected this offer but made a counter offer of the original full amount, thus becoming the offeror in this situation. Upon comparing the price against equivalent equipment, BC decided to accept the offer, sending a letter of acceptance on May 6th. The letter was received by BES May 8th. However, as of May 7th the goods had already been sold to a third party. Generally, the offeror can revoke any offer it has made, as until an offer is accepted there is no binding contract. Therefore, the question in this case is when the offer was accepted (Szantyr, 2011). The postal rule allows us to determine when the offer was accepted. The postal rule states that if acceptance is made by post, than any offer is accepted as soon as the letter is posted, even if delivery of the letter is delayed or the letter never reaches the offeror (permitting properly addressed, stamped and posted) (Adams v Lindsell, 1818, p. 250). Therefore, BES’s offer (counteroffer) was accepted May 7th, before they sold the equipment to the third party. Consequently, Better constructions should be able to legally obtain compensation for losses from the contract breach by Big Equipment Supplies (as a result of BC having to purchase the same equipment from a third party). Woodwards v Better Constructions Woodwards (WW) are in the process of deciding whether or not to undertake legal action against Better Constructions (BC) for failing to pay an extra payment that they had promised, in addition to the original contract amount. BC contracted WW to install timber framing, at a fee of $30,000 and to be completed by December 1st. However, after deliberation about the impacts and penalties of late delivery of the construction project BC promised a further $5000 if the project was completed by December 1st. This dispute deals with aspects of contract law, specifically, Consideration in existing contractual duties (commercial benefit) (Australiancontractlaw.com, 2014). In this case consideration was originally given by BC to WW to complete the timber framing by a set date at a rate of $30,000. BC will argue that the further consideration (of $5000) falls under the previous contractual arrangements and scope, and therefore they are not liable to fulfil the new consideration. However, it could be proven that BC received an additional ‘practical benefit’ from the on time completion of the work, namely (Szantyr, 2011):
  1. The continuation of work without stoppage;
  2. The avoidance of a penalty from the building owner for late completion of the building project; and
  3. The avoidance of the trouble and expense of having to engage another sub-contractor.
Therefore, although falling under an existing contractual duty, BC received a ‘practical benefit’ when WW completed the works on time, thus providing good consideration (Williams v Roffey Bros. & Nicholls (Contractors) Ltd., 1990, p. 512). WW should peruse BC to claim the promised payment. Bibliography Australiancontractlaw.com. 2014. Australian Contract Law | Julie Clarke. [online] Available at: http://www.australiancontractlaw.com/ [Accessed: 4 Apr 2014]. Gooley, J., Radan, P. and Vickovich, I. 2007. Principles of Australian contract law. Chatswood, NSW: LexisNexis Butterworths. Groves, M. 2005. Law and government in Australia. Sydney: Federation Press. Innovation.gov.au. 2014. What is valid consideration? [online] Available at: http://www.innovation.gov.au/smallbusiness/LegalHelp/LegalTopics/BusinessRelationships/Pages/WhatIsValidConsideration.aspx [Accessed: 4 Apr 2014]. NSW Department of Finance & Services. 2010. Tendering Manual. Sydney: NSW Department of Finance & Services. Poole, J. 2004. Textbook on contract law. Oxford: Oxford University Press. Szantyr, M. 2011. Lecture Notes - Procurement and Contract Management. Adelaide: University of South Australia. Legal References Adams v Lindsell. 1818. 160 ER 250. Hughes Aircraft v Airservices Australia. 1997. 1 ALR 146 Waltons Stores (Interstate) Ltd v Maher. 1988. 164 CLR 387. Williams v Roffey Bros. & Nicholls (Contractors) Ltd. 1990. 1 All ER 512. J. Creech - Procurement and Contract Management - 2014
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