What is a Procurement Contract?
Procurement contracts are contracts commonly used by businesses to access goods and services in the service of their own projects.
A procurement contract refers to any contract between a buyer and seller for the delivery of goods or services. Commonly used in day-to-day business, like construction, these contracts are often for specialised products or projects and require an in-depth assessment prior to formation. Here we break down what will and will not fall under a procurement contract, and how to execute one.
What is procurement?
Procurement refers to the entire process of acquiring goods or services. This includes the seeking of a solution to a need, assessment of risk, consideration of alternative options. Further, someone may also perform these processes on another’s behalf. A procurement contract represents the culmination of this process.
Often, procure the goods or services as part of a project. Likewise, a procurement manager is often employed to oversee the process. This will be because the business won’t be as familiar with the requirements than who they can bring in. For example, a finance company will likely not know how to build an office space. Hence, they will bring in a procurement manager to oversee the procurement of materials and labour to do so.
Thus, upon a proper assessment of the requirements of the project, and sourcing of the supplier, the procurement contract will be formed.
Execution of the contract
As part of the process of procurement, the contract must be properly executed. This process follows the rules of contract law. Briefly, these are that:
- Someone will make an offer for a good or service.
- The other party accepts the offer.
- Both parties have the intention to enter legal relations.
- There is genuine consent.
- Consideration (payment) is exchanged for the good or service.
- The parties had the capacity to enter legal relations.
There are a wide array of complex rules that govern these various steps. In particular, how and when consideration is provided. For example, payment may be made upfront or upon delivery of the good or service. Furthermore, there is an expectation that both parties will act ethically in their dealings.
Hence, if you are at all unsure we recommend contacting a contract lawyer to ensure your contract is valid. Though, standard form contracts may help avoid any of these concerns. They are a valuable tool for consistent and regular dealings that involve procurement.
Ultimately, whilst appearing simple, as with any contract procurement contracts may be unassumingly complex. Before signing any, it is important to consider what you require from the contract properly. Further, be aware of what your obligations may be. Ill-formed contracts may unnecessarily add legal troubles to your project.
Daniel is a Legal Tech Intern at Lawpath. He is currently studying a Bachelor of Laws/Bachelor of Business at the University of Technology Sydney. His principal fields of interest are in commercial, corporate and intellectual property law.