Model Agreement for the Provision
of Services
Guidance Notes
The CIPS Model Agreement for the Provision of Services is a ‘catch-all’ and
the most appropriate clauses should be selected, according to the type of
service contract required. Legal advice should always be sought and the CIPS
recommends use of the Legal Helpline (0844 209 0752), which is a free
member benefit for legal advice. English Law is used for the purposes of ease
of reading of these Guidance Notes, but Scots Law should be used for Buying
Organisations creating Contracts in Scotland and so on.
This Model Agreement cannot be expected to cover every single future service
contract of any value created in Great Britain in the public and private sector,
but it can act as a platform around which other appropriate Terms and
Conditions can be added (or removed). All of the Clauses described herein
will benefit a Buying Organisation if these are included in a service contract.
The rationale for the inclusion of each clause in the Model Agreement is
explained further in the Guidance Notes. For ease of reference, each of the
descriptive paragraphs appertaining to each clause is headed with the clause
reference as it appears in the Model Agreement.
These Guidance Notes explore some of the main issues relating to the Terms
and Conditions of Contract in the Model Agreement, paying special attention
to some of the key Provisions with which Buyers should make themselves
familiar in order to maximise their own efficiency in terms of understanding,
in some cases assisting in drafting terms and conditions for and negotiating
complex service contracts.
When making amendments to any set standard clauses, CIPS recommends
using a version control/change programme and approval mechanism to
provide a full audit trail of recorded changes. This is particularly important
when a continuation or variation of services is required.
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Table of Contents
1.
Term and Scope .....................................................................................................................3
Specific Guidance for Construction Contracts .....................................................................5
2. Provision of the Services ..........................................................................................................6
Delivery .......................................................................................................................................6
3. Warranties and Representations ..........................................................................................7
4. Personnel and Competencies ...............................................................................................7
5. Assignment and Sub-contracting.........................................................................................7
6. Variation of the Services .......................................................................................................8
7. Time of the essence ...............................................................................................................8
8. Liquidated Damages ..............................................................................................................9
9. Free Issue Equipment or Material .......................................................................................9
10.
Property in Materials and Goods ................................................................................. 10
11.
Environment ................................................................................................................... 10
12.
Construction (Design and Management) Regulations 2007 ..................................... 10
13.
Insurance .......................................................................................................................... 11
14.
Extension Clause ............................................................................................................ 11
15.
Co-operation in Handover ............................................................................................ 11
16.
Construction .................................................................................................................... 11
17.
Notices ............................................................................................................................. 11
18.
‘Entire Agreement’ Condition ...................................................................................... 11
Precedence of Documentation ............................................................................................. 12
19.
Survival Clause ................................................................................................................ 12
20.
Waiver .............................................................................................................................. 12
21.
Confidentiality, Freedom of Information, Intellectual Property and Data
Protection ..................................................................................................................................... 13
Confidentiality ......................................................................................................................... 13
Freedom of Information ....................................................................................................... 13
Intellectual Property ............................................................................................................... 13
Data Protection ....................................................................................................................... 13
22.
Conflicts of Interest, Fraud and Competition Law ................................................... 14
23.
The Contracts (Rights of Third Parties) Act 1999 ..................................................... 14
24.
Statutory Regulations ..................................................................................................... 15
25.
Discrimination................................................................................................................. 15
26.
Publicity............................................................................................................................ 15
27.
Terms of Payment .......................................................................................................... 15
28.
Recovery of Sums due ................................................................................................... 15
29.
Right to Audit.................................................................................................................. 15
30.
Parent Company Guarantee .......................................................................................... 16
31.
Force Majeure ................................................................................................................. 16
32
Termination ..................................................................................................................... 17
33.
Termination at Will ........................................................................................................ 17
34.
Dispute Resolution ......................................................................................................... 17
35.
Law and Jurisdiction....................................................................................................... 18
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Further Guidance on Specific Terms and Conditions in the Model Agreement
1. Term and Scope
Any Procurement project has a process that covers a number of stages. Broadly
speaking (and this varies from contract to contract and whether the contract is let in
the public or private sector) these stages are:
1. Pre-contract work, including market intelligence and stakeholder engagement
2. Scoping the Contract
3. Deciding on timescales for contract agreement, contract award and duration of
contract
4. Pre-qualification and tendering procedures
5. Post-Tender Clarifications/Negotiations
6. Contract award recommendations and approval
7. Contract standstill (public sector, over-the-threshold contracts only)
8. Contract agreement
9. Contract commencement
10. Downstream Contract Management/Supplier Relationship Management
11. Contract extension or renewal
12. Contract cessation
The above list is not exhaustive, and other stages or sub-stages can be added as
required. Buyers should formulate category strategies for each project for which they
are responsible, and these strategies should contain the critical time-lines for all of the
activities relating to the procurement process. Framework arrangements are not true
contracts – they are agreements whereby the broad terms and conditions of contract
are decided at the agreement stage, but the contractual relationship is not finalised
until supplies, services or works from a framework are subsequently procured.
The contract term can therefore broadly be defined as the date the contract
commences (the commencement date, item 9 above) to the final date after which the
existing services cease. (Item 12 above). The contract term should always include any
extensions or renewals that are intended, and these should be built in at the
commencement of the procurement process.
In the public sector, EU rules provide that a contracting authority should specify the
full term of the contract, including any proposed extensions and renewals, in the
initial Contract Notice to be published in the Official Journal of the European Union
(OJEU) at the start of a procurement process. Where no contract term is specified,
EU legislation dictates that, for establishing the value of a contract for threshold
purposes, the period should equate to 48 months.
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Again in public sector contracts, no contract can start until a standstill period, during
which an unsuccessful Tenderer can seek additional information about its tender,
with a view to mounting a legal challenge to the Contract Award within the standstill
period. If such a challenge is forthcoming, then the contract must be set-aside until
that Court action is heard and a decision made. The new Remedies Regulations
make the job of public sector buyers even more onerous in regard to correct
procurement process and also complicate the true commencement date for any
contract that is above the EU threshold.
Scope
One of the first and most important steps in a procurement contract is to flesh out a
scope definition which identifies and describes all services, materials, works,
functions or characteristics that may be necessary to produce the final ‘specifications,’
‘outputs’ or ‘deliverables’ that are required from the contract. Defining the scope
establishes the tone for the category strategy and the ultimate creation of the
contract. The scope should therefore be sufficiently and properly detailed. Readers
are requested to bear in mind, however, that being too detailed can be as
problematical as not providing enough detail.
Many contemporary contracts are scoped in terms of ‘outcomes’, whereby the buyer
merely posits a series of requirements around contract execution, and suppliers must
produce a priced model that meets all of these outcomes. During the pre-planning
period the procurement category manager and the project team should identify and
describe all work that is necessary to bring the contract successfully to a conclusion.
It is unlikely that every development in the market-place can be assessed and forecast
within the scope of a contract, and flexibility within a contract is vital, but the scope
should be as full, and thorough, as knowledge, information, experience, market
intelligence and forecasting models allow.
Suitable scope definition is essential to the success of any procurement project and
should be given considerable consideration and thought. If this step is skipped or
inadequately developed, it will most likely mean that project planning and execution
will suffer as a consequence and downstream contract management will become
more difficult. Supplier/buyer relationships might suffer accordingly.
Many contracts run over budget and over time due to ‘scope creep’; a situation that
arises when a contract has been inadequately scoped, and variants are required, postcontract commencement, in order for a firm to deliver on agreed outcomes. The
scope of, and the specifications for, a procurement contract are not necessarily the
same. A specification is a technical and functional description of requirements based
on anticipated performance standards, and would normally be formalised following a
cross-functional scoping exercise. In engineering, manufacturing and business, it is
vital for suppliers, purchasers, and users of materials, products, or services to
understand and agree upon all such requirements. A specification is a type of
standard which is referenced by the procurement contract and provides the necessary
details relating to specific requirements.
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Specific Guidance for Construction Contracts
Several factors render a construction contract different from most other types of
works contract. These include: the duration of the project, its complexity, its size and
the price agreed (and the amount of work done), which may change as the contract
proceeds. In Modern Engineering (Bristol) Ltd v. Gilbert-Ash Northern [1974], Lord
Diplock described a building contract as: ‘an entire contract for the sale of goods and
work and labour for a lump sum price payable by instalments as the goods are
delivered and the work done..’ It is important to realise that Lord Diplock was
referring to a contract made using a standard form of building contract. Such
contracts usually make provision for interim payments at regular intervals as the work
proceeds.
Construction contracts are primarily concerned with the prior allocation of risk.
Windward (1991) draws attention to the construction industry’s need to make a
profit on the employment of capital: ‘If risk is an essential ingredient of the system
which generates your profit, it is inevitable that there must be a structure for
resolving disputes. It brings the relationship of the disputants back into balance so
that life can resume its normal course.’ The length of the chain in construction
contracts increases the nature of the risks. Competitive tendering and the various
procurement systems allocate risk in different ways. There has been a proliferation of
standard forms in the construction industry in recent years, and there are many
books available on specific forms of contract. There are several major advantages to
be gained by using a standard form of contract. These are:

The standard form is usually negotiated between the various organisations
and associations that make up the industry. As a result the risks are spread
equally between buyer and contractor.

Using a standard form avoids the cost and (significant) time taken in creating
Tender documents and Terms and Conditions of Contract from scratch.

Tender comparisons are made easier since the risk allocation is the same for
each tenderer. Parties are assumed to understand that risk allocation and their
prices can be accurately compared.
Conversely, there are some disadvantages. These include:

The forms are cumbersome, complex and often difficult to understand.

Because the resulting contract is often a compromise, they are resistant to
change. Much-needed changes take a long time to bring into effect.
It is argued that model contracts such as the New Engineering Contract (NEC), now
renamed the NEC Engineering and Construction contract, provide flexibility and
simplicity and save significant amounts of time and procurement cost. Their success
depends on the parties building long-term relationships. Standard forms may be
incorporated into the contract simply through an exchange of letters. These standard
forms attempt to allocate risk fairly. Whatever the method of procurement adopted,
the tendering process in the United Kingdom is generally based on competitive
bidding. To ensure transparency in this process the National Joint Consultative
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Committee (NJCC), an organisation consisting of the major professional bodies
involved with construction has produced codes of procedure.
Modern innovations in procurement methodology try to resolve the basic conflict
between design and workmanship, which is at the core of traditional construction
contracts.
2. Provision of the Services
This condition reinforces the obligation of the contractor to provide the services as
specified in the contract. It is vitally important that the Tender specifications are full
and accurate enough to avoid variants and ‘scope creep.’ Some procurement
contracts contain a section which describes the specification in full; others contain
the specification in a Schedule appended to the Tender document.
Consideration should be given, where necessary, to amending this and other
conditions to reflect the location in which the services will be performed. Note that
some professional services firms may be unable to provide an unimpeded right of
access to the client where the work is being provided at the contractor’s own
premises. In such cases alternative but equivalent inspection rights should be agreed.
At the very least, the Tender Specification or Specification Schedule should lay down
minimum standards in respect of the following:
(a) Conformance to quantity, quality and description with particulars stated in
the tender
(b) Soundness of materials and workmanship
(c) Quality of samples, patterns or specification provided or given by either party
(d) Standards of performance specified in the Tender
(e) Fitness for purpose
(f) Compliance with recognized standards, such as ISO 9000, ISO 14000, British
Standards etc.
With respect to (f), a sub-clause to the Model Agreement might sensibly be added
which contains wording such as “The contractor will ensure that all goods or
materials supplied or used in the works or in the provision of the services shall be in
accordance with the appropriate and current standards, if any, issued by the
European Union or, if no European Standard exists, British Standards Institution,
according to place of production or manufacture.” Again, EU rules only apply to
public sector organisations, so the ‘EU’ element may safely be excluded in private
sector contracts.
Delivery
Complex contracts for services normally comprise a set of specified Terms and
Conditions of Contract and a set of Schedules included as addenda to these Terms
and Conditions. These schedules typically deal with key elements of a contractual
relationship and are meant to be specific, rather than generic. One of the main
advantages of using schedules to the contract is that both parties to the contract can
understand the rationale behind how the contract is intended to work. A selection of
typical schedules for a complex service contract is described below:
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1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Description of Service (Service Specification)
Documentation
Responsibilities of Contractor
Health and Safety
Environmental protection and waste disposal
Quality assurance and validation
Subcontracting
Subcontractor’s named personnel
Training by Subcontractor
Parts with limited working life
Times of completion
Liquidated damages for delay
Pre-installation tests and procedures
Criteria for the completion of construction
Migration and Hand-over procedures
Performance tests and procedures
Performance guarantees and damages for failure
Cost elements, rates and charges
Terms of payment
Main Contract particulars
3. Warranties and Representations
This condition refers to the ability of the supplier to enter into, and perform, the
contract. It should be reviewed for every contract to make sure that it contains
warranties that are appropriate to the subject matter.
4. Personnel and Competencies
The names of those of the contractor’s staff who are regarded as key personnel for
the delivery of the services should be set out in a schedule to the general terms and
conditions of contract. This important condition is designed to ensure that the
services are actually performed by those individuals unless the client agrees to their
replacement, or where there is good reason, such as long-term sickness. On longerterm contracts, the client may wish instead to become involved at an early stage in
the approval and handover arrangements for new personnel during the life of the
contract.
This condition is important where the contractor has any kind of access to the
premises of the client since it gives the client the right to refuse admission in respect
of individual members of staff. It refers to the client’s premises but alternative
wording may be necessary if there are other bodies using the services in addition to
the client. The contractor may want to be excused from its related obligations to
perform if the client exercises these rights. Any concessions on this point should not
apply if the client exercises such rights by reason of the contractor’s default or if it
provides appropriate notice to the contractor.
5. Assignment and Sub-contracting
This Clause is reasonably straightforward. Some Purchasers may be content that
consent must not be unreasonably withheld.
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6. Variation of the Services
This clause should be included in most service contracts. It provides for a controlled
mechanism for varying the subject matter of the contract. Care should be taken to
make sure that the ability to vary the scope of the contract is subject to the client’s
control and that it is possible only in limited, defined circumstances. It may not be
necessary for short-term service contracts.
As drafted, the buying organisation has a unilateral right to vary the contract. It may
not be possible to create an efficient and effective contract on this basis or to achieve
value-for-money if this term is insisted on. An alternative mechanism would provide
for variations to be agreed between the client and the contractor.
7. Time of the essence
The purpose of a ‘Time of the Essence’ Clause is to give the innocent party the right
to reject the goods and terminate the contract for a breach of a condition if there is
not strict compliance with the time stipulated for the performance of the obligation,
thus a delay of only one day might be sufficient in practice.
If there is a delay, the clause will not always be invoked and the parties will escalate
the matter and discuss a resolution to the delay rather than the draconian step of
termination, although in some situations delay means the buyer has no use of the
goods and the termination for breach of contract option is necessary. Good
management of the contract and relationship between the contracting parties can
help ensure disputes over timing are resolved.
It is an extremely critical clause where time is important. Although the right to reject
and terminate may be useful if services are required for a specific purpose, for
example hospitality catering at an event, the more common reason for the buyer
rejecting and terminating is that he no longer requires the services because, say, the
Buying Organisation would suffer loss if the Buyer accepted them or late or
consistently inadequate service delivery might put him or her in breach of his
contract with his or her own customer
This type of clause might not typically apply, for example, to a normal commercial
contract for the supply of hardware and software or other similar contracts where the
equipment/software is for the purchaser’s own use. The purchaser’s remedy will
normally be to recover damages for delay. Often the clause will not therefore be
required. If, however, exceptionally, there is some particular reason for requiring
delivery or completion by a specific date and, if late, there would be no value to the
purchaser in taking delivery/accepting completion, then the clause could usefully be
included. This might occur if a major applications software project was part of a
much larger IT infrastructural project, and late delivery of the software unduly
delayed the development of the remainder of the major IT project.
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Often the contract will also provide for liquidated damages for delay instead or allow
liquidated damages plus a right to terminate when a certain period has passed.
8. Liquidated Damages
It was decided in 1829 that, in principle, the parties to a contract may agree, set or
calculate sums that would be paid by a party in the event of a breach of contract.
These liquidated damages are therefore generally enforceable. The clauses are
referred to as liquidated damages clauses due to the fact that a court is not required
to quantify the losses sustained by a party. In order to be enforceable, however, such
liquidated damages clauses may not be penal in nature. In deciding whether a
liquidated damages clause is a penalty or not, the court will take into consideration:




whether the contract refers to the clause as a liquidated damages clause or a
penalty
where the estimate of loss is imprecise, whether the sum is a genuine preestimate of the losses that would be sustained or whether it was
disproportionate to the actual losses sustained
a stipulated sum is not disproportionate simply because it is notably greater
than the actual loss sustained
whether such an imbalance of bargaining power existed between the
parties at the time of the contract, that one party effectively dictated the
terms of the contract
Liquidated damages are a fixed sum per period of delay or a percentage of the price
for each week of delay or whatever is agreed and can be simpler to enforce than
bringing a court action for damages for breach of contract. The damages must, under
common law, be a genuine pre-estimate of the loss suffered as a result of such a
delay. Thus the parties must calculate carefully and agree beforehand the sum
included. If that is not the case then the clause risks being held to be void as it is
then what the courts call a ‘penalty’ clause. For that reason never entitle such a clause
a ‘penalty clause’ but instead use the phrase ‘liquidated damages’. These are also
sometimes known as ‘LDs’
9. Free Issue Equipment or Material
Where the buying organisation, for the purposes of the contract, issues materials or
equipment 'free of charge' to the contractor, such materials should remain the
property of the buyer, unless there is a specific requirement in the contract to transfer
the ownership of the materials or equipment to the contractor. This happens
occasionally in, e.g. catering services contracts, where the heavy and light catering
equipment transfers to the contractor at the start of the contract and has to be
maintained and replaced by the contractor during the life of the contract. Where free
issue materials and equipment applies, the contractor must maintain all such materials
in good order and condition subject, in the case of tooling, patterns and the like, to
fair wear and tear. The contractor must use such materials solely in connection with
the contract. Any surplus materials must be disposed of at the buyer's discretion. Any
waste of such materials, arising from bad workmanship or negligence of the
contractor, must be made good at the contractor's expense. Any clause in the
contract should reflect these pre-requisites.
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10. Property in Materials and Goods
It is regular practice in commercial contracts for the sale of materials or goods to
include terms regulating the transfer of the property in the goods until the price has
been paid. For example the contract may include a clause entitling the seller to
either:

retain title in the goods which he supplies or any product manufactured
from the goods; or

be entitled to the proceeds of the subsequent sale of the goods
The purpose of such clauses is to protect the seller against the insolvency of the
buyer in the event of non-payment. If the contractor has a proprietary right over the
goods, or the products manufactured from these goods, or the proceeds of a
subsequent sale, this means that he still ‘owns’ them for the purposes of the law. A
clause protecting the rights of the buying organisation must be included in all
contracts where such a clause is relevant to the execution of the contract.
11. Environment
Whilst not legally necessary, buyers with a concern for the environment, or where
required by other contracts to which they are party which affect the agreement, or
which require them as supplier or purchaser to impose on other parties in the
contract chain, may wish to impose environmental clauses in the terms and
conditions of contract. Environmental and corporate social responsibility issues are
becoming more and more important, especially in public sector contracts.
12. Construction (Design and Management) Regulations 2007
Construction remains a disproportionately dangerous industry where improvements
in health and safety are consistently needed. The improvements require significant
and permanent changes in contractor attitudes and behaviour. Since the original
CDM Regulations were introduced in 1994, concerns were raised that their
complexity and bureaucracy frustrated the Regulations’ underlying health and safety
objectives. These views were supported by an industry-wide consultation in 2002
which resulted in the decision to revise the Regulations.
The new CDM 2007 Regulations revise and bring together the CDM Regulations
1994 and the Construction (Health Safety and Welfare) Regulations 1996 into a single
regulatory package. The basic idea of CDM is to define a number of roles in
construction projects - clients, planning supervisors, designers and contractors - and
place specific duties on each role along with a general duty to co-operate with each
other. CDM also requires two important new documents; the health and safety plan
during a project and the health and safety file at the end. It is important that a
suitable clause (or schedule) be built into all construction contracts.
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13. Insurance
When setting the value and duration of any requirement for all insurance types,
consider whether such insurance is likely to be currently available at reasonable
commercial rates.
14. Extension Clause
This condition allows the client to extend or renew the contract beyond the initial
agreement period. An extension has to be agreed by both parties. If an agreement is
within the scope of the EU Procurement Directives, transposed into separate
Regulations in England, Wales and Northern Ireland (combined) and Scotland, prior
legal advice should be sought to make sure that any extension would be lawful.
Normally, the intention to extend or renew should be contained in the initial
Contract Notice published in the Official Journal of the European Union (OJEU). If
this clause is being used it should also be mentioned in the ITT covering letter and
tender specification. It must be included in the conditions if not included in other
tender documentation.
15. Co-operation in Handover
In order to minimize risk to the buying organisation (and the contractor), there
should be a plan in place to cover what should happen in the event of contract
handover to a new contractor if a renewable contract changes hands at the
conclusion of its full term or a decision is made to terminate a contract early. The
Terms and Conditions of Contract should include a clause (or a schedule appended)
which lays out the requirements on both parties to achieve seamless migration to the
new contractual arrangements.
16. Construction
This clause is required to ensure that the potential contractor is aware that it is
contractually bound by all of the documents in the contract, including schedules,
annexes and appendices. Many service contracts contain a set of terms and
conditions of contract which are then added to or amended post-tender (for
example, if variants have been agreed) and are finally ‘signed off’ at the contract
agreement/acceptance stage.
17. Notices
A procurement contract should contain information about how communications in
respect of the contract are to be made in writing, and should set out the only
acceptable methods for sending notices and communicating generally. It is
important to provide certainty between the parties as to what constitutes an
authoritative and effective communication and thus reduce the need to rely on legal
advice as to the rules relating to the serving of notices, which are implied by law.
18. ‘Entire Agreement’ Condition
Most contracts contain an ‘entire agreement’ clause, also known as an ‘integration
clause’ or ‘merger clause’. This clause declares that the contract represents the
complete and final agreement, thereby protecting the buying organisation. In other
words, the contract supersedes any prior agreements the contracting parties might
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have made in regards to the subject of the contract. It is crucial in contracts to spell
out that the contract only covers the provisions written into it and that no other
agreements, whether oral or written, are to be allowed. The primary reason for an
‘entire agreement’ clause is therefore to indicate that any previous drafts of the
contract, oral agreements between the parties, or letters of intent are no longer valid
unless provided for in the contract. This effectively stops either party from claiming
that there are other promises and terms to the agreement that are not written into the
contract, and reduces a claim by the supplier of misrepresentation in the contract.
Precedence of Documentation
Where the contract/agreement is self-contained (an ‘entire agreement’) and clearly
lists its components then there is no need to attribute precedence of documents to be
relied on. The important message is to ensure that in drafting contracts and
agreements, every effort should be made to rule out ambiguity, repetition, and
conflicting provisions. Precedence provisions will not guarantee protection against
inadequate drafting.
19. Survival Clause
There are some clauses in a contract that are intended to continue after the contract
is terminated. These clauses survive because they contain obligations that both
parties would wish to continue – such as both parties agreeing to respect the other’s
confidentiality post-contract termination. Most companies agree that confidential
information should remain so for anywhere between three and seven years after
contract termination. Several other types of clauses in a contract might continue after
it has terminated. Some of these relate to the likes of intellectual property rights,
indemnification, limitation of liability and some remedies.
Buyers must be vigilant when considering contract language that reads like ‘…and
any other provision which, in accordance with its terms is intended to survive the
agreement.’ Such terminology can create problems if the rest of the contract is not
precisely worded. This is especially true, for example, in IT software contracts. If
the licence grant is perpetual and the termination language merely terminates the
contract but not the perpetual licence grant, a position might exist whereby the
buying organisation may believe that it is terminating the licence as well as the
contract, whereas the other believes it is terminating the contract, but has a licence to
the product in perpetuity. Buyers should ensure that the survival clause or the
termination clause is worded precisely to avoid this type of misunderstanding
occurring, and should legal advice if there is any dubiety.
20. Waiver
This condition should always be included. If either party to a contract does not
invoke a particular right or remedy in the event of a breach of contract, this
condition prevents the other party from claiming that the right or remedy has been
waived. Only written waivers will be binding on the waiving party.
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21. Confidentiality, Freedom of Information, Intellectual Property and Data
Protection
Confidentiality
A confidentiality clause is important if confidential information is to be disclosed
during the course of negotiations. A separate agreement covering this should be
made and signed prior to the information being released. This is known as a
‘Confidentiality’ or ‘Non-Disclosure Agreement’ (NDA). Some contractors will not
want sub-contractors or agents to have access to confidential information at all so
changes to the narrative would be required to that effect.
Freedom of Information
Buying organisations in the public sector are subject to the Freedom of Information
Act 2000. It is sensible to provide in the contract that the buying organisation will
first notify the contractor before releasing any confidential information into the
public domain.
In addition, it may be necessary to specify exactly which parts of the contract are
confidential when dealing with some public bodies subject to FOI legislation.
Caution is required in interpreting this Act when supplying to the public sector
organisations. The FOI Commissioner has stated that, on balance, the public has ‘a
right to know’ and ‘commercial in confidence’ clauses can no longer be entirely relied
upon.
Intellectual Property
Often a supplier will want to own copyright, patents, design rights and trademarks,
even those customised or produced solely for a buying organisation. However, as a
buyer, it is better that the default position in the core clauses is that the rights are
owned by the buying organisation. If nothing is specified in the contract then, under
the Copyright, Designs and Patents Act 1988, the rights remain with the original
author/supplier and all the buying organisation receives is the licence or right to use,
leaving the supplier free to use the rights for other clients. Some suppliers however
wish to retain IPR in customised work and many buying organisations are content
for that to be the case as long as they have the ‘rights of access’ they require.
Some clauses limit the period of confidentiality, but in general wording such as this
where the agreement might relate to confidential information potentially secret for
years or decades the provision that it be kept secret for so long as it maintains its
confidential nature is the best protection for all parties.
Data Protection
Both parties to the contract have to warrant and undertake that they have complied
with data protection standards which meet the requirements of the data protection
legislation in respect of the relevant data. Both must accept liability to data subjects
for breach of those standards, with cross-indemnities to ensure that the party
responsible for the actual breach duly meets the cost of the breach. Both parties must
warrant that the processing they undertake is lawful with respect to their own laws,
and both sides agree to be sued if damage is caused to data subjects. On termination,
some information may need to be retained rather than destroyed. These data may, for
example, be incorporated within briefing papers for company boards which must be
retained as a matter of record. For PPP (private and public partnership) contracts in
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the public sector one party often insists that data records are maintained for their
access for many years where documents are signed as deeds. Documents signed as
deeds have a legal statutory limitation period of 12 years, rather than the 6-year
period for other contracts, so obviously such documents must be kept for at least a
12-year period.
22. Conflicts of Interest, Fraud and Competition Law
One of the key conditions of a procurement contract is to ensure that the supplier
minimises its risk in respect of any conflicts of interest or potential conflicts of
interest that may exist in any procurement project it is handling. In terms of
international procurement, the Extradition Act 2002 makes it easier for UK buyers
and suppliers to be extradited to the US and jailed for a period of up to 10 years for
breach of US law. In terms of competition policy, the UK Enterprise Act 2002
makes UK price-fixing and bid-rigging criminal offences. It is therefore sensible for
buying organisations to take every precaution against potential conflicts of interest,
either removing relevant staff from the procurement process, or dealing with the
conflict of interest in such a way that the risk no longer prevails. Some buyers
purchase software to help them track patterns of pricing to see if they are victims of
price-fixing arrangements in contracting.
23. The Contracts (Rights of Third Parties) Act 1999
This statute allows a third party (i.e. a person who is not a party to the contract) to
enforce a term of the contract in two situations: firstly if the contract expresses this
ability, or secondly if it is apparent that the contract gives that person some kind of
benefit. In practice, many contracts seek to exclude third parties from claiming that
they have rights under the contract or, in the alternative, list the parties who do have
recognised rights under the contract.
The legal doctrine of ‘privity of contract’ means that a contract cannot infer benefits
or impose burdens on anyone except the parties to the contract. This Act develops
that doctrine by granting to a third party the right to enforce under the contract
where it expressly gives that third party such a right, or where there is a contractual
term confers that right. So the Act allows a benefit to be conferred on a third party
while not changing the privity rule that a burden cannot be imposed on a third party
without his consent.
A benefit includes the right to receive goods and/or services and payment; a burden
includes the obligation to provide goods and/or services and to make payments.
The Contracts (Rights of Third Parties) Act is relatively new and it has been standard
practice to exclude it thus far, unless there are specific third parties, the parties want
expressly to have a right to enforce the contract. That would be rare in a contract for
purchase of services. Most suppliers would not want the client’s ultimate customer,
for example, to have a right of action against them directly. This condition should
therefore be included in all contracts, including framework agreements, so that the
business is protected from action by third parties.
A person, who may have rights or remedies which do not arise as a result of this Act,
but arise in some other way, is not affected by this clause.
A simpler alternative clause covering this area of the law may read as follows:
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“Neither party confers or purports to confer any benefit on any person not party to
this deed pursuant to the Contracts (Rights of Third Parties) Act 1999”
24. Statutory Regulations
The clause is straightforward, and, although in a sense unnecessary, as each party
must comply with statute in any event, it can be a useful reminder.
25. Discrimination
Whilst such a clause as this on discrimination is legally unnecessary, many businesses
see it as part of their corporate social responsibility to highlight equalities and
discrimination issues. This is particularly true for public sector bodies who are now
placing greater emphasis on equalities and non-discrimination as a major tool in the
PQQ/contract award process.
26. Publicity
This condition is very important and should be included in all contracts. It prevents
either party from making any public statement about the contract or performance of
the contract without the prior written consent of the other party.
27. Terms of Payment
The details of the percentages to be paid and the events against which payment is to
be made must be specified elsewhere in the contract since they will clearly vary. This
clause allows the buying organisation to deduct amounts for defects, work not
properly performed etc, otherwise payment is to be made within 30 days.
No particular rate of interest has been specified. It is possible that the purchaser
could, even if the contract is subject to the Late Payment of Commercial Debts
(Interest) Act 1998, replace the statutory rate (currently 12.25%) with a lower figure,
provided that the contract gives the supplier a substantial remedy or deters late
payment, and is fair and reasonable. The previous CIPS clause relating to ‘undue
delay’ in payment has been omitted. If it is considered appropriate to give the unpaid
seller an additional remedy then there should be a definite period stated after which
the seller could exercise the right to suspend – say another thirty days. In any event
breach by the purchaser of the payment would probably be considered a material
breach, giving the right to terminate if payment was not made within another thirty
days. Note it is a ‘material breach’ which is referred to in the termination clause and
not a ‘breach of a material term’ which could be construed as a condition of the
contract and time of payment is not a condition unless expressly made so.
28. Recovery of Sums due
This clause should be used in all contracts. It provides for setting off any sums due
from the contractor. Such sums can be offset against any sum due under any contract
with the client.
29. Right to Audit
The inclusion of a ‘Right to Audit’ clause in a service contract can help control fraud
and abuse by affording a ‘discovery mechanism’ by way of an audit trail, even after
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the contract has been completed. When the right to audit is exercised, the examiner
or auditor is generally looking for fraud by vendors and violations of the contractor’s
ethical policies such as:
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flawed or inferior quality of services;
under-provision of services;
unreasonably high prices post-contract, when those services can be
bought directly and/or more cheaply from the same or another
contractor/supplier;
services not delivered;
payments by the buying organisation to the contractor for services
not provided;
gifts and gratuities by the contractor to the buying organisation’s
employees;
commissions paid by the contractor to brokers, agents and others;
services allegedly performed that were not required in the first place,
for example equipment repairs; and
conflicts of interest
30. Parent Company Guarantee
A client may wish to obtain either a parent company guarantee or an on-demand
bond for due performance and also a note regarding key personnel. A performance
bond is normally assessed as being worth around 10% of the total estimated value of
the contract and is generally lodged by the contractor with a third party before the
commencement of the contract.
31. Force Majeure
It is wise to define Force Majeure in order to state what is to happen if an event of
Force Majeure occurs and how the rights and obligations of the parties are to be
affected. Force Majeure can affect buyer or seller. Some buying organisations will not
want a ‘Force Majeure’ clause as it usually benefits the supplier, so consider whether
it is needed. Conversely many suppliers will want all circumstances beyond their
control included which this clause does not include as a general provision.
Force Majeure is defined restrictively and it is for the supplier to establish that the
event prevents him from performing the contract. If necessary, other events could be
included but it is strongly suggested that ‘beyond the supplier’s control’ should never
be used, as it is too broad a term where a buyer is concerned. Suppliers will usually
require that such a provision be included in the contract documents.
An initial period of suspension is set out in sub-clause 31.4 - that period could be
lengthened if considered appropriate. If the Force Majeure event is then past, both
parties’ rights are adjusted. If the event continues, then the contract is terminated by
mutual consent - the supplier is paid for the services it has provided, provided that
the purchaser has been given the benefit of such services. This allows both parties to
go through a process to find a workable solution to a problem, rather than frustrating
the contract. It is worth noting that both parties have an obligation to mitigate
against the risks covered by Force Majeure.
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32 Termination
This clause sets out the rights and obligations of the parties if termination is due to
the default of the purchaser or to the default of the supplier.
For an IT contract, it might need to be supplemented by reference to source codes,
escrow etc. The list of continuing obligations is only a guide; there may be others
depending upon the terms of the particular contract. There is no Infringement
Indemnity as a core clause but it is assumed that for an IT contract or intellectual
property licence agreement one will be included.
33. Termination at Will
It is commonplace in complex service contracts to find a clause which permits either
party to bring the contract to an end without there having been any default by the
other party. Such clauses are commonly called 'termination at will' clauses. Upon
termination, the contract will remain in force to govern the rights and obligations of
the parties, such that for example, a contractor will be entitled to be paid in
accordance with the contract for any services it renders up to the date of termination.
More importantly however, the clause will operate with the effect that there will be
no entitlement to claim damages flowing from the termination, such as for example,
loss of profits on the remainder of the contract.
34. Dispute Resolution
There are several alternatives for handling dispute resolution. There are three
examples of boilerplate clauses in the Guidance notes and CIPS would recommend
that one of these is used, or something broadly similar, dependent upon the type of
contract, the relationship with the supplier and the Buying Organisation’s policy.
Professional legal advice should always be sought if a Buyer is unclear about the
correct terminology that should be applied to a particular contract.
When considering the inclusion of dispute resolution provisions within a
construction contract, account must be taken of the Housing Grants, Construction
and Regeneration Act 1996, whereby a party to a contract has the right to refer a
dispute arising under the contract for adjudication. The Act defines the difference
between "construction contracts" and "construction operations". The Act does not
preclude forms of alternative dispute resolution but these would be in addition rather
than alternatives to adjudication.
Consideration should be given to the most appropriate form of dispute resolution for
the contract or agreement, ranging from negotiation, mediation, conciliation, expert
determination, adjudication, arbitration and, finally, as a last resort, litigation.
Option (i) in the Model Agreement provides for a three-stage process of dispute
resolution. First the parties try to resolve the dispute themselves. The second stage is
mediation. If in a defined time this is not successful then the dispute is referred to
court. Most big British companies however have found arbitration to be more
expensive than litigation, although the latter does have the advantage of
confidentiality. Both involve solicitors, barristers and long complex hearings, but in
the case of arbitration the arbitrator also has to be paid and the rooms hired where
the arbitration is to be held. Thus few large companies specify arbitration and
instead give the courts jurisdiction. The third stage is court action.
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Immediate reference to either the courts or arbitration is contrary to modern
purchasing practice so the first step should be to invoke an Alternative Dispute
Resolution (ADR) procedure. ADR is not possible, however, if an emergency court
order to restrain infringement of intellectual property rights and similar matters was
required to be lodged, as the courts would retain jurisdiction. Arbitration is
confidential and preferred in many industry sectors. Some sectors have their own
arbitration schemes to which reference should be made.
It is important to distinguish between mediation, ADR and arbitration. Mediation
can be used before going to court or arbitration and is usually, but not always, not
binding unless the parties reach agreement to settle. By contrast, an arbitrator or a
judge if the case goes to court decides who ‘wins’ the dispute. Where arbitration is
chosen, the alternative sub-clause 34.3 in Option (i) is included. This deals with the
problem that if the contract contains purely an arbitration clause and not the
immediate right to seek legal redress in the courts, then all disputes must go to
arbitration. Such a step would prevent one party from using, for example, the
summary judgement procedure in the High Court to enforce a binding agreement
arrived at after mediation proceedings.
Option (ii) is based on a model whereby UK Government policy is to consider and
use mediation, or another Alternative Dispute Resolution procedure (ADR), in all
suitable cases. Guidance as to what form of ADR will be suitable when is set out in
OGC’s publication Dispute Resolution Guidance. This is available from OGC’s website
at
www.ogc.gov.uk/sdtoolkit/reference/ogc_library/generic_guidance/dispute.pdf
While mediation is normally the preferred dispute resolution route when negotiation
between the parties has failed, it may not always be suitable for low-value
procurements. The mediation condition does not bind the parties to accept the
opinion of the mediator as to the resolution of the dispute.
The reference in Option (ii), sub-clause 34.1 to the [Finance Director] should be
amended as appropriate, dependent upon the identity of the person in each
organisation to be notified of the dispute. The list of definitions should be amended
accordingly.
The arbitration provisions in sub-clauses 34.6 and 34.7 provide for a dispute to be
referred at the buying organisation’s instigation to an independent authority known
as the arbitrator as an alternative to the courts when a dispute cannot be settled
between the parties themselves or through mediation. Again, there is advice in
Dispute Resolution Guidance, which says that arbitration may be particularly suited to
projects of high technical complexity or where confidentiality is important. Buying
organisations will need to decide whether to delete the arbitration sub-clauses in
advance or whether to retain them and then take a decision as to whether to invoke
the arbitration procedure when any dispute arises.
35. Law and Jurisdiction
This condition is very important and should be included in all contracts. For buying
organisations in England, it provides for the application of English law. The legal
system is entirely different in Scotland and all buying organisations in that country
should ensure that the contract is carried out under Scots Law. The same applies to
Northern Ireland and Wales, though their legislation is tied in with English law.
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