Legal Aspects of Public Procurement

Portland State University

ISQA 440, Governmental Procurement

What is a Contract? A contract is an agreement between two parties

that creates an obligation to perform a particular duty. A legally enforceable contract requires:

• An Offer• An Acceptance• Consideration• Obligation of both Parties• Legal Capacity to enter into a Contract• Lawful Subject Matter

Offer and Acceptance: “A Meeting of the Minds”

• A legally recognized offer and an acceptance creates a “meeting of the minds’, or mutual assent, between the parties.

• Mutual Assent requires the presence of the following factors:1. Both parties must exhibit a “contractual intent”

[words spoken in jest or frustration will lack the requisite intent]

2. The terms of the offer must be clear and definite;

3. The acceptance must be clearly communicated.

The Requirement for Clear and Definite Terms

• Required Clarity: For terms to be legally valid, a reasonable person must be capable of readily understanding them.

• Four primary areas in determining definite terms:1. the parties;2. time for performance (term or service schedule);3. the price; 4. the subject matter or scope of service.

Consideration: The Importance of the “Bargained Exchange.”

• Consideration must be mutual. Both parties must receive something of value.

• Involvement of money is not required.

Competent Parties

• Must have legal capacity to enter into a Contract• No Minors• No Intoxicated Persons• No Persons with diminished mental capacity• No Aliens• No Felons

Subject Matter must be Legal

• Can not be proscribed by law• Restraint of Trade imposes illegal and

unreasonable burden on commerce by hindering competition

• Commission of a Crime• Illegal Objectives• A person may not legally contract a right

they do not have

Mutuality of Obligation

• Both parties must be bound to a promise or neither party is bound

• A promise to perform an act that one is legally bound to do does not quality

• Most states do not recognize moral obligations as Mutuality as there is no acceptable method of determining it

Statute of Frauds

• Formal Requirements; Statute of Frauds.• (1) Except as otherwise provided in this section

a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker.

What Authority Defines a Contract?

Sources of Contract Law

• Common Law – Court made case law governing contracts (primary law for service contracts) – From English Common Law, the Magna Carta, Prince John, Robin Hood, etc.

• Uniform Commercial Code (UCC) • Warranty of Merchantability• Warranty for Particular Purpose

Model Procurement Code

• Established by American Bar Association with help from others (i.e. NIGP, NASPO)

• Established in 1979, updated in 2000• Serves as a model for public agencies to

establish their own procurement code• Recognized nationally as a standard for

what a code should include

Anti-Competitive Practices Laws• Sherman Act (1890)

– Prohibited restraint of trade• Clayton Act (1914)

– Prohibits exclusive deals and tying arrangements

• Robinson Patman Act (1936)– Prohibited price discrimination

• Federal Trade Commission Act (1914)– Prohibits unfair competition

Types of Authority• Express authority exists when a statute or code

indentifies officials to take certain actions, such as sign contracts

• Delegated authority occurs when a procurement official authorizes another to exercise authority on their behalf

• Implied authority involves activities that are logical extensions of a person’s position, even if they are not explicitly authorized

Procurement Legislation

• Public procurement is limited to what is authorized by law, while the private sector can do what the law does not prohibit

• Public procurement professionals should be involved with the legislative process

• Influence changes, seek enabling legislation, and provide expert testimony