Formation of Contract

Formation of contract
Structuring the agreement .

Essentials to be kept before drafting an agreement.
Relevant clauses of the agreement.
1. Preamble.
2. Interpretation and definitions.
3. Scope of the works.
4. Price
5. Payment terms.
6. Scheduled Delivery Date.
7. Liquidated damages
8. Taxes and duties.
9. Confidentiality.
10. Indemnity.
11. Waiver
12. Amendments.
13. Force majeure.
14. Termination.
15. Dispute Resolution/Arbitration.
16. Jurisdiction.
17. Validity.
18. Notices.
IDENTIFICATION OF RISK
• Estimation of the probable risk

• Projected impact of the risk
• Transfer of risk.
• Mechanisms for losses that are
beyond the declared risk tolerances.
ALLOCATION OF RISK
• Risk transfer is the mode by which

we shift the risk liability from one
party to another by different modes.
METHODS
•Indemnification
•Limiting the Liability
•Insurance
•Waiver of Subrogation
Policy for Risk Management in
Contracts
Entering into contracts entails many risks.

Taking precaution in managing these risks
can protect the organization from losses.
All organizations should have a written
policy for risk management.
•All contracts must be written.
•The authority to negotiate and sign contracts should be
incorporated in the policy depending upon the quantum
of the contract/transaction/financial exposure.
•Requirement of review to minimize the risk prior to
acceptance/signing.
•Ensure that the probable risks are covered under the

indemnities.
•Maintaining catalogue of all contracts to be
maintained;
•Maintaining separate register for various time lines
in each contract, their date of expiry and the
validity/expiry of the Bank/Performance
Guarantees.
•Making a schedule for periodic review of the
contract for performance and risk management
issues;
•Formulating archiving procedures for expired
contracts.
•Delegation powers to negotiate and sign the
contract relating to commercial transactions
be specified.
•Ensure that the obligations under the
contract and the risks associated with those
obligations are complied with.
•Employees responsible for contract
negotiation should receive instruction or
training on how to effectively review a
contract.
Supply Contract: Essential Features
An agreement by which a seller promises to supply all of the
specified goods or services that a buyer needs over a certain time
and at a fixed price, and the buyer agrees to purchase such goods
or services exclusively from the seller during that time.
In international market a supply contract is often necessary in order
to lock in discounted pricing and other benefits that the supplier is
agreeing to provide to the client for a specific period of time. The
terms of a supply contract often define everything from the means
whereby the products are delivered, terms of payment, and any
other aspect of the relationship that the two parties have determined
to be necessary.
The supply contract protects the rights of the parties. The client
knows what to expect in terms of the goods received and how they
will be delivered. In turn, the supplier knows what the client is likely
to need and how payment will be submitted.
Rate Contract: Distinctive
Features.
Rate contracts are mutual agreements
between the buyer and the seller to operate
a set of chosen items, during a given period
of time, for a fixed price or price variation.
Under this system the rates are fixed and at
times even the quantity of the selected items.
As and when the need arises the buyer
issues a Purchase order directly on the basis
of the rate chart available on the supplier
who in turn supplies the items
Consultancy Services Contracts.
A consultancy contract is a
legal agreement between
a consultant and a client, by means of
which the client buys the services of
the consultant. It is a type of
services agreement.
DIFFERENCE BETWEEN RUNNING
CONTRACT AND RATE CONTRACT
The Running Contract is one under which,

during the period of its currency the
contractor engages to supply, and the other
party to the contract to take, a specified
quantity (with a percentage tolerance either
way) of materials, as and when ordered, at
fixed unit rates or prices, within a given period
of the receipt of such order.

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Formation of contract

Structuring the agreement .

• Estimation of the probable risk

• Risk transfer is the mode by which

Entering into contracts entails many risks.

•Ensure that the probable risks are covered under the

The Running Contract is one under which,

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