3. Offer and acceptance: bilateral contracts

This chapter analyses the key elements traditionally required for the formation of a bilateral contract. Contracts are bargains. The natural way to make a bargain is for one side to propose the terms and the other to agree to them. So contracts are almost invariably made by a process of offer and acceptance. However, the lack of offer and acceptance does not necessarily preclude the existence of a contract, if a bargain can be discerned from the facts in some other way. The chapter begins by explaining what constitutes an offer, and discusses various common scenarios. It then examines the requirements of acceptance, since this is what is required for a contract to be concluded. It considers the possibilities that an offer might be revoked by the offeror; or rejected by the offeree; or the offeree might ask for further information; or the offer might lapse.

Coordinating Project Outsourcing Through Bilateral Contract Negotiations

Problem definition: Project outsourcing has been a pronounced trend in many industries but is also recognized as a major cause for project delays. We study how companies can coordinate outsourced projects with uncertain completion times through bilateral contract negotiations. Academic/practical relevance: Misaligned subcontractor incentives may result in substantial losses to both project clients and subcontractors. Coordinating subcontractors’ efforts through proper contracts is imperative to the success of project outsourcing. Most previous studies on project contracting have not addressed subcontractors’ bargaining powers or the dynamic bargaining process in negotiations. We fill in this gap by studying bilateral bargaining between the client and subcontractors, which better reflects real-world negotiations. Methodology: We model project contract negotiations as a multiunit bilateral bargaining game. We derive the conditions such that bilateral negotiations can achieve system coordination and characterize the equilibrium negotiation outcomes. We then compare the conditions and equilibria under various model settings to study their impact on project contracting. Results: Our study uncovers how the coordination of project outsourcing is impacted by the contract form, bargaining power structure, precedence network topology, payment timing, external opportunities, and negotiation protocols. For single-task projects, the widely used fixed-price (cost-plus) contract can achieve system coordination only when the subcontractor (client) possesses full bargaining power. Cost-sharing and time-based incentive contracts, which perform well for single-task projects, may not be effective for projects with parallel tasks when any subcontractor’s bargaining power is sufficiently high. Projects with serial tasks can be coordinated only under certain extreme bargaining power structures. Delaying payments always exacerbates the incentive misalignment. Managerial implications: Our analysis provides insights and guidelines to companies regarding how to select proper contract forms and payment timing schemes, based on the characteristics of the projects and subcontractors, to ensure the effectiveness of project outsourcing. Our results also highlight the importance of bargaining modeling in project contracting.

The subsequent difficulty of performance in contract law

This paper purports to clarify the notion and the legal consequences of the subsequent difficulties in performance of a bilateral contract, which occur due to an unforeseeable change in circumstances under which the contract was concluded. A part of the paper deals with the conditions for invoking the change in circumstances pursuant to Serbian and comparative contract law. In addition, the paper attempts to distinguish subsequent difficulties in performance from the different types of impossibility, such as impossibility to fulfil the purpose of transaction, objective impossibility of performance, subjective impossibility of performance, practical impossibility, and economic impossibility. The difficulties in performance occur after conclusion of the contract and are assessed in relation to what the promisor knew, or was obliged to know at the time of conclusion. If a contract becomes excessively difficult to perform, but not impossible, the promisor would not be discharged on that account, but may be able to seek termination, or judicial adjustment of the contract. In contrast, the subsequent impossibility of performance may lead to contract termination, but cannot be the grounds for judicial adjustment of the contractual content. The subsequent difficulty in performance of a contract is not easily distinguished from the so-called practical impossibility. The performance is deemed to be practically impossible if it would be contrary to reason, good faith, or the principles of fair trade to require the debtor to perform as initially agreed.

Modes of Acceptance

Chapter 32 concerns modes of acceptance. Most offers require acceptance by either a promise (offers for a bilateral contract) or an act (offers for a unilateral contract). In some cases an offer is ambiguous as to which mode of acceptance is required. Sometimes this ambiguity does not matter because the offeree performs an act that doubles as a promise. Often, however, cases that involve such ambiguity cannot be resolved this way. One approach to these cases is to apply the general principles of interpretation to determine which mode of acceptance is required. A different rule is embodied in Restatement Second Section 32: “In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses.”