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NinNinVT

The Missing Essential Element of a Contract in a Quote

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Hello Wifcon,

I am currently taking CON 90, and something came up in today's class that I couldn't understand from the instructor's explanation - would appreciate your help:

A quote is not an offer, and so cannot become a contract.  The instructor was saying that quotations are missing one of the essential elements of a contract: Consideration.  I was wondering why it wouldn't be explained as missing Mutual Assent, since the quotation was meant for information purposes only.  It would appear to me that the quotation does lay out consideration (X dollars in exchange for Y widgets within Z timeframe) - why would it be not an offer because of lack of consideration?

Could someone enlighten me please?  Thank you!

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I don't know what your instructor meant, but in government contracting the key thing a quote lacks that is essential to formation of a contract is an offer, i.e., a promise to do something in return for something. A quote is just information, e.g.: This is what I sell and this is what I charge for it. A true quoter does not offer (promise) to do anything or to refrain from doing anything, and does not actually do anything in response to an offer (promise) from the government.

Until there is an offer (promise) from one party or the other, there is no need for consideration, and there cannot be mutual assent.

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I think the instructor was confusing something that is true about agreements (they are not contracts because they lack consideration) with something that is true about quotes (they are not offers because they are not binding). You're not in my class, are you? 

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15 hours ago, Don Mansfield said:

I think the instructor was confusing something that is true about agreements (they are not contracts because they lack consideration) with something that is true about quotes (they are not offers because they are not binding). 

Neither is true. You must start an inquiry about the contractual status of an agreement or quote with this question: Does it embody a promise? 

All contracts are agreements, but not all agreements are contracts. A contract is an agreement about obligations that the courts will enforce. It is an enforceable bargain. See entry on contract in Black's Law Dictionary, 10th, pp. 389 - 90; Restatement, Second, Contracts § 1; and Calamari and Perillo on Contracts, 6th, Ch. 2.

An agreement is a contract if it reflects mutual assent to lawful promises about mutual obligations that are made by competent parties and backed by consideration, which is something given in exchange for a promise.  Contracts are formed through a process of offer and acceptance. An offer is a promise or set of promises. See Calamari and Perillo on Contracts, § 2.5. No promise, no obligation, no contract.

FAR agreements are not contracts because they do not embody promises. Neither party to any of the agreements described in FAR (BA, BOA, BPA) promises to do anything, so neither party is obligated to do anything. The government does not promise to buy and the firm (not "contractor") does not promise to sell.

To say that FAR agreements are not contracts because they lack consideration might prompt the response: Why would they include consideration? You only need consideration to create a bargain about obligations. FAR agreements do not seek to create obligations. FAR agreements do not include consideration because when they are signed no one is presently seeking to be bound by promises. Consideration would serve no purpose. You don't get to the issue of consideration until you have an offer--a promise.

A contract is formed under a FAR agreement when the government issues an order (or "call") against the agreement and promises to pay, and the contractor performs or agrees to perform in return for the payment, thereby giving rise to a bargain about obligations that the courts will enforce. Consideration seals the deal. 

Quotes are not contracts because they, too, embody no promises. They do not communicate an intention to be bound. They are just information. No promise, no obligation, no contract. To say that quotes are not contracts because they are not binding is like saying quotes are not contracts because they are not contracts.

What the heck are they teaching in CON 90?

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Consider the following –

First this from the Uniform Commercial Code (UCC)–

UCC 2-205. Firm Offers.

An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.”

Next, the Federal Acquisition Regulations (FAR), as Vern has noted, have specific meaning to Federal procurements, yet still embody the principles of non-Federal acquisition.  This said note that FAR 13.307 provides that a Standard Form (SF)-18, 1449, or agency format is to be used and “should conform” to the SF-18 or SF-1449.

The SF-18 states this specifically within the body of the form –  

“IMPORTANT: This is a request for information and quotations furnished are not offers. If you are unable to quote, please so indicate on this form and return it to the address in Block 5a. This request does not commit the Government to pay any costs incurred in the preparation of the submission of this quotation or to contract for supplies or service. Supplies are of domestic origin unless otherwise indicated by quoter. Any representations and/or certifications attached to this Request for Quotation must be completed by the quoter. “

Summarized a quote following the principles of the FAR is not a firm offer unless the terms of the solicitation provide that the quote, is not revocable.

 

PS - Somehow I think the instructor got caught up in the consideration matter as it is carried in the UCC.

 

 

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15 hours ago, Don Mansfield said:

I think the instructor was confusing something that is true about agreements (they are not contracts because they lack consideration) with something that is true about quotes (they are not offers because they are not binding). You're not in my class, are you? 

Hello Don,

I don't believe so - I am currently in the FY 17 Oct-Nov Scott AFB class.

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On 11/8/2016 at 6:55 AM, C Culham said:

Summarized a quote following the principles of the FAR is not a firm offer unless the terms of the solicitation provide that the quote, is not revocable.

I don't quite agree with that. A quote is not an offer of any kind, firm or otherwise. See the Restatement, Second, Contracts § 24:

Quote

Offer Defined: An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.

See Comment a, which applies to government contracts under the FAR:

Quote

In the normal case of an offer of an exchange of promises, or in the case of an offer of promise for an act, the offer itself is a promise, revocable until accepted.

Since a quote is information, not an offer, i.e., a promise, it does not make sense (to me) to speak of a quote as being revocable or irrevocable, because It does not make sense to talk about revoking (cancelling, withdrawing) mere information. You can declare the information to be incomplete, false, or outdated, but you cannot "cancel" it in any meaningful sense.

Also, I have never understood the expression "firm offer." An offer is a promise or set of promises. According to Restatement § 24, an offer is "the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it." An offer is what it is for as long as it is, whether the manifestation lasts for a minute or for eternity.

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Vern,

Since we're on the subject, I'm curious to hear your take on the "Elements of a Contract."  Depending on the author/source, I've seen them range anywhere from four to seven elements.  The list I keep and share has six:

  • Offer
  • Acceptance
  • Consideration
  • Legality of Purpose
  • Competent Parties
  • Mutuality (aka Clear Terms & Conditions)

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Vern,

I think you are quoting me out of context. NinNinVT prefaced her post by saying that she was taking CON 090. The title of that course is "FAR Fundamentals". Within the context of the FAR, agreements are not contracts. This is something that is covered in a different lesson in the course, which is why I suspected that the instructor was confused. Did you honestly think that I didn't know that a contract is a type of agreement under the common law? 

To rebut my contention that quotes are not offers because they are not binding, you wrote:

15 hours ago, Vern Edwards said:

Quotes are not contracts because they, too, embody no promises. They do not communicate an intention to be bound. They are just information. No promise, no obligation, no contract. To say that quotes are not contracts because they are not binding is like saying quotes are not contracts because they are not contracts.

This time you seem to be misquoting me, because I didn't say that quotes were not contracts. I said that quotes are not offers because they are not binding. That statement is supported by the definition of "offer" at FAR 2.101:

Quote

“Offer” means a response to a solicitation that, if accepted, would bind the offeror to perform the resultant contract. Responses to invitations for bids (sealed bidding) are offers called “bids” or “sealed bids”; responses to requests for proposals (negotiation) are offers called “proposals”; however, responses to requests for quotations (simplified acquisition) are “quotations,” not offers.

 

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1 hour ago, Matthew Fleharty said:

Vern,

Since we're on the subject, I'm curious to hear your take on the "Elements of a Contract."  Depending on the author/source, I've seen them range anywhere from four to seven elements.  The list I keep and share has six:

  • Offer
  • Acceptance
  • Consideration
  • Legality of Purpose
  • Competent Parties
  • Mutuality (aka Clear Terms & Conditions)

I would like to know Vern's thoughts as well. I wonder if the FAR System and UCC have dictate the answer.

Do you think 'mutuality' is better expressed as “a meeting of the minds” regarding the agreement? Meaning the parties understood and agreed to the basic substance and terms of the contract.

Clear terms & conditions is one thing, but mutual assent could be another.

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Thanks Vern - I do not want to derail too far but I will admit I hedged my post just a little.  Why?  

Because if one were to read the specifics of FAR 52.212-1 it states the following - "Period for acceptance of offers. The offeror agrees to hold the prices in its offer firm for 30 calendar days from the date specified for receipt of offers, unless another time period is specified in an addendum to the solicitation."   

Noting this and noting the language of FAR 13.307 and that on the SF-18 as I quoted in my previous post my view is that a non-commercial item quote is not a firm offer and "should" not be requested by the Federal government as same per FAR 13.307 but the depends starts when the quote is for a commercial item especially if an agency does not tailor FAR 52.212-1 and leaves the "firm"  language as is.

We both probably do not quite agree and I will leave it at that.

PS - I do not have access to Black's where I am at but my recollection is that in the discussion of "irrevocable offer" Blacks refers to the "firm offer rule".  Additionally a quick search on "firm offer"  on WIFCON produces many references in both discussions and GAO/Court decisions which I use only to reference why I have made the distinction for many years as to the difference between a quote versus that of bid/offer when I talk FAR.

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10 hours ago, Don Mansfield said:

Did you honestly think that I didn't know that a contract is a type of agreement under the common law? 

Don.

I did not mean to suggest that you do not know that contracts are agreements. I was merely pointing that out as a matter of fact in order to distiguish contracts from FAR agreements. You'll note that I used the term "FAR agreements" in several places in my post to distinguish them from contractual agreements.

10 hours ago, Don Mansfield said:

You seem to be misquoting me, because I didn't say that quotes were not contracts. I said that quotes are not offers because they are not binding. That statement is supported by the definition of "offer" at FAR 2.101....

You're right, I misquoted you. I'm sorry. However, you said quotes are not offers because they are not binding. That's not true. Offers are never binding. What are binding are contracts, which come into existence when an offer is accepted in accordance with its terms and the offeree provides consideration. Quotes are not offers because they do not embody promises.

Sorry for the misunderstanding.

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14 minutes ago, Vern Edwards said:

You said quotes are not offers because they are not binding. However, that's not true. Offers are never binding. What are binding are contracts, which come into existence when an offer is accepted in accordance with its terms and the offeree provides consideration. Offers are promises. Quotes are not offers because they do not embody promises.

Vern:

Is it accurate to say an offer is a promise that an offeror is bound to, unless revoked, expired, etc.?

I always thought of an offer as a binding promise.

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5 hours ago, C Culham said:

I do not have access to Black's where I am at but my recollection is that in the discussion of "irrevocable offer" Blacks refers to the "firm offer rule".  Additionally a quick search on "firm offer"  on WIFCON produces many references in both discussions and GAO/Court decisions which I use only to reference why I have made the distinction for many years as to the difference between a quote versus that of bid/offer when I talk FAR.

Carl:

I acknowledge that the term "firm offer" is commonly used. Here is what I said:

10 hours ago, Vern Edwards said:

I have never understood the expression "firm offer." An offer is a promise or set of promises. According to Restatement § 24, an offer is "the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it." An offer is what it is for as long as it is, whether the manifestation lasts for a minute or for eternity.

I have never understood exactly what a person means when they say "firm offer." The current edition of Black's says the following about "firm offer" and "irrevocable offer":

Quote

firm offer See irrevocable offer under OFFER.

irrevocable offer (i-rev-ə-kə-bəl) (1885) An offer that includes a promise to keep it open for a specified period, during which the offer cannot be withdrawn without the offeror's becoming subject to liability for breach of contract. • Traditionally, this type of promise must be supported by consideration to be enforceable, but under UCC § 2-205, a merchant's signed, written offer giving assurances that it will be held open — but lacking consideration — is nonetheless irrevocable for the stated period (or, if not stated, for a reasonable time not exceeding three months). — Also termed (in the UCC) firm offer; (specif.) merchant's firm offer.

“It has sometimes been asserted that an irrevocable offer is ‘a legal impossibility.’ See Langdell, Summary of the Law of Contracts, § 178, also § 4; Wormser, ‘The True Conception of Unilateral Contracts,’ 26 Yale Law Journal, 137, note; Lee, Title Contracts, in Jenks' Dig. of Eng. Civ. Law, § 195; Ashley, Contracts, § 13. A close analysis shows that there is nothing impossible either in the conception itself or in its application. If we define ‘offer’ as an act on the part of the offeror …, then no offer can ever be revoked, for it is of yesterday — it is indeed factum. But if we mean by ‘offer’ the legal relation that results from the offeror's act, the power then given to the offeree of creating contractual relations by doing certain voluntary acts on his part, then the offer may be either revocable or irrevocable according to the circumstances. The idea of an irrevocable power is not at all an unfamiliar one.” William R. Anson, Principles of the Law of Contract 53–54 n.3 (Arthur L. Corbin ed., 3d Am. ed. 1919).

I think people should say what they mean. I say if by "firm offer" a person means "irrevocable offer," then they should say what they mean--"irrevocable offer." But I accept that people like to say "firm offer," and while I don't think it makes sense, I do not object to it as improper.

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2 hours ago, Jamaal Valentine said:

Vern:

Is it accurate to say an offer is a promise that an offeror is bound to unless revoked, expired, etc.?

I always thought of an offer as a binding promise.

Jamaal:

i think what is accurate to say is that an offer is acceptable until the power of acceptance has been terminated. Until acceptance in accordance with the terms of the offer and the common law, the offeror is not bound by anything. See Restatement, Second, Contracts § 35, The Offeree's Power of Acceptance:

Quote

(1) An offer gives to the offeree a continuing power to complete the manifestation of mutual assent by acceptance of the offer.

(2) A contract cannot be created by acceptance of an offer after the power of acceptance has been terminated in one of the ways listed in § 36.

See § 36, Methods of Termination of the Power of Acceptance:

Quote

(1) An offeree's power of acceptance may be terminated by

(a) rejection or counter-offer by the offeree, or

(b) lapse of time, or

(c) revocation by the offeror, or

(d) death or incapacity of the offeror or offeree.

(2) In addition, an offeree's power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer.

People, including me, use all kinds of goofy terminology: binding offer (An offer does not bind; contracts bind; an offer must be accepted and a contract created before the offeror can be said to be bound.); binding contract (What kind of contract is not binding?); void contract (If its void, then it's not a contract.).

Don't let common usage confuse you.

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10 hours ago, Matthew Fleharty said:

Vern,

Since we're on the subject, I'm curious to hear your take on the "Elements of a Contract."  Depending on the author/source, I've seen them range anywhere from four to seven elements.  The list I keep and share has six:

  • Offer
  • Acceptance
  • Consideration
  • Legality of Purpose
  • Competent Parties
  • Mutuality (aka Clear Terms & Conditions)

That's as good a list as any. Instead of mutuality I would say mutual assent. Also, mutual assent does not necessarily mean clear terms and conditions. It means that the parties manifested agreement to something. What they agreed to might be a matter of debate, and the contract is not dissolved because they disagree as to its meaning.

In any case, what are commonly called "elements of a contract" are more accurately said to be elements or requisites of contract formation.  

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12 hours ago, Vern Edwards said:

I think people should say what they mean. I say if by "firm offer" a person means "irrevocable offer," then they should say what they mean--"irrevocable offer." But I accept that people like to say "firm offer," and while I don't think it makes sense, I do not object to it as improper.

 

"Irrevocable" seems more descriptive, and does not have the passing resemblance to "firm fixed price" which could confuse a reader. 

A quick internet search finds a number of school nutrition program solicitations requesting "firm offers" which are "cost reimbursable".  I don't think this is improper either, but those solicitations would be a little clearer if they use "irrevocable". 

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Thanks Vern I especially appreciate you sharing the Black's reference, confirms my memory has not strayed too much yet!!!!!!

 

I hope we did not stray too far For the Beginner Only.   I am always interested in feedback from an OP and hopefully in the case of this subject area and with regard to this specific thread NinNinVT will let us all know if we dazed and confused or actually helped.

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Carl:

I hope we helped. But in my early years I found contract law and its terminology to be very confusing. So do many lawyers. It's not easy to give a clear explanation of "consideration" from most attorneys. (Why is it called "consideration"?) "Mutual assent" ("meeting of the minds") is a very misleading term.

It doesn't help that so many people teaching seminars don't fully understand some of the common law of contracts or don't give clear explanations of them. It took me years and a lot of reading before I felt that I fully understood, and even now I have to look things up from time to time and scratch my head.

One of the nicest comments I ever received on a class I taught was from a lawyer who told me that I had just given the clearest explanation of consideration that she'd ever heard. I wish I could remember what I said.

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1 hour ago, apsofacto said:

"Irrevocable" seems more descriptive

Yes, but a better term would be irrevocable until terminated by____________.

By the way, FAR 52.215-1(d), Offer expiration date, says:

Quote

Proposals in response to this solicitation will be valid for the number of days specified in the solicitation cover sheet (unless a different period is proposed by the offeror).

Does that make the proposal irrevocable during that period?

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15 hours ago, Vern Edwards said:

Quotes are not offers because they do not embody promises.

Vern,

What is your definition of promise? Must a promise, if accepted, bind the promisor? Or can some promises be nonbinding even if accepted?

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36 minutes ago, Don Mansfield said:

What is your definition of promise?

Don:

For the definition of promise, see Restatement, Second, Contracts § 2, Promise, Promisor, Promisee, Beneficiary, paragraph (1):

Quote

(1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.

 

36 minutes ago, Don Mansfield said:

Must a promise, if accepted, bind the promisor? Or can some promises be nonbinding even if accepted?

"Must" for what purpose?

Not all promises are binding if accepted. By "binding" I mean enforceable in court. For example, unlawful promises (e.g., to murder someone) are not binding. Beyond that, the authorities are not all in agreement. Under some theories (e.g., the "subjective approach), promises that are obviously not serious might not be binding. See Calamari and Perillo § 2.3, Must the Parties Be Serious?. See also, Calamari and Perillo § 2.4, Must the Parties Intend to Be Bound? Promises based on obvious errors might not be binding.

It's hard for me to answer your question in more detail, because I don't fully understand your purpose in asking it. There are many treatises about what promises are binding and what promises are not. See, e.g., Restatement § 2, Comments d, Promise of event beyond human control; warranty and e, Illusory promises; mere statements of intention.

 

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1 hour ago, Vern Edwards said:

Does that make the proposal irrevocable during that period?

If so, that would conflict with FAR 15.208(e), which states "Proposals may be withdrawn by written notice at any time before award."

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