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Contract Type and Liabilities

Introduction

The paper examines the nature of legal implications and liabilities associated with using different types of contracts in the procurement project. The level of liability and legal obligation varies from seller and buyer depending on the type of contract chosen. In this case, the chosen type of contract entails a fixed price contract that is used in the procuring process. In this type of contract, the seller or supplier has a higher level of liability, risk, and legal obligation to meet the set standards and quality of the procurement project. When setting the terms of the fixed price contract and the seller agreeing to the buyer’s demands is held legally obliged to meet the set conditions. This presents a higher level of liability should the seller fail to meet the buyer’s predetermined conditions. Hence, the paper extensively examines different liabilities associated with the use of a fixed price contract.

Contract Type

The chosen contract type entails the use of a fixed price in the procurement project. The fixed-price contract focuses on the achievement of the service, product, or result as initially defined in the setting of the contract. The buyer sets the predetermined conditions to which the seller commits to deliver based on the agreed terms (Kim, Roberts & Brown, 2016). The resources and time variations during the project implementation do not influence any change to the pricing. The price remained constant under the set and agreed on terms when signing the contract. Therefore, in the provision of substandard product, service, or result – the seller is held accountable and legally liable for the damages experienced in the process.

Legal Implications and Liabilities

The use of a fixed price contract transfers the liability and risks to the vendor’s side. The buyer expects specific standards, quality, and deliverables to be made on completing the project. A clear definition of responsibilities and tasks to be delivered by either the buyer or the seller is stipulated in the contract (Kim et al., 2016). The seller has the mandate to price the project before committing to the project. Once the fixed price contract is signed, the seller (vendor) is required to meet all the set conditions and requirements of the procurement project.

  • Seller’s Liability for Damages

In the occurrence of damages, the seller is liable to cater for the extra costs in the fixed term. In the procurement project, damages are experienced due to the additional costs incurred in meeting the required quality, losses in a project, replacement of product, and impediment to complete the project on time. The level of liability is high, and based on the contract, the legal obligation holds the vendor liable to strictly deliver on the agreed terms (Kim et al., 2016). The functionalities of the procurement project emphasize on value and quality of products and services. The failure to meet this may subject the vendor to incur further costs having to redo the delivery again (Gotanda, 2006). Therefore, to avoid liability for damages, the vendors should focus on delivery to the optimum level of the agreed contract.

  • Breach of Contract

A breach of contract happens following the failure of one party in a legally binding contract that fails to comply with particular terms agreed upon. A breach of contract culminates in damages that should be covered by the vendor. A breach of contract subjects the buyer to the right of being compensated through monetary value for the damages experienced as a result of the failure to perform as set in the agreement (Ganglmair, 2017). The legal liability requires the seller to perform exemplary as per the agreed terms. A breach of contract sets a precedent of a damaged reputation that is bound to cost the vendor more than the existing contract. As a vendor, – reputation is essential to compete in bidding for differentcontracts. Thus, in the long-term, a breach of contract is, in the long run, painful to the vendor.

  • Low Quality

Low quality culminates in the breach of contract that leads to the expansion of damages in the project. In a fixed price contract, liabilities rapidly increase in the delivery of low-quality products or services. This is as a result of the potential replacement of the delivered service or product at the expense of the vendor (Gotanda, 2006). Also, it leads to the likelihood of redoing the entire work to ascertain the expected quality is delivered. The fixed-price contract emphasizes on value and quality. Hence, all liabilities are subjected to the vendor’s side in the failure to meet the required value and quality of the service or products contracted to deliver.

References

Ganglmair, B. (2017). Efficient material breach of contract. The Journal of Law, Economics, and Organization33(3), 507-540.

Gotanda, J. Y. (2006). Damages in Lieu of Performance because of Breach of Contract. Public Policy Research Paper, (2006-8).

Kim, Y. W., Roberts, A., & Brown, T. (2016). Impact of Product Characteristics and Market Conditions on Contract Type: Use of fixed-price versus cost-reimbursement contracts in the US Department of Defense. Public Performance & Management Review39(4), 783-813.

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