When Acceptance Is Not
I once had an issue at the office, a conflict, over what constituted acceptance and whether parts of a contract become binding as the amount of agreement slowly builds.
THE STORY
Following a major bid wherein several vendors won a seat in a roster, a group of pre-qualified vendors, one of the contracts took a long time to complete for various reasons (by the way, summers can be hard on turn-around times for contracts). I built the first draft and sent it to the vendor in April, so we called the effective date May 1st. In November negotiations were just wrapping up.
THE THOUGHT PLICKENS
Now the contract had a discount clause in the pricing schedule. That discount was a volume mechanism I negotiated amongst all the winning bidders who won a place on the roster, saying that if we did a certain amount of business with the 
company, we would get a certain discount. Sneaky, hey? Here the vendors had all bid and won a seat on the roster based on their technical qualifications (the most important things) and had even proposed their fixed fees, but when negotiations started with the winning roster vendors, they still had opportunity to compete more for the work by negotiating a discount provision. Of course, I told them, they are not obligated whatsoever to have a discount provision, but I suggested that if market share mattered to them, we could give them further opportunity to reflect that here, in this chart I called Volume Discount; the greater discount you give us for the various thresholds of spend, the more likely you are to continue to get our business. Our chosen vendors, who we know can do the work, now inform us as to where it makes the best business sense to place our work. I call that “leveraging the market”….allow the market to speak.
CONFLICT
The problem arose with the last vendor. They had been doing the new, post-bid work under an extension to the old agreement we had on file with them, which had no discount provision, until the new agreement was signed. When the new agreement would be signed, it would be backdated to May 1 and all the terms and prices, etc. would be applied. They were doing the new-scope work at the new rates, so everything seemed ok. But just as negotiations were wrapping up in November, they raised a concern in the negotiations; they didn’t want to backdate the agreement. They wanted to sign it dated the current November date. Why? Because of course the discount provision only started counting the fees for work done since the effective date. If the contract went all the way back to May, well, that meant they would owe us that charted percentage off of seven months of work. I suspected that, especially because the delays were mostly caused by our side, the vendor felt it was reasonable to talk about a compromise so they didn’t have to credit or cash back this full discount that had accrued to us.
RUNNING AFOUL
Someone on our team called me and cried foul. They can’t do that, they said, because in all the contract counter-offers back and forth they had never once changed the effective date so it was already agreed to. The effective date, went the argument, was already a contracted term. Don’t obligations to abide by contract terms arise during negotiations when the parties come to a meeting of the minds on each term? If so, agreeing to it and then simply un-agreeing to it later isn’t very faithful negotiating, is it?
CONTRACT ANALYSIS
defining our terms
One of the most important principles in contracting, one that sometimes winds folks up in argument and court, is about when the terms came into effect, when they were binding. Contracts are formed, not necessarily when people sign the document, but before then, when there was “a meeting of the minds”, or in latin, consensus ad idem, agreement to the same. (This, by the way, is why the business units value a good contract analyst, since contracting can mistakenly happen on the phone while the engineer is chatting with the design consultant….there are stories I could tell). When did acceptance occur? This person was saying that we had already had a meeting of the minds about the date, even though there were counter-offers and counter-counter-offers going on with other parts of the document in the meantime.
the nature of contracts ….. and contract analysis
You see, contracts are an intricate, coherent, self-sufficient whole, like a cruise ship at sea. At one part of the boat, say in a hallway on your way to the buffet, is a an arrow with a sign that says “this way to the life raft” and on the seats is a pointer 
that says “lifejacket under seat”. If the life raft is a two-person dingy and the lifejacket is infant sized, you realize that you are at some greater risk, because the lifejacket and liferaft parts of the boat are not going to be sufficient to sustain you if some other part, like the hull, fails. Contracts do this. Contract parts rely on other contract parts to make sense. This is why we call it “analysis”, because to apprehend the significance and meaning of one clause, you may need to hold the implications of four other clauses in your mind at the same time. A tweak here sends a shiver to the other parts and one must evaluate the impacts the way a drop bounces its little waves in a tiny bucket of water and in that same way, when waves intersect, there is a harmonic overlap that can be as significant as when the drop first fell. A brain on contracts looks like ripples bouncing around in a bucket.
It is at this point by the way, that the contract specialist plays a role the lawyer may not, because the analyst has the various implications of the job also in mind, and the implications on the process of routing the document to completion….the intra-contractual considerations are a the special domain of a contracts lawyer, and the contract specialist is tasked with matching all of those implications to the nature of the work, and then coordinate all the stakeholder parties so there can be agreement that may include acceptable compromise. A great example of that occurred in my negotiating with a software company for licensing of virtualizing software where I found brick and mortar concepts in the licensing language that did not properly account for the etherial nature of the function of the software, which was never located on a fixed computer. Cloud computing challenges old-time contract language.
Therefore, when I send you a contract I am asking that you accept the entire thing at once. When you send back even one change, I am supposed to have the right to evaluate that impact on everything else in the agreement and decide if I can live with it or not; even with one change, you are rejecting everything at once. Thus, there is no meeting of the minds on anything, no consensus ad idem where the idem is “the whole contract” not just one item in the contract. So when I see that your change is too impacting, I send it back revised, meaning I rejected your change plus every implication on every other clause; I have rejected your entire contract offer and have offered an entirely new one. Until you email me back or call me on the phone or send a fax that says “I agree with your offered terms”, there is no agreement at all.
CONCLUSION
Since the discount clause was the last issue, the effective date became part of the last issue because the question of how much money would be owed depended on both of these clauses; when one changed, the impact of the other has implication on the amount to be paid. Like the signs on the ship, the discount clause pointed, saying, “go to the effective date to see when the discounts start.” (By the way, computer programmers will find that language familiar). Of course, our side was motivated to get a larger discount, and their side a smaller one. This is how implication and coherence matter to contracts and to contract negotiation.
How did the matter conclude? We agreed to their later date for the contract, but they agreed to a set-off in the amount of the difference between the dates, which I wrote as a simple set-off statement in an “other” section of the terms and conditions.
