Difference Between Offer and Invitation to Treat

A contract is an agreement between the contractor and the client which is binding in law. Clients define the project objectives, schedule and the budget. Contractors are hired by the client and are responsible to carry out the work, under the terms and subject to the deadlines, quality of the work and stay within the budget. Offer and acceptance must be present for a contract to be formed. Both parties are intended to create a legal relations and the negotiation between both parties are generally take place before an agreement becomes binding and a contract is formed.

When tenders have been submitted by the contractors, the winning tender is selected and a contract to a project is entered between the client and the contractor. The selection of tender is an example of invitation to treat. Contractors are all welcomed to estimate the tender amount (a quotation for completing the works), but only one contractor will be selected to do the work.

2.0 Offer and Acceptance

2.1 What is an offer?

An offer is a statement of the terms which the client (the offeror) is prepared to be contractually bound. The offer must be complete, specific and capable of being accepted. It must include the fundamental terms of the agreement with the intention that no further negotiations are to take place. Client offer contractor the work and therefore the contractor must carry out the work under the client’s terms and conditions. It is possible to make a conditional offer. The effect of this is that an offer cannot be accepted if the condition has not been satisfied. For example the client requires the contractor to have a specific tool or machine before an offer can be made.

2.2 Termination of offer

An offer may be terminated or revoked if:

The offer is withdrawn or revoked at any time prior to acceptance provided there has been communication between the client and the contractor;

The client making the offer dies;

Failure of a condition;

A reasonable period of time has elapsed – a time limit is specific on the offer made.

2.3 Acceptance

A fully binding contract is only formed if an offer is accepted. Acceptance is a final and unqualified acceptance of all the terms of the offer. The offer must be accepted without introducing any new terms. Acceptance does not take place until communicated to the client making the offer. Communication of acceptance is the moment when the contract is formed and the acceptance must be in the form of designated by the client.

3.0 Invitation to treat

3.1 What is invitation to treat

An invitation to treat is different to an offer as it only invites the party to make an offer and it is not intended to be binding. The contractors are invited to bid on the job, by calculating the total work cost and to have the tenders submitted in a specified time. The main difference between this situation and an auction is that person submitted the tender, does so in ignorance of other’s bids because the final decision is up to the client.

3.2 Types of tender

There may be 2 different types of tender:

Requirement contracts – the client wants someone to tender for the construction of a house “as required”. The contractors put in a price for the work to be done. If the client says OK, it is still not a contract as the client can still ask for other contractor. So it is not a contract, but the putting in place of a “standing offer”.

A specific contract – a client wants to build a new house – invites contractors to tender in accordance with specification – the advertisements may be seen as invitation to treat, the tender is then an offer which the client may accept or not.

4.0 Difference between offer and invitation to treat

An invitation to treat is when a client invites contractors to make him/her an offer. For example, when the client advertises a job on internet or newspaper, it is usually an invitation to treat rather than an offer. The offer only comes into existence after the client reviews the tenders handed in by the contractors and accept the offer.

An offer on the other hand is when the client offers the job to one contractor without advertising the job or having contractors to submit in the tender.

Making an invitation to treat, rather than an offer, protects the client from finding him/her self agreed into a contract he/she cannot fulfil. Instead the client can refuse the contractor’s offer for many different reasons.

This can be a very important protection for the client making the offer if the advertisement for the job offers at long distance: for example, through the internet or newspaper. Always ensure that any website, advertisement etc make it clear that it is only an invitation to treat, not an offer.

5.0 Failure to meet contract specifications

5.1 Contractor’s failure

A contractor can commit fraud and claim to have met the contract specifications. For example in a road construction project, the contractor did not use the standard materials, or used the old equipments or materials instead of new one. There are three types of fraud that a contractor can commit:

1. Actual knowledge of falsity
2. Deliberate ignorance of truth or falsity
3. Reckless disregard of truth or falsity

A contractor is considered to be failure to meet the contract specifications when:

Differences between contract specifications, inspection and test results, and the contractor’s claims for payment;

Complaints from users;

Accelerated or increased product failures or repair costs;

Failed inspections or test;

Absent, alternate or inadequate documentations submitted by the contractor.

Indications from the contractor’s expenses, payroll or any other records can indicate that the contractor did or did not purchase materials required in the contract, own or lease required equipment/plant to do work or have the necessary labour on site.

5.2 How to detect possible failure to meet contract specifications

Interview with contractor or complainer to obtain further detail;

Obtain the appropriate documents and examine them – proposals, purchase orders, invoices, supporting documents, test and inspection reports etc;

Closely inspect delivered product and works for indications of failure;

Use independent consultants to conduct unannounced tests and inspections;

Compare test and inspection results.

5.3 Consequences

If there is any prove that the contractor has breach the contract, the client can refer the matter to the appropriate authorities for further investigation. Before doing so, the client should sort out the problem with the contractor as it does not involve the time and expenses of going to court.

If the problem cannot be sorted out privately by negotiation, depending on the situation, the client will have to consider suing the contractor. The contractor will have to show the documentations and evidences to support him/her self.

In Western Australia, Magistrates Courts can hear matters where the amount in dispute (or the damaged being claimed) does not exceed $75,000. If the amount of dispute is more than $750,000, the case may be held in District Court. There are also specialist courts to deal with land problems and debt problems.

The judge will then look at the evidences provided by the client and the contractor. If the contractor is found guilty, then the he/she will have to pay the client, depending on the amount of damages, quality of the work, time wasted and so on. The client will then decide whether to continue with the contract or to terminate the contract.

6.0 Case Law

Case law is made by the decisions in court cases following the doctrine of precedent which provides decisions as authority for other judges to follow to ensure uniformity, fairness and certainty.

The case laws that are relevant to the offer and acceptance law include:

Harvela Investments Ltd v Royal Trust Company of Canada (CI) Ltd [1986] – 2 parties are invited to make a sealed competitive bids for shares, with the promised to accept the highest offer. This is an example of tender offer with the promised to accept the most competitive bid.

Dickinson v Dodds [1876] – the offeror doesn’t have to give notice of revocation and the offeree must communicate with the offeror to accept the offer. However if both parties have dealt with each other previously and have establish arrangements whereby offer is taken to be accepted if not promptly rejected, silence may not amount to a rejection.

Pharmaceutical Society (GB) v Boots Cash Chemists (Southern) Ltd [1952] – This is a classic example of invitation to treat, with the customers “offered to buy” and it is up to the store whether to accept their offers or not. Client can choose to accept or decline the offer, even to the lowest tender.

7.0 Conclusion

Clients and contractors should have a clear understanding of the rules of offer and acceptance and the invitation to treat in order to have a contract. Offer and acceptance are the essential of a contract because without them there would not be a contract. The building contractor can negotiate with the client through the use of quoting and tendering and the client can choose the contractor based on the tender pricing, experiences, reputations, available of resources and so on. The client can decline the contractor for any reason because of the invitation to treat. The contractors are invited to bid for the work and the final decision is up to the client.