This article originally appeared in the January 2003 issue of The Rational Edge E-zine on-line magazine, copyright 2002-2003 IBM and Max Wideman.

The Rational Unified Process (RUP) is a rigorous software development process advocated by the Rational Software Corporation.

The downloadable PDF file of the paper on this site is the one prepared by the Rational Edge editorial staff with the special assistance of Ms Marlene Ellin.

Published here August, 2003.

PART II | Recap | Elements of a Valid Contract | Impediments to Successful Contracting
Progressive Contracting Overcomes Impediments
Advantages of Centralized Procurement | PART IV

Elements of a Valid Contract

While specific contractual requirements and interpretation of wording varies from legal jurisdiction to jurisdiction, certain elements are essential for a contract to be valid and supportable by applicable law: mutual assent; lawful objective; capacity of the parties to perform; consideration; and appropriate form. We will look at each of these in turn.

Mutual Assent

An offer by a supplier to an acquirer represents a proposal to enter into a contract with that acquirer. Such an offer is typically, though not necessarily, in response to a Request for Proposal (RFP) from the acquirer. A valid offer generally has the following properties:

  1. It represents a genuine intent to contract.
  2. It is formally communicated to the acquirer.
  3. Terms and conditions are certain and definitive.
  4. Neither party is under duress from the other (i.e., the contract can be entered into voluntarily).

If the offer does not have these properties, then all or part of it may be invalid and will not lead to a successful contract.

Lawful Objective

A contract must have a purpose and terms that fall within the law. A contract whose purpose violates the prevailing law (i.e., involves unlawful activity) is legally void and unenforceable.

Capacity of the Parties to Perform

Both acquirer and supplier must have the legal capacity to perform -- and be clearly capable of performing -- their respective roles and responsibilities. Of course, once the contract is signed and the project is underway, lack of capacity may be difficult to prove. Breach of contract law suits often focus on the actions, or inactions, of the project director or manager, which can have a profound influence on contractual relationships as well as schedule and cost of work.


"Consideration" is a legal term for something promised, given, or done by one party in exchange for a reciprocal and valuable commitment by the other. Moreover, both parties must be free to enter into the arrangement voluntarily. In practical terms, an acquirer offers to pay money for a service or product, in this case software, provided by the supplier. In many jurisdictions there are limitations on the arrangements; for example, there must be evidence that the respondent is free to bid, negotiate, or withdraw. In such a case, a contract is not valid if the commitment has been imposed by one side (i.e., the other side agreed to the terms under duress). In addition, a contract cannot duplicate commitments already contained in some other agreement, and a commitment of "moral duty" is not sufficient consideration to support a contract. Finally, whether or not the agreed-upon payment for the product is "fair" is not legally relevant, as long as both the payment and the product have some semblance of value.

Appropriate Form

Courts in most jurisdictions apply various legal rules to interpret cases involving conflict or ambiguity between the contracting parties. Consequently, it is advisable to include a number of "standard" clauses in the contract documents. Such clauses are, or should be, designed to clarify the roles and responsibilities of both parties to their mutual benefit.

Recap  Recap

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