In the commercial world, parties create contracts in  one of three ways. One party may present the other with a prepared document  for signature, and the second party has little bargaining power to change the terms of the agreement. Many consumer sales agreements fall within this category.

The second way that a contract is formed is when each party sends the other its prepared document, setting forth differing terms. For example, one party may issue a purchase order for certain products, and the other sends a confirmation that contains terms that vary. The products are often shipped  despite the differences in the documents,  and those differences do not become important  unless a problem arises.

The third way that a contract  may be created is through the process of negotiation, in which the parties bargain for the contract's terms. Both parties sign the agreement that results from that negotiation.  The contract may be a complex document  with  pages of tightly drafted clauses, or it may consist of a letter that one party drafts for the other to sign.

Formation of a Public Contract

Public contracts are, for the most part, created through a different process. However, just like in private commerce,  a public procurement professional may issue a purchase order to a vendor for some small-dollar purchases based on items and prices in that vendor's general catalogue. The vendor may ship the products requested with a confirmation or invoice that contains terms that vary from the purchase order. This scenario generally creates a contract, despite the fact that the parties did not reach an agreement on its precise language. This type of transaction occurs both in private and public contracting.

For larger-dollar purchases, a contract arises as a result of a formal, arms-length process. The public entity issues a solicitation that "invites'' vendors to make an offer that complies with the specific terms of that solicitation. Where the public entity seeks a contractor through the competitive sealed bids process, there is no real bargaining.  Under the competitive sealed proposals method, the opportunity for discussions and negotiations exists but is limited.

Even in a qualifications-based  selection  process, where  the procurement professional negotiates price after selecting  the  most  qualified  professional service vendor,  the subject  matter of the negotiation  is generally restricted  to price or fee. Thus,  in much  of public contracting, the bargaining that is a normal  part of private commerce is absent,  due in large part to the mandate  placed  on  public  procurement professionals to  ensure  that  the  contractor-selection process is fair to all.

Once the public procurement professional selects the winning bid or proposal  and notifies the vendor submitting that bid or proposal of its selection,  a contract  comes into existence in most cases. Where the awarding of a contract requires the vote of a city council or board, that vote is the event that creates a contract.  The solicitation and the bid or proposal becomes the contract voted upon.

Some  public  entities prepare  a separate  contract  document for signature  once  they  have  selected  and  notified  the  winning  vendor.  A separate contract document is unnecessary because a contract arises under the principles of contract law once the entity indicates acceptance of the vendor's bid or proposal.

For complex projects, the public procurement  professional, their  client-agency, and  the vendor may wish to have one document, instead of the solicitation and  the proposal that spells out the obligations of the parties. The public procurement professional should understand that the document is not the contract but may be a more concise version of it. Problems may arise with this practice. The creation of a separate document opens the door for mistakes to occur in the transfer of information from one document to another. An example is the inadvertent change of "90 calendar days" for performance to "90 working days." To the extent that the new document changes the terms of the solicitation or the bid or proposal, it may amend the contract.

The practice of issuing an incomplete solicitation may provide leverage for the vendor to include his terms and conditions in the contract.  In addition, some vendors or contractors innocently, or maybe not  so innocently, seek the public procurement professional to sign a separate agreement for "housekeeping" or other similar reasons. The best approach is for the procurement professional to include in the solicitation all the terms that will become part of the contract. The procurement  office should  have a set of approved, standard  contract  terms addressing issues common  to all of its contracts, and may wish to draft additional standard  terms applicable, for instance, to contracts for the purchase  of goods.  The  public  procurement  professional must  either  include  those standard terms  in every solicitation or simply include  language in the solicitation that incorporates them by reference, making copies available to vendors online, by email,  or at the procurement  office.