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What is a contract?

A contract is defined as "a promise for the breach of which the law provides a remedy, or the performance of which the law recognizes as a duty; a transaction involving two or more individuals, whereby each has reciprocal rights to demand performance of what is promised." A promise is defined as "a declaration of one's intention to do or to refrain from doing something." If an individual promises in a contract to do something, the courts will ensure that he or she upholds that promise; if he or she does not, the courts will provide a solution for the person to whom he or she made the promise.

What are the types of contracts?

Contracts can be classified as:







A unilateral contract is one in which only one party makes a promise. It may be a promise for an act (e.g., "I will pay you $10 to mow my lawn") or an act for a promise (e.g., someone offers a reward for the return of a lost dog). In the case of the reward, one person makes a promise to pay, and a contract would be formed when the other person acts on that promise.

A purchase order under the government's simplified acquisition procedures that is signed only by a CO is a governmental example of a unilateral contract. The contractor accepts the offer by delivering in accordance with the terms of the offer, or rejects the offer by not responding to it. If the person to whom the offer was made performs to the terms of the offer, a valid contract will be created.

A bilateral contract is one in which both parties make promises. A promise to perform a service in exchange for a promise to pay the agreed upon amount for the service is a bilateral contract.

An unenforceable contract is one that cannot be enforced by the courts because of a particular statute or doctrine. Unenforceable contracts are not invalid, but if a breach of an unenforceable contract occurs, then the courts cannot determine if a remedy exists.

An example of an unenforceable contract would be one based on the statute of frauds. This statute requires that certain types of contracts be in writing to be enforceable (e.g., real estate contracts). If an individual enters into an oral contract for the sale of land, even if all the elements of a valid contract are present in the oral contract, civil courts are prohibited from enforcing the provisions of that contract.

A voidable contract is one in which only one of the parties is bound to the terms of the contract, while the other may withdraw from the contract at any time. Examples of voidable contracts are ones made with persons under the legal age and contracts induced by fraud, such as ones containing intentional misrepresentation of facts. Minors and persons induced by fraud to make a contract for which fraud is proven can choose not to be bound by the contract.

A void agreement is one that never became a contract because it lacked an essential element, or the agreement contains misrepresentations of fact. In either situation, the CO can void the contract. For example, a contract found to be in violation of an Environmental Protection Agency (EPA) regulation, or one in which an offer or represents his or her company as a small business under a small business set-aside when it is actually a large business may be voided.

A valid contract is one that contains all of the following essential elements.

What are the elements of a contract?

The five essential elements of a valid contract are:

An offer


Mutual consideration

Legal purpose

Contractual capacity.

To initiate a contract, an offer must be made. An offer is a promise of what will be done and what is expected if the promise is fulfilled.

Advertisements are not considered to be offers but rather invitations to negotiate, unless they are very specific regarding offer and acceptance guidelines or terms and conditions. But advertisements of rewards are generally considered to be offers that can result in unilateral contracts. An advertisement for bids is considered a request for an offer rather than a specific offer itself.

An offer must:

Show the offeror's intent to perform if the offer is accepted by the other party

Be complete and clear in all of its terms

Be communicated to the offeree.

Acceptance is an expression of consent to a proposal or offer. There are two ways to accept an offer:

If the contract is

Acceptance occurs when the offeree . . .


delivers or performs.


expresses to the offeror acceptance of the same items and conditions stated in the offer.

Acceptance must be:

Expressed to the offeror.

Consistent with the same terms and conditions stated in the offer. Changing these terms and conditions creates a counter-offer, and it is up to the original offeror to accept or reject the terms.

Timely. The offeror may stipulate a period of time after which the offer is no longer valid. When no such time frame is expressed in the contract, the acceptance period must be of a reasonable length. The offeror may fill in a time for acceptance on the government's official contract form; a 60-day acceptance period is established if the offeror does not specify a desired length of time for acceptance. If the CO determines that a specific period of time must be allowed by the offeror, he may insert a minimum acceptance period clause.

Mutual consideration means that each party receives something of value and gives up something of value when a contract is established between the parties. Without mutual consideration, one party would be giving a gift to the other, which does not have the same legal obligation as a contract.

Contracts also must be for a legal purpose. If a contract violates a statute, it is unlawful and void. An example of a void contract would be one that was awarded on a cost-plus-percentage-of-cost basis. The FAR forbids the use of such a contract because it rewards a contractor for increasing costs on a contract and discourages cost reduction.

Parties entering into a contract must have the capacity to do so. Contractual capacity is the ability to incur legal liability or to acquire legal rights. Examples of individuals who lack contractual capacity are minors and insane or intoxicated persons.

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