FM 403
Date of issue: 6 November 2000

4.    The terms "agreement" and "contract" are often used interchangeably although this usage is not strictly correct; only legally enforceable agreements may be described as contracts. A properly constructed contract will always be legally enforceable whereas an agreement may not be. For an agreement to be legally enforceable it must satisfy certain criteria and these are set out in Annex A to this FM. In PPARC, the term "contract" is usually used to describe a straightforward buyer/seller relationship whilst the term "agreement" is usually used to describe relationships with other non-commercial organisations where a range of obligations are placed on both parties.

TYPES OF AGREEMENT

6.    Those responsible for producing initial drafts of agreements should always proceed on the basis that the resultant agreement will be legally enforceable. If, as will almost always be the case, PPARC’s ability to fulfil its obligations under an agreement is subject to availability of funding, staff effort or equipment, the agreement should say so unambiguously and should commit PPARC to perform only its "reasonable endeavours" (see Annex B para 2).

7.    PPARC’s collaborators may suggest concluding a "Statement of Intent" where it is thought necessary to agree certain principles and general understandings in advance of a substantive main agreement. Such agreements are often used to establish a framework under which a detailed substantive agreement can be negotiated without formal commitment and in certain circumstances a series of substantive agreements may be the final outcome. Great care must be taken in drafting such agreements not to commit PPARC to anything other than an undertaking to discuss the terms of a formal agreement at a later date.

8.     In certain circumstances it may be necessary to settle the major aspects of a relationship in a substantive manner in advance of a detailed agreement which covers every aspect of the collaboration. In such cases the initial agreement may be presented to PPARC in the form of a "Heads of Agreement". This type of agreement differs from a statement of intent in that formal commitments will have been made in broad terms. This type of agreement implies that further negotiations are necessary to establish the detailed nature of the relationship.

9.     A distinction needs to be drawn between inter-governmental and inter-agency agreements. PPARC is able to enter into the latter type of agreement (eg agreements with NWO) but not the former. Inter-agency agreements often follow on from inter-governmental ones and it is usually appropriate to refer to the inter-governmental agreement in the preamble to an inter-agency agreement. However, where PPARC is required to advise on the contents of inter-governmental agreements and to draft appropriate sections the principles of this FM apply.

APPROVAL AND AUTHORISATION

11.    Approval and authorisation of expenditure associated with a project to be covered by an agreement, including allocation of in-house staff effort and facilities, must be obtained in accordance with the procedures described in FM 101: Delegation of Financial Authority. Financial Propriety and Regularity Section, PPARC Finance Division, Swindon Office (jill.drinkwater@pparc.ac.uk) should be consulted if there are any queries concerning these aspects.

12.    It will often be necessary to undertake an economic appraisal as part of the approval and authorisation process. FM 301: Economic Appraisal provides the necessary guidance. The Planning and Budgeting Group of PPARC’s Finance Division, Swindon Office should be consulted for advice on this aspect (paul.blackford@pparc.ac.uk) .

13.    Notwithstanding that the financial elements of an agreement may be within an Establishment Director’s normal delegated authority in relation to contracts for the supply of goods or services, agreements may raise broader issues which merit special consideration. Agreements with overseas government departments will require referral to OST. It is therefore necessary for all proposals to enter into agreements to be agreed by the Director Administration. Proposals should, in the first instance, be referred to the Head of Finance, PPARC through the Head of Procurement. Consultation must take place at the earliest opportunity and in any case before texts are agreed with the other bodies/organisations involved. Where the drafting of the agreement falls to PPARC, the Head of Procurement must be consulted before the first draft is circulated to anyone outside of PPARC. General advice on agreements may be obtained at any time from the Head of Procurement.

14.    Notwithstanding the level at which approval and authorisation have been given, agreements may only be signed by the Chief Executive, the Director Administration, the Head of Finance, PPARC, or a person specifically nominated by one of these officers for the purpose. Where appropriate, Procurement Group will arrange for an Establishment Director to be given delegated authority on a one-off basis to sign on behalf of PPARC. In all cases the final text of the agreement must first have been approved by the Head of Finance, PPARC.

15.    Where a joint-funding agreement provides for support by PPARC through the mechanism of PPARC’s Research Grants Scheme, the Grants Section of Central Group, Swindon Office should be consulted in the normal way about Grant Additional Conditions and revised administrative procedures. Copies of the text of any Grant Additional Conditions agreed with the Grants Section should be made available to the Head of Procurement at the earliest opportunity as these may have a bearing on the wording of the agreement itself.

DRAFTING AGREEMENTS

17.    Model clauses for use in agreements, to assist those involved in preparing first drafts, are available from Procurement Group, PPARC Finance Division, Swindon Office. The Head of Procurement will also be happy to draft suitable clauses to meet requirements not covered in the model clauses.

CONFIDENTIALITY

Jeff Down
Head of Finance, PPARC

THE KEY ELEMENTS OF AN AGREEMENT WHICH MAKE IT A LEGALLY ENFORCEABLE CONTRACT

1.     The key elements which an agreement must have to be a valid and legally enforceable contract are:

• An offer
• Acceptance of that offer
• Consideration
• An intention by all the parties to the agreement to create legally binding obligations
• The parties must have the legal capacity to enter into a contract
• The agreement must be legal and capable of performance

The offer and acceptance

2.     In the context of agreements governing the use of major facilities the offer is made when the first party signs the agreement and despatches it to the other party. Acceptance takes place when the other party signs the agreement. Acceptance must be unconditional.

Consideration

3.    Consideration is the legal term for the benefit which each party to a contract receives as a result of the performance of the contract. Money is only one example of consideration. In the context of agreements entered into by PPARC, other examples include goods such as instrumentation for PPARC’s telescopes and access to major facilities (eg observing time, beam time).

Legally binding obligations

4.     Where an agreement has been reduced to writing, a general presumption exists that the parties to that agreement intend to create legally binding obligations. Where this is not the case it is important that an explicit and unambiguous statement to this effect is included in the agreement. However, it should be noted that such a statement may not in itself be sufficient to persuade the Courts that there was no intention to create legal relations if the wording of the rest of the agreement suggests otherwise.

Capacity

5.    Capacity is concerned with the legal authority to contract. In a business context, only bodies which have what is known as "legal personality" (ie corporate status) may make legally enforceable contracts although other bodies may do so if they have been empowered to act on behalf of a body which does have legal personality. As a corporate body PPARC is able to make enforceable contracts. Whilst the Establishments are unable to enter into legally enforceable contracts in their own right they are, of course, empowered to do so on behalf of PPARC.

Capable of performance

6.     To be legally enforceable an agreement must be capable of performance. It must not be for an immoral or illegal purpose and cannot concern something that would be impossible to achieve.

2.    Stating that the parties shall use their "best endeavours" to achieve the objectives described will not necessarily result in an agreement being regarded by the Courts as unenforceable. Indeed, in such a case the Courts would examine the nature of each party’s efforts in order to establish whether those efforts truly amounted to "best endeavours". The party whose efforts were merely "good" as opposed to "best" could be regarded as being in breach of contract. A better term to use would be "reasonable endeavours". The word "reasonable" has been tested in Court and is well understood.

Parties

3.     If the agreement is to be legally enforceable the parties must each have legal personality. Where a PPARC Establishment is to take the leading role in the performance of the agreement then the agreement should still name PPARC as one of the parties but could reference the Establishment as in the following example:

"This Agreement is made between the XYZ Organisation of the United States of America and the PPARC of the United Kingdom of Great Britain and Northern Ireland acting through the UK Astronomy Technology Centre."

Definitions

Scope

5.     What is the aim or purpose of the agreement? This must be described unambiguously.

Duration

Termination

7.     Under what circumstances might it become necessary to terminate the agreement at a date earlier than that envisaged in the duration clause (eg curtailment of funding, increased costs, delay in completion of construction, lack of scientific interest in use of the facility)? What period of notice would it be reasonable for one party to give the other of its intention to terminate the agreement? How will outstanding liabilities be treated? What are the implications of early termination (eg refunds of sums already paid, access to the other party's equipment, unused observing/beam time, demolition/disposal of facilities, surrender of lease, restoration of site to former condition etc)?

Responsibilities

8.     The roles and responsibilities of each of the parties should be clearly and unambiguously described and should be in sufficient detail to leave the reader in no doubt as to the full extent of the obligations of each party especially with regard to funding and provision of equipment or other resources.

Project Management

9.     How is the project to be managed and by whom? If a management committee is to be set up, how will its membership be determined, when and how frequently will it meet and to whom will it report? Ideally its terms of reference should be incorporated into the agreement as an appendix. The Propriety and Regulatory Section of PPARC’s Finance Division, Swindon Office, can advise on suitable terms of reference for project management committees and must be consulted if it is intended to set up a body with any peer review functions or delegated powers. (See also FM 302: Project Management.)

Facilities

10.     Are PPARC facilities (eg workshops, telescope instrumentation, computers) to be made available to other parties and, if so, on what basis? Is this in accordance with the rules of that facility? Are any special costing dispensations or waiver of charges sought? If so, the Accounting Section of PPARC’s Finance Division, Swindon Office, must be consulted.

11.     Is a new facility to be built? Will its capacity be fully utilised? By what mechanism will access to the facility be approved?

Equipment

12.     Is design or construction of equipment or instrumentation involved? What is the timescale for its provision? Is the delivery date critical (eg is it tied to a satellite launch date)? Have the responsibilities for supervision of the work been clearly defined? What standards are to be used? If reference is made to other documents (eg specifications and/or drawings) the version, the full title, reference number and date of issue should be stated.

13.     Will acceptance tests be required? If so, how and where will these be conducted? Who will supervise the tests?

14.     Who will own the equipment/instrumentation (a) during the currency of the agreement and (b) following expiry of the agreement?

15.     Is the equipment/instrumentation to become an integral part of some other facility? If so, what are the implications for the integrity of the facility in the event that the equipment/instrumentation is removed at a later date?

16.     Who will be permitted to use the equipment/instrumentation and on what terms? How is access time to be allocated?

17.     Will any of the parties (or their nominees eg PPARC’s Research Grant holders) wish/need to install their own equipment at a facility forming the subject matter of the agreement? If so, who is to take responsibility for any damage caused to the facility during installation and/or removal of such equipment? What are the terms and conditions governing installation and removal of such equipment? How will the terms and conditions be made known to individual researchers?

Personnel

18.     What personnel are required to carry out the work, operate the facility etc? Who will employ these personnel? How will they be recruited and by whom? Who needs to be involved in the selection of candidates? If PPARC in-house staff effort is to be used, is this expected to be available at the right level and at the right time?

Funding

19.     Who is to pay for what? What is the total value of PPARC's contribution (including, where relevant, staff effort, equipment, beam time/observing time etc, cash provided to the other party)? What is the total value of the contribution(s) of the other party/parties? Has an economic appraisal been carried out (see FM 301)? Is the budget determined in cash planning terms? What method and frequency of payment is envisaged? In which currency are payments to be made? What scope is there for variation in prices? Will provision need to be made for variations in exchange rates? Will prices need to be indexed linked and, if so, to which indices?

Site

20.     Who will own the site on which the facility forming the subject matter of the agreement is located? (PPARC’s Legal Liaison Officer, Personnel Group, Swindon Office, must be consulted where it is intended to acquire either land or buildings for the purpose.) If a building is to be erected or made available, who will own it and on what terms will it be made available to others including third parties?

21.     Where an existing site is to be used, which party is to take responsibility for negotiating terms of access with the owners? What involvement will the other party/parties wish to have in this process?

Confidentiality

22.     What arrangements will be required in order to prevent unauthorised disclosure of confidential material supplied by one party to another? In what circumstances, if any, might it be necessary to disclose such material to third parties (including the media)?

Intellectual Property Rights

23.     Will it be necessary for any of the parties to disclose background intellectual property (ie intellectual property which exists prior to commencement of the agreement or which is developed outside of the scope of the agreement) to one another during the performance of the agreement? Who will own intellectual property developed by the parties during the performance of the agreement (ie foreground intellectual property). What rights will the other parties require/wish to have in respect of foreground intellectual property? On what terms will third parties be permitted to use foreground intellectual property?

24.     What arrangements will apply in respect of intellectual property arising from use (as opposed to the design, development and construction) of the facility/instrumentation forming the subject matter of the agreement by researchers? Will any special Research Grant conditions be required?

Data

Publications

26.     What arrangements are needed for publicity concerning the subject matter of the agreement (eg mutual agreement of text and date of release)?

27.     What restrictions (if any) will be necessary on publication of results obtained by researchers using the facility/instrumentation forming the subject matter of the agreement?

Liability

29.     What risks are associated with performance of the agreement and, where relevant, use of facilities by third parties? Will access to the facilities be restricted to academics? (Where time on a facility is sold to commercial researchers it may be appropriate to take out insurance and charge the cost to the user.)

Indemnities

31.    Where required, model indemnity clauses can be supplied by Procurement Group, Swindon Office.

Disputes

32.     How is it envisaged that disputes will be handled? Where the parties wish to avoid the expense of going to court to resolve a dispute, the agreement should include provision for arbitration. The arbitration clause will need to stipulate how many arbiters are to be appointed by each party and whether an independent chairman is to be appointed and, if so, how that person is to be appointed in the event that the arbiters fail to reach mutual agreement on the appointment. The clause also needs to define the arbitration procedure to be adopted.

Amendments

33.     Unless an agreement contains a provision which expressly prohibits amendments, there is a presumption that any agreement may be amended by the mutual agreement of the parties. Whilst it is, therefore, unnecessary to state that the agreement may be amended by the mutual agreement of the parties there is nothing to be lost in doing so. All amendments should be made in writing and the wording to be used should be approved by the Head of Finance, PPARC, or a suitably authorised member of his staff.

Notices

34.     The agreement will need to specify the acceptable methods for the serving of any notices which may be required under the agreement (eg notice of termination) together with the relevant addresses. The terms of any notices must be agreed with the Head of Finance, PPARC, or a suitably authorised member of his staff.

Law

35.     Which country's law is intended to apply to the agreement and in which country's courts is it envisaged that proceedings would be brought? (As a matter of policy PPARC prefers, for obvious reasons, that any agreement to which it is a party is made subject to English law and the jurisdiction of the English Courts. However, it may be difficult to persuade foreign organisations to agree to this particularly where the facility forming the subject matter of the agreement is located abroad.) Whilst the choice of law to apply to any contract is a matter for agreement between the contracting parties, as a rule of thumb it would be reasonable to expect the law of the country with which the agreement has the closest connection to be chosen as the relevant law.