Essential Elements of a Contract


Every Certified Professional in Supply Management must know the essential elements of a contract. In the procurement process of any products or services supply managers are the ones who examine the contract.

This is the reason why it is important for supply managers to know the basic elements of a contract.

If one of these five elements is missing, the agreement is not legally binding. For a contract to be valid, it should contain the following elements:


A contract must contain a definite and clearly stated offer of goods or services. An offer will lapse according to the following:

  • When the time for acceptance expires;
  • If the offer is withdrawn before it is accepted;
  • After a reasonable time in the circumstances

In most cases, the greater the value of the contract, the longer the life of the offer.


Invitation to Treat

It is a mere declaration of willingness to enter into a negotiation; it is not an offer, and cannot be accepted so as to form a binding contract.

An invitation to treat is just part of the preliminaries of negotiation, whereas an offer is legally binding once accepted.

Advertisements, price lists, catalogues and circulars are examples to an invitation to treat.



Only products or services that are offered in the contract can be accepted. This only entails that the offer must be accepted exactly as presented without any underlying conditions.

On the other hand, a contracting part may include counter offers in the contract. Counter offers refers to the new suggested terms in the contract. These new terms can either be accepted or rejected.

Acceptance of a contract can be given in writing, stated verbally, or inferred by action that clearly indicates acceptance.


Intention of Legal Consequences

A contract legally binds two parties. Prior to agreeing with the contract, both parties must understand the terms and conditions set by the contract and must understand that the law can enforce the agreement.



A legally binding contract must be supported with valuable considerations. These considerations are the promises of the other party to provide a benefit of value.

Most of the time, the considerations are agreed price that can be monetary, a service, product or restricting a person from doing some action.

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