eSignatures are now an essential tool to quicken the contracting process – especially when working from home. But are they legal, and can the procurement process work without hand-written signatures? Jonathan Dutton investigates for Supply Clusters members:
Procurement in the crisis
Much has changed for Procurement practitioners of major organisations in the last few months, as it has for so many others. Soon after the virus took grip, office bound team workers were sent to work from home (WFH) and co-ordinate efforts on ZOOM or Microsoft TEAMS, forced to find their technology legs quickly.
In those early days of the crisis, procurement teams proved vital: many pulled into sourcing urgently needed new supplies quickly (often PPE), then securing vital supply lines to ensure reliable delivery to literally keep businesses going. Next, they were negotiating to pause non-essential indirect contracts, or completing ‘BAU’ projects that felt relevant, as quickly as possible.
Crisis procurement was working really well, and stakeholders loved it. Procurement showing a real sense of urgency, completely aligned to business needs, getting the job done well and quickly. What’s not to like?
Practical process changes
Along the way, busy procurement teams did what they needed to do. In many cases they made judgement calls. They balanced risk and returns. They did what had to be done. Managed apparent contradictions, exposed folly and negotiated for the latitude to do the right thing. They hurried and amended process.
And trends quickly appeared;
- the breakdown of paper processes across digital teams working from home,
- the power of relationships to assure supply,
- the common failure of technology to inform how it should.
… all factors examined in more detail in a previous Supply Clusters article.
The power of a signature
One factor, perhaps more than others, illustrated the contradictions that procurement have been increasingly working under. The need to forge digital eAgreements, yet authenticate and approve them with analogue hand-written scrawls that (truly) could be written by anybody.
Signatures developed way back – “put your mark here” was the refrain to forge an agreement, often following the historic handshake. A signature was this handwritten (and often stylised) depiction of someone’s name, nickname, or even a simple “X” or other mark that a person could write uniquely on documents as a proof of identity and intent. During the 20th century, signatures were earned and were prized. Indeed, celebrities signing ‘autographs’ were valued and valuable. Today, selfies.
Now, if you can prove identity & intent digitally, there surely is no need for a hand-written signature anymore?
“There is little point sourcing urgent supplies in three days flat, then waiting over a week or more for a contract signature”
Experienced Australian CPO
eSignatures as a solution
Indeed, mailing contracts around the country, initialling every page, getting witnesses and mailing stuff back now seems archaic [see Peter Macfarlane’s rant on Linked IN in May 2020] – but is this the correct way to execute contracts?
“Or investing heavily in digitalising our workflows, then mailing paper contracts to home addresses for signatures. That is 19th century thinking.”
… That same CPO
Suddenly, with paper-based procurement processes compromised as we all work from home, managers are increasingly turning to eSignatures like ‘Doc-U-sign’ and even “print, sign, scan n send” to authorise contracts – yet the question lingers, is this legally correct?
Sometimes these devices present quite contrived signature solutions – three typescripts to choose your moniker from. Automation does try too hard sometimes to mimic the redundant process it has succeeded. Digitally speaking, there is no need for a signature at all really, certainly not a one authenticated and menu selection of MS WORD typescripts.
A legal problem?
Ultimately, a raft of questions present themselves to busy procurement people trying to get a job done – are digital signatures legal? Are e-mail agreements legal? Can you now scan and sign, is that okay? Can you use digital signatures? Are faxes still the only legal e vehicle still? Is Doc-U-Sign truly legal? To what extent can the circumstances of the Covid-19 crisis allow some flexibility?
Two Australian Govt Attorney General’s office FACT SHEETS (numbers 37 and 38) address this topic in some detail: https://www.ags.gov.au/publications/fact-sheets/Fact_sheet_No_38.pdf
Both these handouts were referred to during a recent PASA CONNECT Roundtable: another useful source not mentioned was https://www.lawyersweekly.com.au/biglaw/22559-electronic-signatures-a-guide-for-lawyers
The legal solutions
The principal point here is that, actually, even valid hard-copy contracts do not even need signatures to be legally binding. In fact, they only need to satisfy the EIGHT essentials of a JDC Masterclass training course.
Sometimes this can even be proven by specific performance or the legal principle of Estoppel. In other words, actions have spoken louder than words. You acted as if this was an agreement, you cannot now really claim it was never one because an agreement was not signed.
Thus, the question of signatures becomes less compelling than it might initially appear. Yet the ELECTRONIC TRANSACTION ACTS 1999 (Various states), does allow e signatures, email and fax consummation of legal agreements. Including, now, Doc-U-sign and Adobe sign and like products. Therefore, generally, contracts e signed are legal.
Moreover, s.127 of the Corporations Act also provides for Director’s or Secretary of a company being required to sign documents on their company’s behalf – or delegating to others to do so on behalf of the Board.
One exception to e signatures legality can be the complex area of DEEDS versus CONTRACTS. Documents like NDAs (non-disclosure agreements) or bank guarantees or POAs (power of attorney) or wills (and lots of one party signed agreements) which are often used by procurement departments can sometimes require different forms of formal signatures. This is a complex area best advised specifically by a lawyer. Different jurisdictions (particularly the states) can also have different rules and requirements.
It is also important to note that different jurisdictions, agencies, departments, companies and others all can have different policies they insist upon.
Also, the Covid-19 temporary adjustments to some rules by the federal government are also relevant – including the Corporations Act. Trading whilst insolvent, statutory debt enforcement and delayed insolvency claims (as well as some landlord & tenancy laws) have temporary six month adjustments to help with the crisis. These changes may impact on some agreements indirectly.
Witnesses to CONTRACTS are generally not required. But they add validity and veracity to contractual agreements, especially where stakes are high (high dollar values, long lead times). Risk based approaches to large agreements are always recommended. No signatures, and no witnesses, can add to the risk of disputes downstream.
Agreements signed by mixed methods are also still valid (one party wet signs, by hand, another by fax for example). Or, even, sometimes, one party signs, another leaves the gold-copy unsigned in a drawer.
It is not necessary to initial every page of an agreement. Yet, on occasion you risk a contract being invalidated by only signing and passing around the signature page and not a full agreement. For instance, it is easier to argue after the event that you only ever saw a signature page not the full agreement.
Initialling hand-changes to typed contracts (or terms) in the margin is advisable, generally speaking. Exceptions are often a basis for disagreements downstream. Change management is always advisable.
Contract versions and version-control (like on WORD) is also a risk. Possibly signing an old (not final) version (if caught very quickly) could invalidate the contract perhaps. Not so much if it is acted upon for any length of time by the parties. Using PDF lockdown final versions of contracts is recommended; PDFs are more difficult to fraudulently change.
A UK group called “The Walrus Committee” has a global reputation for considering this area of the law in detail (UK law is a widespread basis of law in many countries) – and they are actively working to entitle eAgreements. This approach has been replicated here in Australia, with an informal committee of lawyers from five top Australian firms, using the same name, formed to developed a set of signing protocols that are designed to enhance the prospects that documents signed remotely will be legally effective.
In common business practice, however, executives of major organisations often have “ostensible authority” to act and sign on behalf of an organisation and its board – given obvious CAPACITY … even if operating outside their internally delegated limits. This is not a ‘black and white rule’ though, and reasonableness and time limits might apply. But, as so often, the pragmatics of day-to-day business is usually proved correct ultimately.
The bottom line for Procurement today
Procurement wise, a golden rule for forging contractual agreements is to obey the 8 essentials of a valid contract. This is basic contract law training that should be obligatory for any procurement practitioner.
That said, a secondary piece of advice might be that if the parties expressly agree that an e agreement will be legally binding, even without signatures at all, it is very likely to be held as so. Certainly, if both parties act accordingly on that agreement.
Thirdly, be wary around DEEDS, like NDAs or POAs or wills, they operate under different laws and conventions to contracts. These are best managed with specific legal advice – or always signed on hard-copy.
Finally, get your own legal advice on consummating contracts within your team from your own General Counsel or lawyer, cognisant of your context and circumstances. Try and agree a modus operandi that works for you, for your lawyers and for your business.
And, ultimately, the disclaimer –
NOTHING IN THESE NOTES CONSTITUTES WRITTEN LEGAL ADVICE – ONLY GENERAL AWARENESS OF THE ISSUES AROUND CONTRACT SIGNATURES AND E TRANSACTIONS
Jonathan Dutton FCIPS has a non-exec role at SUPPLY CLUSTERS and is a regular columnist.
He is also a brand ambassador for PASA … and some of the material for this contribution was garnered from a number of PASA CONNECT online roundtables he recently chaired which included contributions from experienced procurement lawyers from HOLDING REDLICH and ASPECT LEGAL as presenters.
JD has also recently launched a new online Strategic Programme Leadership Programme which will run next March 2021, with a LIVE version scheduled earlier to run in Melbourne on 28/29 January 2021 – restrictions permitting: www.jdconsultancy.com.au/training