That's a mouthful !!
Those of you who are privy ( sic ) to this sort of thing, may know how to utter this in portuguese but not me ( can anyone help ? "Prividade" ??? )!
In german it's easier because one just have to concatenate two words : "contract" ( "Vertrag" ) and "Relation / Relationship" ( "Beziehung" ) and voilá we have the new word : "Vertragsbeziehung", which means literaly "Contract Relationship".
In english "Privity" is just a fancy word for relationship ! In down-to-earth language is just plain used when two companies have a contractual relationship with each other.
Having dealt with this let's turn to the question in hand ( sent by Wolfgang ):
"When two companies have privity, what happens if one of those companies hires another company to do some work for them ? The Privity between the first two companies extends to the third company ?"
The answer is no. As we have seen above, "Privity" means relationship, and there isn't one between the first company and the third company. That means that the Commutative Law does not apply ... LOL.
Let's try to see this with an example. Company A has privity ( CONTRACTUAL RELATIONSHIP ) with Company B, but company B doesn't have the manpower or the skills to tackle this project on its own, so it hires company C. A more difficult question to pose is : "Has the Project Manager of company A a mandadory influence on what the Project Manager of company C does ?". That is the question. The answer is once again no, due to the fact that there's no contractual relationship ( Privity ) between company A and company C ! That means that company B must be involved at all times.
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