Contract Law Basics Quiz

Course Content

• Architectural Practice II (ARCH 4135), Construction Contract
• Course content covers Principles of Contract Law, Types of Construction Contract, Contract Documents, Contract Management (Administration and Closing, Claims and Dispute Management)

Principles of Contract Law

• A contract is an agreement that creates, varies, or extinguishes obligations of a proprietary nature. It affects the legal relationship between parties.
• Contracts need elements:
  • Mutual agreement (offer, acceptance, legal objective, valid consideration, legal capacity of parties)
  • Legal Objective (the contracted thing itself must be legal)
  • Valid Consideration (value exchange – e.g. money, services)
• Without valid consideration or legal capacity, a contract is invalid and unenforceable.

Parties to a Construction Contract

• Simplest form: Two parties (Owner & Architect/Engineer) or (Owner & Contractor) or (Owner & Contract Manager).
• More complex: Multiple parties (e.g. Owner & multiple contractors simultaneously, by trade or task).

Why Use Contracts in Construction?

• Describe scope of work
• Establish timeframe
• Establish cost & payment provisions
• Set forth obligations & relationships
• Manage multiple risks
• Establish control mechanisms
• Minimize disputes
• Improve economic return on investment

Types of Construction Contracts

• Fixed-Price (Lump Sum):
  • Lump Sum
  • Unit Price
• Cost-Plus:
  • Cost + Fixed Fee
  • Cost + Incentive Fee
  • Cost + Award Fee
  • Cost + % of Cost
• Hybrid Examples:
  • Time & Materials
  • Guaranteed Max Price (GMP) with Split Savings
  • Early Completion Bonus
• Contracts used for civil engineering works include Lump sum, Unit rate, Lump sum and schedule, Cost plus fixed fee, and Cost plus percentage of cost contract.

Contract Documents

• Main contract documents include: Invitation to tender, Instructions to tender, Form of tender, The Agreement, Condition of contract (General + Particular), Specification, Bill of Quantities, Drawings, Addenda and Appendix to Tender.
• Standard Bid Documents: include MLDOS (WB, ADB, EC/U, etc.), Donors' Interest, Business Asson's Contractors and Consultants, Business Interest, Professional Assons' Civil Engineers, Architects, Construction Management, Professional Interest, Public Authorities, Public Works Bodies, Public Financiers, and Public and/or Government Interest.
• FIDIC (1987) - Condition of Contract.
• PPA, Standard Bid Document.
• MoWUD, Standard Condition of Contract (1994).
• BaTCODA, Condition of Contract.
• There are FIDIC conditions of contracts (red book, yellow book, orange book, green book, silver book, old FIDIC) and Ethiopian Construction Industry standards.

Contract Management:

• Management Process:
  • Negotiations (contract agreement)
  • Contract Formulation
  • Contract Administration
  • Contract Implementation (changes management, claims and disputes management)
  • Contract Closing (closing of accounts, contract evaluations)
• Contract Identification: Identifying contractual responsibilities, Reviewing contract documents, extracting monitoring responsibilities, preparing summary sheet.
• Component Determination: Determining and understanding the project, Reviewing contract drawings and technical specifications, Extracting construction methods and sequences, Preparing breakdown sheets, operations, resources, organizational sheets, time scheduling.
• Progress Monitoring: Record, monitor, and evaluate progress of mobilizations, works, and completion.
• Reporting project status, Certifying materials, samples, workmanships and works.
• Measuring works, recording site potentials, Certifying payments and completions.

Claims and Dispute Management

• Dispute definition: a difference in opinion or thought in a legally valid contract.
• Claims: Demand for additional payment, adjusting obligations, extending time,compensating for delay damages.
• Dispute management process:
  • Informal stages (face-to-face discussions).
  • Formal stages (using independent mediators/conciliators, or arbitrator, court).
• Time-related claims: Time extension, liquidated damages, time extension + cost compensation, concurrent compensation, bonus, relieving obligation.
• Cost-related Claims: Additions needing rate adjustments, price changes, provisional sum adjustments.
• Default by contracting parties: Delay in Payment Certificates, suspensions, and terminations.
• Claim Admin Process: Claim Notification, Claim Preparation, Claim Submittals, Claim Handling, Dispute Resolution, Claim Approval, Claim Enforcement, Claim Closure.

Alternative Dispute Resolution (ADR)

• Preventive ADR: Partnering, dispute resolution advisors, facilitators, project partnering, strategic partnering.
• Amicable ADR: Negotiation, mediation, conciliation, use of mini-trials.
  • Mediation: neutral third party assists parties.
  • Conciliation: impartial third party to suggest resolutions
• Judgmental ADR: Adjudication (dispute review board), arbitration, litigation.
  • Arbitration: private process using an expert, enforceable decisions.
  • Litigation: court process with a jury, time-consuming and costly.