Contract Law: Overview and Types

Overview of Contracts

• A contract is a legally binding agreement between two or more competent parties.
• A legally enforceable contract involves an exchange of promises with specific legal remedies for breach.
• All contracts are an outcome of agreements, but not all agreements are legally enforceable as contracts.

Legal Effect of Agreement

• A valid contract is recognized by law and has associated responsibilities and rights.
• A void contract has no legal effect.
• Voidable contracts are valid unless/until they are voided.
• Unenforceable contracts are valid, but no court action can be taken to enforce them, such as when the time limit for the contract has lapsed.

Types of Contract Forms

• Standard and non-standard types of contract forms exist to streamline construction activities.
• Choosing the proper procurement type helps in deciding the contract structure.
• The contract form used in a project depends on project-specific needs, complexity, and risk allocation.
• Standard forms are pre-printed contracts with predetermined terms created by professional and public entities for general use in construction projects.
• Standard form outlines the work to be done, the rights, and the obligations of the employer and contractor under the agreement's terms.

Standard vs Non-Standard Form Contracts

• Standard form contracts are pre-drafted with standardized terms and conditions, while non-standard contracts are tailored with customized terms.
• Standard contracts are commonly used for routine construction projects, whereas non-standard contracts are preferred for complex or unique projects.
• Standard contracts have less flexibility for project-specific needs, while non-standard contracts have a high degree of flexibility.
• Standard contracts have well-defined terms that reduce ambiguity; the language in non-standard contracts can be varied which may lead to ambiguity.
• Examples of standard contracts: AIA (American Institute of Architects) and FIDIC contracts.
• Non-standard contracts include bespoke contracts drafted specifically for a project.

Advantages of Standard Form Contracts

• Efficiency & Time-Saving: standard language reduces negotiation time and is ideal for routine projects with established practices.
• Industry acceptance: well-recognized and widely used in the construction industry, speeding up contract formation due to familiarity.
• Clarity and familiarity: established terms and terminology enhance understanding and reduce potential for misunderstandings.

Advantages of Non-Standard Form Contracts

• Tailored to project: customizable to meet unique project needs and provide flexibility for specialized requirements.
• Balanced risk allocation: Parties can negotiate risk sharing for fairness, reflecting a common agreement on terms.
• Flexibility and adaptability: adaptable to evolving project conditions and accommodates unforeseen project changes.

Disadvantages of Standard Form Contracts

• Lack of customization: limited flexibility for unique projects and may not fully address project specifics.
• Imbalance of power: Standard forms may favor one party, requiring modification for equity.
• Ambiguity: standard language can leave room for interpretation, leading to potential disputes over unclear terms.
• Inadequate risk allocation: May not align with a project's specific needs, leading to potential unanticipated liabilities.

Disadvantages of Non-Standard Form Contracts

• Time-consuming negotiation: Customization can be time-consuming, delaying project commencement.
• Higher legal costs: May involve legal expertise and higher fees, making drafting customized terms costly.
• Complexity and potential disputes: Customized terms can lead to greater complexity and requires careful drafting to avoid conflicts.
• Lack of industry recognition: May not be widely accepted or understood, potentially leading to reluctance from contracting parties.

Construction Contract Process (RIBA Plan)

• The RIBA plan for construction contracts includes strategic definition
• The scope includes preparation and brief, concept design, spatial coordination, technical design, manufacturing and construction, handover, and use.

Pre-Bid Activities

• Final bids are received.
• Qualify and select bidders.
• Determine the number of bidders.
• Distribute the bid package.
• Issue an invitation to bid.
• Hold a pre-bid meeting.
• Make a site visit.

Post-Bid Activities

• Open and analyze bids.
• Select the best bid.
• Hold a bid resolution meeting.
• Issue a letter of intent.
• Issue a notice of award.
• Notify bidders that were not selected.

Contract Award Process

• Review the Construction bid package
• Qualify, Select, Invite Bidders
• Pre-Bid Meeting and Site Visit
• Submit Bid and Proposal
• Open, Analyze, Evaluate Bids
• Bid Resolution Meeting(s)
• Letter of Understanding
• Letter of Intent
• Notice of Award
• Letter naming Site Manager
• The process concludes with the Construction Contract Award

Basic Elements in Every Construction Contract

• Articles of agreement
• Conditions of Contract
• Project-specific data
• Specification
• Drawings
• Bill of Quantities