CMPM Contracts PDF

Construction Methods and Project Management (CMPM 423) CONTRACTS 1) Contracts are the basis of many of our daily activities. 2) They provide the means for individuals and businesses to sell and otherwise transfer property, services, and other rights....

Construction Methods and Project Management (CMPM 423) CONTRACTS 1) Contracts are the basis of many of our daily activities. 2) They provide the means for individuals and businesses to sell and otherwise transfer property, services, and other rights. 3) Without enforceable contracts, commerce would collapse. 4) A contract is an agreement that is enforceable by a court of law or equity. 5) If one party fails to perform as promised, the other party can use the court system to enforce the contract and recover damages or other remedy. 6) A legally binding agreement between two or more persons which the courts will enforce 7) Generates rights and obligations that may be enforced by courts 8) Agreement arises as a result of offer and acceptance Parties to a Contract  Offeror – The party who makes an offer to enter into a contract  Offeree – The party to whom an offer to enter into a contract is made Requirements for a valid contract 1) parties must have legal capacity to enter contracts 2) one party must make a binding offer to the other, and the offer must be accepted by the other party 3) consideration 4) Agreement must be genuine 5) in some cases, the contract must be made in a particular form 6) the object of the contract must not be disapproved by the law Elements of a Contract Agreement Consideration Contractual Capacity Lawful Object Agreement Agreement – the manifestation by two or more persons of the substance of a contract It requires an offer and an acceptance Contract formation 1) Offer 2) Acceptance 3) Consideration Offer  An indication of willingness to do or refrain from doing that is capable of being converted into a legally binding contract  It is made by an offeror to an offeree and is capable of acceptance only by an offeree who knows of its existence  An offer is terminated when it has been revoked, or lapsed, or met with a counter-offer Termination of an Offer 1. Revocation of the offer by the offeror 2. Rejection of the offer by the offeree 3. Counteroffer by the offeree  4. Destruction of the subject matter 5. Death or incompetence of the offeror or offeree 6. Supervening illegality 7. Lapse of time Option Contracts  An offeree can prevent the offeror from revoking his or her offer by paying the offeror compensation to keep the offer open for an agreed-upon period of time  This payment is called an option contract  The offeror agrees not to sell the property to anyone but the offeree during the option period Acceptance  Agreement to the terms of an offer that, provided other requirements are fulfilled, converts the offer into a legally binding contract  Is the method by which acceptance is to be signified is indicated by the offeror, that method alone will be effective  If it is not, acceptance may be either express (by word of mouth or in writing) or inferred by the offeree’s conduct, e.g. if he receives goods and makes use of them  Must involve some action on the part of the offeree Validity of acceptance 1) it must take place while the offer is still in force; 2) it must be on the same terms as the offer 3) it must be unconditional 4) it must be communicated to the offeror Counter-offer  Acceptance: Only when all the terms of the offer are agreed to  If you propose a change to the terms of an original offer, you are making a new offer – this is called a counter- offer  Counter-offer – a rejection of the original offer; there can be no contract until the counter-offer is accepted Special cases  When the offer consists of a promise to confer a benefit on whoever may perform a specified act, the offeror waives the requirement of communication Intention to create legal relations  If it can be shown that it was not the intenion of the parties to create a legally binding relationship, there is no contract  Presumption: if the agreement is with family or friends, the agreement was not intended to be binding; commercial agreements – the other way round Offer and Acceptance – Summary Consideration  Consideration – something of legal value given in exchange for a promise  Consideration must be given before a contract can exist  Most common types of consideration: ◼ Tangible payment (e.g., money or property) ◼ Performance of an act (e.g., providing legal services) Principles 1) a valuable consideration is required, i.e. the act, forbearance, or promise must have some economic value 2) consideration need not be adequate but it must be sufficient (it need not constitute a realistic price as long as it has some economic value) 3) consideration must move from the promisee 4) consideration must not be past Legal capacity  Adults have capacity, but not if they are of unsound mind Breaking off contractual negotiations  In legal systems where the doctrine of good faith is recognized, breaking off contractual negotiations may give rise to legal consequences  No duty to negotiate in good faith in English law; no liability for pulling out of negotiations at any stage or for whatever reason Privity of contract  You get the rights or have to fulfill the obligations of a contract only if you are a party to the contract  If you are not a party, you can neither sue nor be sued because of the contract Exception: third party Example: You have entered into a contract with an insurance company; the aim – that your partner can benefit from the contract; it would be pointless if the company later refused to pay anything to your partner because she was not a party to the contract English law allowes a third party who is to benefit from the contract to enforce it Gift Promise  Gift promises (gratuitous promises) are unenforceable because they lack consideration  A “completed gift promise” becomes a true gift, which by definition is irrevocable Contracts Lacking Consideration (1 of 2)  Illegal Consideration ◼ A contract cannot be supported by a promise to refrain from doing an illegal act because that is illegal consideration ◼ Contracts based on illegal consideration are void  Moral Obligations ◼ Promises made out of a sense of moral obligation or honor are generally not enforceable on the ground that they lack consideration Contracts Lacking Consideration (2 of 2)  Preexisting Duty ◼ A promise lacks consideration if a person promises to perform an act or do something he or she is already under an obligation to do ◼ The promise is unenforceable because no new consideration has been given  Past Consideration ◼ Past consideration (e.g., prior acts) will not support a new contract  ◼ New consideration must be given Classifications of Contracts: Formation (1 of 2) 1. Bilateral contract – a promise for a promise 2. Unilateral contract – A promise for an act 3. Express contract – A contract expressed in oral or written words 4. Implied-in-fact contract – A contract inferred from the conduct of the parties Classifications of Contracts: Formation (2 of 2) 5. Quasi-contract – A contract implied by law to prevent unjust enrichment 6. Formal contract – A contract that requires a special form or method of creation 7. Informal contract – A contract that requires no special form or mode of creation Classifications of Contracts: Enforceability 1. Valid contract – A contract that meets all of the essential elements to establish a contract 2. Void contract – No contract exists 3. Voidable contract – A party has the option of voiding or enforcing the contract 4. Unenforceable contract – A contract that cannot be enforced because of a legal defense Classifications of Contracts: Performance 1. Executed contract – A contract that is fully performed on both sides 2. Executory contract – A contract that is not fully performed by one or both parties Contents of the contract  Express terms  Implied terms  Conditions  Warranties  Exclusion terms Terms  Conditions or duties which have to be carried out as part of a contract, arrangemens which have to be made before a contract is valid Express terms  Terms that the parties have specifically agreed to, being terms the parties either said or wrote Implied terms  Example: you buy a boat. The first day you go sailing the boat sinks. You complain to the seller, he says the contract did not promise that the boat would float  One of the terms implied into a contract of sale –that goods are of satisfactory quality and are fit for their purpose Terms of a contract  Term: a promise that is part of the contract  Terms of a contract:  1) conditions  2) warranties Condition  A fundamental term  If a party does not carry it out, you not only have the right to claim damages, but also to treat the contract as terminated Warranty  A term of contract of lesser importance  Does not deal with the main purpose of the contract  If you have not carried out your obligations under a warranty, the other party has the right to sue you for damages, but not to terminate the contract Exclusion clauses  The purpose: to exclude all liability for failing to carry out the contract, either at all or not properly; open to abuse  In order to prevent parties relying on unfair contract terms, there are strict legal rules about the use of exclusion clauses  The law protects consumers in particular against the wrongful use of exclusion clauses by businesses Ending the contract 1) a contract can be set aside (cancelled) if it later appears there was sth wrong (misrepresentation, duress, mistake, undue influence) 2) a contract can be discharged where the contract is valid, but comes to an end because it has been carried out (performance),the parties agree to end it (agreement) , or there is a serious breach of contract (breach) Validity of Contracts  Valid – legally enforceable  Void– one that was never legally valid  Voidable – can have legal effect but could be made void if you want to rescind it (=annul) Reasons to have a contract set aside: vitiating factors  Misrepresentaion  Duress and undue influence  Mistake Misrepresentation  A representation – a statement that was made to encourage you to enter into a contract, but it does not itself become part of the contract  Misrepresentation (false representation) – you cannot bring an action for breach of contract, but you can bring special acton for a misrepresentation if you would not have otherwise entered into the contract Remedies for misrepresentation  Misrepresentation makes the contract voidable  Recission: if you rescind the contract, the parties are put back in the position they were in before the contract was entered into. It is as if the contract never existed  Damages: you can sue for financial compensation if you have suffered any losses Duress and undue influence  Duress: either actual violence or the threat of violence was used to make the other party enter into the contract (“sign this contract or I’ll shoot you!”)  Undue influence: improper pressure other than violence (e.g. blackmail) Mistake  If absolutely fundamental, as it gets to the very heart of the transaction, the contract will be considered void from the outset Termination of a contract   Performance  Express agreement  Breach  Doctrine of frustration Discharge by performance  Only after you have carried out everything you promised to do in the contract, exactly in the way you agreed to do it, your contractual obligations will be discharged Discharge by agreement  Parties may agree that the contract should end automaticaly if some event occurs or after a fixed period of time Discharge by breach  A party has made it clear that he will not carry out the contract, or  The party has not performed his obligations properly Consequences  Some breaches give you the right to sue for damages, but not the right to terminate the contract  Has there been fundamental breach or not?  Condition or warranty? Example  In the contract it states that you must deliver 10,000 tonnes of tomatoes on 23 May. You deliver tomatoes two days later, on 25 May.  If the date of delivery was a condition, the other party has the right not only to claim damages, but also to end the contract,i.e. he can refuse to take delivery.  If the delivery date is a warranty, he does not have the right to refuse the tomatoes, only to sue you for any loss he might have suffered because you delivered two days late Remedies for breach  Damages: the aim is to put the claimant in the position he would have been in if the contract had been performed properly  Specific performance: an order to make a party perform his obligations under the contract  Injunction: a court order to stop someone breaching a term of the contract  Suspension of performance Suspension of performance  In civil law systems: if the other party is in breach, you can stop carrying out your obligations under the contract  In common law: there is no general principle allowing for suspension of performance if the other party is in breach; suspension of performance – considered to be breach of contract Discharge by frustration  Example: you hire a room in a pub for your band to put on a show. Before the date for the show, the pub gets burned down. The fire is not your fault, nor the fault of the owner of the pub. The fire has made it impossible to carry out the contract: discharge by frustration Common law vs. Civil law  At common law, contractual liability for breach is strict and the motive for that breach is irrelevant  In civil law systems this may seem a very harsh approach Force majeure  It is usual for commercial contracts to include a force majeure clause: a list of events considered to be outside the control of the parties, e.g. labour disputes, war, riot, accident, fire, flood, etc. Legal terms  Acceptance - Unconditional acceptance of all the terms of an offer   Breach of contract - Refusal or failure by a party to a contract to perform an obligation imposed under the contract  Capacity - Ability of a natural or legal person to enter into a contract  Condition - A fundamental term of the contract. If it is breached, the innocent party may not only claim damages, but may also opt to treat the contract as ended  Consideration - A contract must be a bargain. Each party gives value to the other by exchanging promises (or by a promise given in exchange for an act).  Contract - Legally enforceable agreement  Counter offer - If not all the terms of an offer have been accepted, then there is no acceptance of the offer, but a…This is in effect a new offer, which now has to be accepted by the other party  Damages - In contract law, financial compensation that shuld put the claimant in the position he would have been if the contract had been performed properly  Discharge - Release from the obligations under a contract. It may be by performance, agreement, breach or frustration  Discharge by agreement - Both parties agree to end the contract  Discharge by breach - A contract may be discharged by ___where the party in default has refused to perform, or where the performance is so defective that there has been fundamental___  Discharge by frustration - Parties are excused from the contract if, through no fault of either party, after the formation of the contract it becomes impossible to carry out the contract or the contract has become commercially pointless  Discharge by performance - The obligations under the contract have been carried out fully and exactly  Duress - Violence or threats of violence in order to make someone enter into a contract  Exclusion clause - Term in a contract to exclude the liability of a party for contractual failure. That failure could be in the form of breach of contract, misrepresentation or negligence  Express terms - Terms explicitly stated by the parties, either oral or written  Force majeure - Most contracts include a f__ m___clause. This lists events considered to be outside the control of the parties and for which the parties cannot be held responsible.  Fundamental breach - A term is f:__ if it goes to the root of the contract. If it is breached, the breach is referred to as ____  Implied terms - Terms that can be read into the contract, whether by custom, statute or by the courts  Injunction - A court order to stop a clause in the contract from being broken. It is a discretionary remedy and will not be ordered if damages are a sufficient remedy  Misrepresentation - Where the representation is a false statement, it is called:____. M. can be fraudulent, negligent or innocent.  Privity of contract - A contract only confers rights and obligations on the parties to the contract. There are exceptions to this rule, both in statute law and common law.  Representation - A statement that encourages a party to enter into the contract, but does not itself form a part of that contract  Undue influence - Improper pressure other than violence to make someone enter into a contract  Vitiating factor - A defect that was present in th agreement at the time the contract was made. The defect is sufficiently serious to have the contract set aside. V___ factors include misrepresentation, mistake, duress and undue influence Construction Contracts and Project Delivery Methods Contract Defined An agreement between two or more parties representing a promise to be performed for consideration Necessary Parts of a Typical Construction Contract O Parties identified O Parties make promises that constitute an offer  O Both parties sign the contract O Both parties receive consideration: O Contractor – payment for work done O Owner – use of the completed project O Parties of the contract must have the LEGAL AUTHORITY to negotiate a contract Contractual Relationships O Agreement between the OWNER and CONTRACTOR is the primary construction contract O There are other contractual relationships which exist Construction Agreement Forms O Agreement – legal, binding, written document signed by owner & contractor O Defines the relationships and obligations that exist O By reference it incorporates ALL OTHER CONTRACT DOCUMENTS Advantages to Using Standard Agreement Forms—Disadvantages if Modified Forms Used4 O Advantages O Familiarity of the forms O Legal precedents interpreting the documents O Uniformity of terminology O Disadvantages O Modifications warrant care that all references are coordinated (change in one part of the form may require changes in several locations) O Seek legal counsel Conditions of the Contract O Define basic rights, responsibilities, and relationships of the parties involved in the construction process in greater detail than the agreement Design & Construction Parties Owner – May be an individual or organization, initiates the projects and secures funding or the design construction and operation of the completed project Contractor – Agrees to build the project A/E – develops project designs and prepare construction documents Methods of Contractor Selection O Competitive Bidding O Direct Selection Competitive Bidding O Objective is to ensure that the cost of the project is reasonable and consistent with existing conditions in industry O Publicly funded projects – owner required to select lowest bidder O Private projects – owner may also consider the bidders’ qualifications, experience, financial condition, and performance history Direct Selection O Owner, with advice from the A/E selects contractor – total price and method of payment is then negotiated O This method is generally NOT allowed for public projects 3 Decisions Made in Determining Kind of Contract O Number of contracts O Contract type O Basis of payment Number of Contracts 1) Single Prime Contract – most common, uses competitive bidding (pg 3.12; fig 3.3- C) owner has contract w/ A/E & contractor; but A/E & contractor do NOT have contract 2) Multiple Prime Contract – Owner divides the work among several contractors & has separate contract w/ each of them. (pg 3.13; fig 3.3-D) [e.g. paving, site work, foundations, landscaping, painting] Often used in FAST TRACK projects when construction on parts of the project is started prior to all of the design elements of the project being completed Project Delivery Method O Design-Bid-Build O Design-Negotiate-Build O Construction Management O Design-Build O Owner-Build O Construction Subcontracts O Total Project Commissioning Design-Bid-Build O Traditional method of project delivery O Typically uses competitive bidding O Considerations O Project funding O Owner’s capacity O Cost O Extent of work O Time priorities Design-Negotiate-Build O Similar to the Design-Bid-Build contract but only ONE contractor involved in developing costs and negotiating a contract to construct the project O Primary considerations are construction excellence and time (project costs not subject to competitive bidding process) Construction Management O May have either single or multiple prime contracts O Construction manager is employed by the owner to oversee and administer the project (may or may not actually perform any of the construction work) Project Management O Similar to construction management but also includes coordination of the design & planning stages of the project O Large projects overseas have been successful using this O Projects involving multiple structures & extensive site improvements often require this type of supervision; complex projects such as industrial & process engineering plants use this type of contract Design-Build O Owner contracts w/ a single entity to design as well as build the project  O Turnkey – an extended design-build contract in which the selection, procurement, and installation of all furnishings, furniture, and equipment is also included Owner-Build O This type of contract is usually seen with large-scale developers O Only construction contracts needed are between the owner and various subcontractors Total Project Commissioning O Defined by ASHRAE as a method to improve the delivery of a process. O Focus is on QUALITY O Makes sure that all components of a building are planned, installed, and maintained according to an owner’s requirements 3 Types of Basis of Payment O Stipulated (Lump) Sum O Unit Price O Cost-Plus Fee Stipulated Sum O Simplest method used O States that the contract requirements will be completed for a given amount of money Unit Price O Used when the extent of work or actual quantities can not be determined when bids are made (earthwork is such an example) O Many civil engineering projects use unit price type of payment O With unit price, the owner pays for exactly what is documented as done after the work has been completed Cost-Plus Fee O Contractor paid for actual cost of labor PLUS a fee for overhead and profit O Fee may be a percentage of the labor & material cost or a fixed amount O Cost-Plus Fee agreements may also include incentives for early completion O It is reasonable for the owner to require a guaranteed maximum price to ensure that the total project cost will not exceed a given amount SPECIFICATIONS ▪ Specifications describe the nature and the class of the work, materials to be used in the work, workmanship etc. and is very important for the execution of the work. The cost of a work depends much on the specifications. Specifications should be clear. Purpose of giving Specifications ▪ The cost of an unit quantity of work is governed by its specifications. ▪ Specification of a work is required to describe the quality and quantity of different materials required for a construction work and is one of the essential contract documents. ▪ This also specifies the workmanship and the method of doing the work. Thus specification of a work serves as a guide to a supervising staff of a contractor as well as to the owner to execute the work to their satisfaction. ▪ A work is carried out according to its specification and the contractor is paid for the same. Any change in specification changes the tendered rate. ▪ As the rate of work is based on the specification, a contractor can calculate the rates of various items of works in tender with his procurement rates of materials and labour. Thus tender rate without specification of works is baseless, incomplete and invalid. ▪ Specification is necessary to specify the equipment tools and plants to be engaged for a work and thus enables to procure them beforehand. ▪ The necessity of specification is to verify and check the strength of materials for a work involved in a project. Types of Specifications ▪ General Specifications ▪ Detailed Specifications General Specifications ▪ In general specifications, nature and class of works and names of materials that should be used are described. Only a brief description of each and every item is given. It is useful for estimating the project. The general specifications do not form a part of contract document. Detailed Specifications ▪ The detailed specifications form a part of a contract document. ▪ They specify the qualities, quantities and proportions of materials and the method of preparation and execution for a particular item of works in a project. ▪ The detailed specifications of the different items of the work are prepared separately and they describe what the work should be and how they shall be executed. ▪ While writing the detailed specifications, the same order sequence as the work is to be carried out is to be maintained. What are Construction Specifications? ▪ Construction specifications, also called specs, are the details for the work that needs to be completed in a construction project. ▪ These details include information such as materials, the scope of work, installation process, and quality of work. ▪ Subcontractors and teams use these specs as a guide to choose the right materials for the specific project. ▪ The specs discussed between the project owner and the contractor become a part of the legal documents for the project. Prescriptive Specifications ▪ Of the three types of construction specifications, prescriptive specs focus on the details for the types of materials used and the installation of said materials. ▪ Architects or engineers tend to take over the job of project design in prescriptive specs. ▪ Prescriptive specs give a better image of what the final product will look like compared to other specs. Performance Specifications ▪ After prescriptive specs come performance specs. Performance specs discuss the operational requirements of a project. ▪ It details what the final installed product has to be capable of doing. In this phase, the owner or general contractor doesn’t give a subcontractor specs detailing how to finish the job. Instead, designers and architects give contractors details on how the final product has to work in this phase. ▪ For example, a contract asks the team to make a pump that pumps 300 gallons per minute. ▪ There are no directions on how to make the pumping system go that fast, so it is up to the contractor to figure it out. Proprietary Specifications ▪ Proprietary specs are used when you need to use a single type of product for any kind of installation. ▪ These are the least common of the three types of construction specifications, but they are for jobs involving existing equipment and already completed installations. ▪ When the owner or client wants to be consistent with their materials or just prefers a specific type of material, use proprietary specs. ▪ Contractors use proprietary specs when their section of the project is dependent upon the performance of a specific product. Be as Specific as Possible ▪ Planning out a construction project is very time consuming and requires a lot of detail. It may seem overwhelming and tedious, but it is an essential step in starting a construction project.  ▪ Without it, you waste times and money trying to figure it out. ▪ The more time you spend detailing each step of the project, the more likely your vision for the project will be executed accurately. ▪ By using these tools for stellar construction specifications you benefit the project. Construction Machinery in Civil Engineering Projects CMPM 423 ◆ In-land Construction Surface Projects - (Transportation, Buildings, Dams, etc.) Sub-Surface Projects - (Subways, Lifelines, Deep Drilling, etc.) ◆ Off-shore Construction (Oil-Rigs, Wind Turbines, Artificial Islands for Airports, etc.)