CE 4217 Engineering Contracts, Laws & Ethics PDF

CE 4217 ENGINEERING CONTRACTS , LAWS & ETHICS  OBLIGATION & CONTRACTS Obligation – a juridical necessity to give, to do or not to do It is derived from the Latin word “ OBLIGARE “ which means to bind through giving , doing or not doing something....

CE 4217 ENGINEERING CONTRACTS , LAWS & ETHICS  OBLIGATION & CONTRACTS Obligation – a juridical necessity to give, to do or not to do It is derived from the Latin word “ OBLIGARE “ which means to bind through giving , doing or not doing something. 1  OBLIGATION A juridical necessity – because the rights and duties emanating from the obligation may be enforced by the courts of law which may order their performance if refused or neglected. “ to give , to do or not to do “ – The obligation to give is in essence a real obligation because a physical thing is involved, the delivery of the same extinguishes the obligation 2  OBLIGATION Ex.# 1 Dad A obliged to give Son X a bicycle because of his good standing in class as promised. Ex. # 2 Student B has to perform his task to do his paper in order to pass the requirements in school 3  Obligation is the moral or legal duty that requires an individual to perform , as well as potential penalties to perform. An obligation is a duty to do what is imposed by contract, promise or What law. ismost In the OBLIGATION general senseina duty is a synonym of PH OBLIGATION… 4 Law?  OBLIGATION Ex # 3 Passenger D has to pay jeepney fare upon reaching his destination. Ex # 4 Driver K has to follow traffic rules in order not to be cited with traffic violation ticket and to avoid accidents as well. 5  OBLIGATION The prestation to do or not to do are personal obligations, like to draw a plan of a house ( positive one ) or not to draw a plan ( a negative one). In all of the above examples, the obligation is demandable when due…. A promise is a promise…..but promises are made to be……. 6  OBLIGATION An obligation is nothing more than the duty of a person ( obligor) to satisfy a specific demandable claim of another person (obligee) which, if breached is enforceable in court Ex. Paying taxes as per (BIR) internal revenue code Ex. Paying correct standard wages as per DOLE 7  Requisites of an OBLIGATION Every obligation has four (4) essential requisites namely ; a) Juridical Tie or Vinculum - is the link that bind the parties b) Prestation - which is the giving, doing, or not doing of something c) Active Subject - which is the person who holds the right to demand the prestation d) Passive Subject- which is the person against whom the prestation maybe demanded 8  OBLIGATION Ex.# 1 Supplier X entered into a contract to deliver backfilling material to Developer Z. The juridical tie is the contract. The prestation is to deliver the backfilling materials. The active subject is Developer Z while the passive subject is Supplier X. Ex.# 2 Boy G promised to Girl K a dinner date on their anniversary. The juridical tie is the “promise”, the prestation is “ dinner date” while the active subject is Girl S and the passive subject 9 is Boy A…. SOURCES OF OBLIGATION Article 1157 of the Civil Code enumerates the sources of OBLIGATIONS namely; a) Obligations arising from LAW b) Obligations arising from CONTRACTS c) Obligations arising from QUASI-CONTRACTS d) ACTS OF OMISSIONS PUNISHABLE BY 1LAW 0 e) QUASI-DELICTS  Obligation arising from LAW This kind of Obligation is dictated by Law like the obligation of husband and wife to live with each other, observe mutual respect and fidelity and render mutual support. ( adultery) Ex.#1 The obligation of an employer to pay minimum wages to the workers. Ex.#2 The obligation to pay taxes under the National Internal Revenue Code 1 1  Obligation arising from CONTRACTS A contract is the meeting of minds between two persons , whereby one binds himself with respect to the other to give something or render some services. When duly entered into, the obligation from Contract have the full force of the law between 1 2 the parties, hence should be complied with in  Obligation arising from CONTRACTS Ex. #3 DMCI a triple A category contractor in the PCAB is under contract to build and deliver the 3rd segment of SKYWAY from Makati to Caloocan City by end of 2022. Ex. # 4 As a heavy equipment supplier and lessor , your are under contract to lease your backhoe and dumptruck for the excavation and hauling of the drainage project in Cebu Business Park for a duration of 6 weeks. 1 3  Obligation arising from CONTRACTS The contracts enumerated and treated in the Civil Code, among others, are Sale, Barter, Lease, Partnership, Agency, Loan, Deposit, Insurance, Guaranty, Pledge and Mortgage… 1 4 CONTRACTS & AGREEMENTS  CONTRACTS A contract is a legally binding agreement between two or more parties. Once signed, this contractual agreement creates a promise that certain rights and obligations will be fulfilled by each party. In essence, a promise is at the heart of every contract. …..While the definition of a contract is simple, those promises can be complicated in practice… 1 5  AGREEMENT An agreement is a promise or arrangement between two or more parties to do , or not to do, something, Its usually informal and sometimes unwritten( but not always ). Some examples of an agreement include a letter of intent, or a confidentiality agreement that precedes a commercial discussion. 1 6  AGREEMENT Agreements like these are based on TRUST , and aren’t legally enforceable in court or with arbitration – so if one party doesn’t do what they’ve said they will ( for example if the contractor or volunteer don’t turn up), the other party likely can’t seek a remedy or enforcement through the courts…. 17 What is the difference between an agreement and a Contract ? Like an Agreement, a Contract is a formal arrangement between two or more parties to do or not to do,something. But its terms and conditions are legally enforceable- perhaps in court or through arbitration. That means if someone breaks them, the other party can seek legal action. 1 8  CONTRACTS A contract is a legally binding agreement between two or more parties. Once signed, this contractual agreement creates a promise that certain rights and obligations will be fulfilled by each party. The Law defines a contract as a “meeting of the minds between two persons whereby one binds himself with respect to the other, to give something, or to render some service” 1 9  STAGES OF A CONTRACT Every contract passes through three(3) distinct stages, namely: a) Preparation or conception, b) Perfection or birth c) Consumation or termination. 2 0  STAGES OF A CONTRACT A) Preparation starts from the inception and negotiation that may lead to the parties coming to the terms of the contract B) Second stage ; Perfection or birth marks the time the parties agree upon the object or subject matter and may cause or consideration of the contract. C) the third stage is simply the implementation of the terms of the contract and simultaneous documentation in formal ones… 21  STAGES OF A CONTRACT Example No 1. Contract of Sale of a land. Buyer A drafts a letter of intent to buy a property of Seller B with an offer of 100K. Seller B counter offers to sell his property at 150K to buyer A with the condition that real estate taxes will be shouldered by Buyer A and also the relocation expenses. Seller B agrees to sell his property @ 150K if it is surveyed and done with the relocation of the markers and the pay the real estate taxes. Full payment shall be paid by Buyer A to seller B once the terms and conditions are agreed upon and satisfied.  STAGES OF A CONTRACT So stage 1 is the negotiation and putting all the conditions of the buyer to the seller. Preparation and inception Stage 2 Once they have prepared all the conditions and agreed upon, then the Birth or perfection of the contract is done…Signing of the contract. Stage 3 Once the markers and relocation survey with the survey drawings are submitted is done. Payment is made. Then the deed of sale is signed and sealed and then comsummation of the contract. Consumatun Est… Example No. 2 ( Construction Contracts) Contractor ABC won a bid to construct a 4-storey commercial building. The terms and conditions where met so contractor A starts to mobilize. The building Owner then pays the 30% down-payment. So full construction activities followed from excavation to re- bars placement to concreting to formworks and scaffoldings and so on and so forth until the building was completed and turn over. Once the terms and conditions were satisfied by the contractor, payments were also made until the turn over of the building and final punch listing. To satified Owner then terminates the contract by paying the 10% retention to the contractor ABC following all terms and conditions of the contract….. A very ideal contract…. Without problems encountered.. Requisites of a Contract ( Elements of a Contract) There is no Contract unless the following elements are present ,namely ; 1) Consent of the Contracting parties 2) Object Certain which is the subject matter of the Contract. 3) Cause of Obligation which is established If the Contract lacks any of the said elements, the contract is null and void, as if it had not existed at all.  Essential Requisites of a Contract Consent of the contracting parties – is the conformity of wills of the contracting parties upon the object and cause as well as the other terms and conditions of the contract. Object Certain which is the subject matter of the contract All things which are within the commerce of man… Example : “ the delivery of goods such as construction materials, food items (food panda), “ “ the delivery of services (janitorial or any) “  Elements of a Contract Cause of the Obligation – which is established – Ex. –Contract Amount »Mode of Payment Delivery date ( deadline ) Liquidated Damages ( LD) penalties  RESCISSIBLE CONTRACTS Is one that was entered into legally by the contracting parties but has resulted in economic damage to one of the parties or an outside party. – Rescissible ( adjective) : capable of being rescinded – Rescinded : cancellation of a contract ; terminated – Rescission may be unilateral , as when a party rightfully cancels a contract because of another party’s material breach. Can also be mutual as when the contracting parties agree to discharge all remaining obligations…  Rescinded Contracts. Example A contractor has not delivered the scope of work accordingly using sub standard materials. Not following specifications by itself The labor contract did not deliver the certain work on time. The contractor not only breached his contract but also rescinded his contract by not showing up at the jobsite anymore. ENGINEERING CONTRACTS What are the different types of Construction Engineering Contracts? 1. Lump sum contracts ( Straight Contract) 2. Labor Only Contracts ( GMQ ) 3. Cost Plus Contract ( Percentage fee ) 4. Unit Price Contract 5. Time and Materials Contract 6. Guaranteed Maximum Price Contracts ( GMP ) 7. Design and Build Contract ENGINEERING CONTRACTS 8. Turn-Key Contract Gov’t Projects 9. Build Operate Transfer ( BOT) 10. PPP Contract ( Public Private Partnership )  Lumpsum Contracts ( Straight Contract) Is one type of construction contract, sometimes referred to a Straight Contract known as stipulated sum, where a single price is quoted for the entire project based on plans and specifications and covers the entire project and the Owner knows exactly how much the work will cost in advance.  Advantages of a Lump sum Contract No unforseen costs for the Owner Simple cash flow management ( Cashout easily monitored ) Opportunity for a larger profit margin for contractors Easy access to financing ( Bank loans , financial institutions )  Disadvantages for Project Owners Owners must submit and adhere to completed designs and finalized plans, making the project inflexible. If a change is needed, lumpsum contracts stipulate the use of a formal change order process and considerable amount of paperwork. The risk of being charged a higher amount to cover the contract costs for unforseen situations. Similarly contractors could use inferior materials or otherwise cut costs to increase their profit from the fixed price. That is why it is prudent for Owners to specify materials in the pre-construction documentation they provide to the contractor.  Disadvantages for Contractors Contractors incur the cost of going over budget, which can eat into profits. Contractors also share the disadvantage of time-consuming change order paperworks if modifications need to occur.  Variation in Lump Sum Contracts Variations are prevalent triggers of disputes in construction projects. With lump sum contracts, any change in the plan , scope of works or costs are considered variation. The common cause s of variations include; Design errors, omissions and discrepancies Incorrect interpretation of plans or designs Specification changes Increase or decreases in necessary material quantities. Common Issues With Lump Sum Contracts While Lump sum contracts are straightforward and reduce many common construction contract headaches, they are without issues that can have varying impacts on the project owners and contractors. – DELAYS they are often consequences of unforseen circumstances out of either party’s control such as weather conditions or supply chain disruptions. Other times , a lack of clarity , failure to provide timely instructions , inadequate labor or lack of equipment or materials is to blame.  Common Issues With Lump Sum Contracts Cost Fluctuations ; the cost of labor and materials can be fluid and subject to change throughout the project. Lump sum contracts generally do not account these fluctuations, so contractors have to absorb the cost if prices rise. However , they can also realize savings if rates go down….These risk are arguably more pronounced in extended projects…. Example ; Long terms projects such as High Rise Bldgs (2-3 years to finish). Government Infrastructure ( Skyways, CCLEX Bridge, Tunnels,etc. )  End of Lumpsum Contracts….. Any questions, clarifications and drastic reactions….. Thank you for listening…..