Faculty of Engineering and Technology Department of Built Environment 5262 BESG Construction Contracts
Lecture One INTRODUCTION TO CONSTRUCTION CONTRACTS
In this session… • Definition of the Construction Contracts • Nature of the construction contracts • Features of the construction contracts
Learning outcomes • At the end of this session you should be able to: • Define construction contracts • Identify the nature and feature of the construction contracts • Know the legislation governing construction contracts
Construction Contract • ‘an entire contract for the sale of goods and work and labour for a lump sum price payable by instalments as the goods are delivered and the work done. Decisions have to be made from time to time about such essential matters as the making of variation orders, the expenditure of provisional and prime cost sums and extension of time for the carrying out of the works under the contract’. (Lord Diplock, Modern Engineering v Gilbert Ash Northern.) He went on to state “that there are no over riding rules or principles covering their contractual relationships beyond those which generally apply”.
However in the UK there is one exception in relation to the Housing Grants Construction and Regeneration Act 1996 (HGCRA) and sec. 104(1) and the Local Democracy, Economic Development and Construction Act 2009, defines a construction contract as:
The carrying out of construction operations • Arranging for the carrying out of construction operations by others, whether under a sub-contract to him or otherwise. • Providing his own labour, or the labour of others, for carrying out construction operations.
Furthermore under sec. 105 it includes: • All normal building and civil engineering works, including operations such as scaffolding, site clearance and painting and decorating as well as contracts for repair and maintenance.
Consultants agreements on construction operations. • Labour only contracts • Contracts of any value.
However, it excludes some operations: • The petro-chemical and process industries. • The supplying and fixing of plant (including supporting steelworks) • Off site manufacture of components. • Contracts with residential occupiers.
The formation of contracts • Often when a construction/engineering dispute goes to court the first question to be resolved is whether there was/is a contract in existence. • If there is no contract in existence there can be no breech or damages.
Essential attributes of a contract. • Offer • Acceptance • Consideration • Intention to create legal relations • Legality • Capacity
Consideration “an act of forbearance of the one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable”. in other words ‘the price paid for the other party’s act or promise’.
2 types of consideration: • Executory – a promise given in return for a promise. The contract is executory since it is still to be carried out or the promise performed. • Executed – one party has carried out its obligations without reciprocal performance.
Limitations • Past consideration is no consideration. • Valuable consideration.
Intention to be bound. The courts will not enforce any contract unless it is clear that the parties intended to be legally bound by their agreement. It is presumed that this is the intention in normal commercial contracts, and that it is not the intention in respect of domestic and social agreements, but each of these presumptions is rebuttable.
consensus ad idem • Meeting of the minds (also referred to as mutual agreement, mutual assent or consensus ad idem) is a phrase in contract law used to describe the intentions of the parties forming the contract. • In particular it refers to the situation where there is a common understanding in the formation of the contract..
Statute of Limitations? • Documents under seal or deed. • Is a document to which the maker of the document has attached their seal and which is delivered as a deed. • The effect is to entitle parties to bring up actions 12 years from the date of breech of contract.
Documents not under seal or deed. • Where a simple contract is made either in writing, partly in writing or orally the limitation period is 6 years after the breach of contract.
Doctrine of Privity of Contract. Doctrine of Privity of Contract prohibits anybody but the parties to a contract from seeking to enforce any rights under the contract or from suing for beach of contract. https://www.youtube.com/watch?v=y6kIu5ZNGfo
In other words, only parties to a contract can sue on the contract. • However, under the Third Party Rights Act 1998 the strict application of this doctrine can be moderated.
Why use standard forms? • Advantages: • The standard form is usually negotiated between the different bodies that make up the industry. As a result the risks are spread equitably. • Using the standard form avoids the cost and time of individually negotiated contracts.
Tender comparisons are made easier since the risk allocation is the same for each tendered. Parties are assumed to understand that risk allocation and their prices can be accurately compared.
Disadvantages: • The forms are cumbersome, complex and often difficult to understand. • Because the resulting contract is often a compromise, they are resistant to change. Any needed changes can take a long time to put into effect.
Contract Documents • Contract documents contain the terms of the contract. • They are to be distinguished from other documents such as invitation to tender • If it is often a question of fact and partly construction to determine which documents are contractual.
Agreement or articles of agreement: • This usually sets out the date, the parties, the intended works and the consideration. • It may also name the architect and quantity surveyor and provide in certain circumstances for their replacement.
Conditions of contract: • Elaborate conditions of contract are often made part of the contract and attempt to provide for the various problems which can arise during and after execution of the works.
Plans and drawings: • In some contracts these may show the works in full detail but further detailed drawings and instructions are necessary and their timely production can be a source of dispute.
Bills of Quantities: • May not form part of the contract although submitted to the contractor for tender. • Requires express words in the articles of agreement to make the bills of quantities a contract document.
Schedule of rates: • If used must be expressly incorporated into the contract in the articles of agreement.
Specification: • A document which describes the work to be done and the goods to be supplied.
Other documents (which if necessary must be expressly incorporated): • Tender • Invitation to tender • Letters, estimates and memoranda
. Purpose of contract documentation: • The basic defining aim of any contract is to record accurately the terms of a business agreement. • Construction contracts are subject to the same rule of contract law as any other type of contract.
Contracts are drawn up with the intention of relying upon them in a court of law at some point in the future.
Summary • Definition • Difference • Standard form of Contracts • Their advantages and disadvantages • Contract document.
Next session • Formation of construction contracts and principles.