Contracts

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Contracts

• CTC-470

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Parts of a Contract

• Drawings
• Need to clear, concise, explicit and well defined
• General conditions Boilerplate
• Establishes right, responsibilities, authority,
  and obligations.
• Standard so that everyone understands them
• Supplementary conditions Specific to each job
• How this job will be done.

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Parts of a Contract

• Specifications include all of contract except
  drawings
• All documents from the invitation to bid on

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Technical Specifications

• Qualitative description of items on project
• Either specs govern over drawings or the
  architect/engineer decides when drawings and
  specs do not agree. In contract documents.
• Need to be technically accurate and adequate
• Definite clear stipulations
• Fair equitable requirements
• Easy to use during bidding and construction
• Legally enforceable
• Usually in Construction specifications Institute
  (CSI) format

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Design Specifications

• material and workmanship specifications (method
  and materials)
• 2x4 _at_ 16 o.c.

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Performance Specification

• spec finished product, let the contractor select
  the material and method.
• Wall must support a 300 pound/LF vertical load
• Can incorporate both design and performance specs
  to specify finished product and method and
  materials.
• Wall must support a 300 pound/LF vertical load
  and be constructed from 8 x 8 x 16 concrete
  block

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Specifications

• Closed Spec requires specd item
• Proprietary Spec - name supplier
• Open Spec Required for public projects
• Or Equal AVOID lets engineer spec 1 item and
  then allow for other equal items
• Or Approved Equal Architect/engineer can decide
  whether a product is equal
• Reference Spec - References tests, product
  names, part of the technical spec.
• Standard Spec Standards from one job to the
  next.

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As Built Drawings

• Very important
• Provide the final location of all underground
  utilities, and facilities and all above ground
  facilities.
• Used as the reference document for future work on
  site
• Cheshire fair

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Matter of time

• Major aspect of contracts - Contracts can specify
  that a job be completed in either XX working days
  or XX calendar days.
• Working days
• used when weather delays can be expected - Any
  day except Saturday, Sunday and holidays.
• Calendar days are used when a definite opening
  date is desired.
• Dept store must open before thanksgiving

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How many days

• Project schedule
• submitted prior to starting work
• sets work schedule.
• Limitation of Operations
• Times owner does not want contractor operating on
  the site.
• NYSTA night work
• Liquidated Damages
• Compensation for financial other losses due to
  late opening. (10,000/day after Nov 20)
• NYSTA if on road after designated time of day

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Types of Delays

• Delay caused by contractor or contractors agents
  owner can fire contractor
• Delay caused by owner or owners agents -
  contractor can ask for time extension
• Delay caused by force majeure or act of God.
  Usually no for either owner or contractor
• Hurricane Katrina Casino
• No damage for delay clause protects party from
  liability due to delays caused by that party

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Exceptions

• Delay not contemplated Labor strikes, back
  orders on supplies.
• Active interference action by a 3rd party which
  causes work to slow or stop - environmental
  pickets
• Delays of unreasonable duration delays by owner
  which are unreasonable in length
• Fraud or bad faith

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Exceptions

• Allow contractor/owner to get time extensions for
  project
• Extension of Time if running late, get an
  extension of time.
• Excusable Delay act of God, labor strike,
  flooding, etc.

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What can Happen

• Acceleration
• Actual owner says hire more workers. Owner pays
• Constructive owner refuses time extension so
  contractor has to hire more help.
• If owner is cause of delay, which leads to
  falling behind, contractor may be able to collect
  for extra help.
• If delay is force majeure - contractor may be
  able to collect for extra help

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What can Happen

• Suspension of Work
• gives owner ability to stop work. Owner may
  have financial trouble
• Owner can stop work at any time for cause
• Change in market, financing, etc
• Termination
• Default of contractor
• Bonding Company takes over contract to completion
• Convenience of owner
• Owner may find that the project is too expensive
  and decide to terminate the project.

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CONTRACT DESCRIPTORS

• Contract
• Agreement between two parties that is enforceable
  by law for their mutual benefit.
• Litigation
• Court decision, which is binding on both parties
• Used to settle claims for monies owed
• Executed
• When both parties have fully performed in
  accordance with the contract terms, i.e., final
  payment made
• Executory
• When some portion of agreement remains undone

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Contracts can be

• Bilateral
• Both parties promise something to each other.
  Most construction contracts are bilateral.
• Unilateral
• One party promises something while the other
  party exchanges something other than a promise.
  Action may substitute for promise, i.e., Ill
  sell you 100 RR ties for 6 each gt You send me a
  check for 600 you own RR ties. You are in
  control of whether or not contract is formed.

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Contracts can be

• Expressed
• Terms are clear, concise, explicit and well
  defined.
• Usually written
• Implied
• Terms not clearly stated but established thru
  inference and deduction, i.e. Drive to parking
  lot, give attendant 2 and park car.

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• An expressed contract can be altered by an
  implied contract if the project described in the
  expressed contract, once signed, is significantly
  changed.
• Then an implied agreement to do the work for
  hourly rates could become binding

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Contracts can be

• In Joint Agreement
• individual parties joined into one party in
  legal and liability sense,
• Several Construction Companies join together as a
  single entity to bid on a job and sign contract
  with owner.
• Several or Separate
• Each party has a liability that is separate from
  any other party.
• Several Construction Companies join together to
  bid on a job and sign contract with owner but
  retain liability for their portions of work
• Joint and Several
• Binds individuals as a unit each individual
  accepts separate accountability.

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Contract disputes

• Usually solved by courts.
• By using standard provisions in contracts it
  makes it easier for the courts to reach a
  decision.
• Courts are not contractors or engineers
• Need standard language to ensure that Court
  understands contract
• Want clear, concise, explicit and well defined
  contract terms

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Torts

• disputes that relate to matters not addressed by
  statutory law or contract obligations.
• Wrongs committed against others that do not
  involve contracts.
• Common law interpretation required
• Can result from a special action or can be caused
  by failure to act
• Offense against person that does not involve a
  crime or law violation
• A tort can be a crime

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To file a tort

• 1) Establish that one party had a duty to the
  other party breach in performance of duty
• 2) How damage is direct consequence of (1)
• Examples slander, libel
• Standard of care Conduct expected of someone in
  a given capacity.
• Attractive Nuisance A construction site is an
  attractive nuisance. A tort action of trespass
  could be denied because of this.
• Contributary Nuisance Offered as a defense to
  avoid liability from an injury. Injury occurred
  due to actions of injured party.

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Bonds

• Parts of a Bond
• Principal
• Principal debtor is party whose performance is
  guaranteed
• Surety
• Company pays if principal does not perform
• Obligee
• Party to whom promise of principals performance
  is made - owner

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Bonds

• Miller Act (1935)
• Surety bond required for all federal assistance
  projects.
• Bid bond
• Bond that contractor will enter into binding
  contract will provide payment performance
  bonds. Usually 5 of bid price
• Provision in bid how long after bid opening that
  winning bidder has to be notified of selection
  and how long after that that bidder has to enter
  into a contract.
• Bonds returned after contract signed

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Bonds

• Performance bond
• Usual fee is 1 of contract amount
• Usual face value is 100 of contract amount
• Surety must be notified of changes in contract
  over 10 of original amount
• Payment bond
• Protects owner if the general contractor does not
  pay the subs or suppliers
• Usual face value 40 50 of contract price

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Bonding Capacity

• Sureties stipulate max value of uncompleted work
  that a GC can have at one time
• Bonding capacity
• Protects Surety from GC overextending themselves
• 10 - 20 uncompleted work per 1 of net working
  capital
• No single contract exceeding ½ bonding capacity

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Elements of a Contract
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Elements of a Contract

• Meeting of Minds
• Agreement on a basic meaning legal implications
  of the contract.
• Unreality of Consent
• cannot agree on basicsgtgtno contract
• Contract is based on fact.

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Contract is null and void if

• Unilateral mistake or mutual error
  (Unintentional)
• Parties do not have same perception of the
  identity of the subject of the agreement
• Subject does not exist due to death, destruction,
  etc.
• Misrepresentation
• Fraud (intent to deceive)
• Fraud (deliberate failure to provide relevant
  information vital to the agreement)
• Duress (forced consent)
• Error in plans

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Offer Acceptance

• Offer
• one person signifies to another a willingness to
  enter into a binding contract on certain terms.
• Acceptance
• creates contract provided it was made in the
  manner time specified in the offer.
• Counter Offer
• if acceptance is not definite, unqualified and
  unconditional. Once a counter offer is made, the
  original offer is no longer valid.

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Consideration

• Something of value
• Prime reason for entering a contract. Both
  parties must have consideration or contract is
  void. Consideration does not have to be actual
  benefit, i.e., pay someone not to marry binding
  upon acceptance.

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Lawful Subject Matter

• Contracts must have it.
• Subject matter cannot violate any fundamental
  dictate of common law, or be contrary to public
  policy. Collusion or bid rigging is illegal and
  any contract between two parties for the purpose
  of rigging bids is void.

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Competent parties

• Cannot be insane, drunk, or a minor.

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Estoppel

• Contract becomes binding in spite of the fact
  that no formal agreement was made between
  parties.
• Implied agreement, i.e., go to a movie, pay gtgt
  see movie or get a refund.
• Promissary Estoppel
• Frequently encountered in construction. Bid by
  phone, which is used in a larger bid package, is
  binding.

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Assignment of Contracts

• Transfer rights and responsibilities to a 3rd
  party not originally involved in the contract.
• Second party cannot be placed in a worse position
  than it would have without the assignment.
  Loans, etc.

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Real Property

• Real Property
• Land and attachments (buildings, permanent
  fixtures on land)
• Liens
• Legal claim on property. Party has the right to
  retain property until debt is satisfied.
• Tax Lien Right of government to retain
  possession of property until taxes are paid.
• Mechanics Lien Right to place a claim on land
  on which work was performed. Includes all
  craftsmen and suppliers. Needs written contract

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Real Property

• Eminent Domain
• Right of public to take land at fair market value
  when the land will be used to provide a benefit
  (service) to the public.
• Condemnation exercising the right of eminent
  domain.
• Highways Rights of Way
• Zoning

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Stop Notice

• Notify owner of non-payment by general
  contractor. Can be placed by supplier, sub,
  worker.

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Forms of Organizations
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Proprietorship

• Owned by individual. No documentation needed to
  start or terminate - profits, taxes, liability
  responsibility of owner.

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Partnership

• Association of two or more people to carry on
  business. Each partner has something unique and
  of value to contribute to the partnership to help
  achieve the company goals. Partners share in
  firm management, profits, and liabilities.
  Partnership pays no income taxes since it is not
  a separate legal entity. It cannot file suit or
  be sued. Can be formed by oral agreement. Each
  partner is an agent for the others. Partners
  assume unlimited personal liability to 3rd
  parties for full amount of debts of partnerships.
  Partners are jointly and separately liable for
  company debts.

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Can dissolve partnership by

• Death of partner
• Bankruptcy
• Duration provision
• Mutual agreement
• Insanity of partner
• Withdrawal of member
• Court decree
• Change in partnership
• Expulsion of partner

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Partnership Distribution

• 1) Outside creditors
• 2) Loans or advances from partners
• 3) Partners capital investment
• 4) Profits

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Other partners

• Limited Partner
• Contributes value, share in profits and losses
  but provides no services and has no vote in
  management. Liability is limited to contribution
  .
• Silent partner
• Partner who remains unknown to the public.

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Joint Venture

• Special form of partnership. Combined efforts of
  two or more construction companies to build a
  project. Temporary.
• Reason for forming
• Insufficient bond capacity for the job
• Not familiar with labor market
• Not familiar with construction material
• Lack of adequate in house personnel
• Insufficient capital

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Corporation

• Entity created by law.
• It has privileges and duties.
• It is authorized to do business, own and convey
  property, enter into contracts, incur debts,
  bring suit and be sued.
• There is limited owner liability
• perpetual life.

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Agents
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Agents

• Agency Agreements
• Similar to contract, consists of principal and
  agency. Principal authorizes the agency to act
  on his behalf. It is mutual agreement the
  agent cannot volunteer for the job. Agents act
  for the principal.

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Agents cannot do

• Acts that are personal for the principal
• Acts that are illegal
• Acts that are immoral
• Acts that oppose public policy

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Agents

• Principal is liable for all contracts made by the
  agent.
• Agents
• must display complete loyalty good faith,
• obey instructions,
• not exceed authority,
• cannot compete with the principal,
• profit at principals expense,
• or do any self dealing.

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Agency

• Agency created by
• 1) Law or contract
• 2) Ratification
• 3) Estoppel
• At the construction site
• Owners agent generally an engineering firm
  (resident engineer, site engineer)
• Failure to inspect can cause engineer to be held
  liable liable for injury, not liable for errors
  in judgment.
• Role of Contractor Owner must be sure of role
  of contractor. If the contractor is acting as
  agent then there must be a clear, established
  scope of authority. In general, owners want
  contractors to be independent.

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Termination of Agency

• Similar to termination of contract. Caused by
• Death of principal or agent
• Destruction of subject matter
• Occurrence of specified event
• Fulfillment of agency purpose
• Bankruptcy of agent or principal
• Expiration of time period
• Illegal development
• Mutual consent
• Unilateral termination with cause

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Contingent Liability

• Injured 3rd party is not or should not be
  affected by a contract between two other parties.
  Therefore, injured worker can sue owner and
  contractor. Engineers can be 3rd parties due
  to inspection.