Engineering CONTRACTS

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Engineering CONTRACTS

• Legal Principles for Engineers
• ELE 41EMT

Lecture 5 9 May, 2007
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The Concept of a Contract
PARTY A
PARTY B
SAME OBJECTIVES
SAME OBJECTIVES
EXCHANGE PROMISES
AGREEMENT ON COMMON OBJECTIVES
INTENTION TO CREATE LEGAL RELATIONS
CONTRACT
SPECIALITY (FORMAL)
SIMPLE (INFORMAL)
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A Contract is Invalid if

• No intention to create a legal relations and/or
• No agreement and/or
• No capacity and/or
• No consideration or form and/or
• No legal objective

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The Simple Contract

• A contract is a legally binding agreement.
• For a contract to come into existence, certain
  technical requirements must be satisfied.
• For a so called Simple Contract , there must
  be
• an Offer by A to do something for B
• in exchange for a valuable Consideration (e.g.
  money), and
• an Acceptance by B of As offer
• A simple contract need not be in writing.

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Example
Alan may offer to sell his car to Beth, or any
person who is prepared to pay 2,000 for it. When
Beth (or any particular person who is anxious to
purchase the car) agrees to the price, then
Alans offer is accepted and a contract is
made. In the above example, no difficulties of
determination are presented.
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What if

• What if Alan makes his offer to the world at
  large and several people respond? or
• If Alan writes to Beth and Beth replies accepting
  the offer by letter, which goes astray.
• The above problem must be solved by some
  particular rule if commercial confusion is to be
  avoided.

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The Specialty Contract

• Speciality contract or contract under seal is a
  contract in writing signed, sealed and delivered
  by one party to the other for his/her benefit.
• A deed is a sealed contract in the legally
  correct form.
• A limitation period of 12 - 20 years applies to a
  deed, depending on the State or Territory
  legislation.
• The limitation on a simple contract is 6 years.
• No consideration is needed for a written
  agreement in this form to be binding.

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Definition of Consideration - 1
A valuable consideration in the sense of the law
may consist either in some right, interest,
profit or benefit accruing to one party or some
forbearance detriment, loss or responsibility
given, suffered or undertaken by other. Currie v
Misa
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Definition of Consideration - 2
An act or forbearance of one party or the promise
thereof, is the price which the promise of the
other is bought, and the promise thus given for
value is enforceable. Dunlop Pneumatic Tyre Co
Ltd v Selfridge Co Ltd
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Legislation

• In recent years, there has been statutory
  modification of the common law.
• Certain contracts must be in writing e.g. sale of
  land, domestic building or major work, hire
  purchase, etc.
• Common law assumes that a contract is an
  agreement between parties of equal bargaining
  power.
• A consumer faced with a finance companys
  standard pre-printed agreement is free to sign it
  or not it cant be said that both parties have
  equal bargaining power.

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Invitation to Treat

• RFT, RFP, and RFQ as an Invitation to Treat
• Advertising for EOI as an Invitation to Treat
• Displaying of goods in a retail shop is an
  Invitation to Treat, not an offer for sale
• Invitation to Treat as the preliminary actions
  taken in the forming a contract

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THE SMOKE BALL

• Carlill v Carbolic Smoke Ball Company (1893)
• The Carbolic Smoke Ball Company widely advertised
  in public that a smoke ball sold by the company,
  when used in a prescribed manner, would prevent
  anyone from catching influenza and that anyone
  who used the smoke ball as prescribed and caught
  influenza would receive a reward of 100 pounds.
• A woman who purchased the smoke ball claimed she
  had used it in accordance with the direction,
  contracted influenza and hence was entitled to
  the reward.
• Carbolic claimed their offer had not been
  formally accepted by Mrs Carlill
• Performance of the conditions was ruled to form
  part of the acceptance of the offer.

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Rules of Interpretation

• Oral Contracts
• Written Contracts
• The contra proferentem rule
• Contracts partly in writing

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Oral Contracts
If the contract is oral, each party in dispute
will be faced with the possibly onerous task of
establishing that its version of the terms of the
agreement is correct.
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Maybe best get it in writing?
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Written Contracts
If the terms of the agreement are written down
(in other words reduced to writing) then in
principle the intentions of the parties to the
contract are established by reading the words
they chose to use.
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The Contra Proferentem Rule
As a last resort, ambiguity in contract documents
is resolved under this rule by adopting the
construction least favourable to the party
proffering a document. Example Insoluble
ambiguity in tender documents issued by the
proprietor would be construed against the
proprietor and in favour of the contractor.
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Contracts Partly in Writing

• From a legal viewpoint, written contracts are
  strongly assumed to be a complete record of the
  terms of the agreement.
• It is possible to have a contract which is partly
  oral and partly in writing.
• The evidentiary problems presented by the such
  agreements in the event of a dispute are similar
  to those of entirely oral contract.

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Implied Terms

• A term may be implied by law or the facts.
• The conditions necessary to support the
  implication of a term were summarised as
• it must be reasonable and equitable
• it must be necessary to give business efficacy to
  the contract, so that no term will be implied if
  the contract is effective without it
• it must be obvious that it goes without saying
• it must be capable of clear expression,
• it must not contradict any express term of the
  contract

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Discharge of the Contract

• A contract may be terminated or discharged in a
  number of ways
• by full performance,
• by agreement of parties,
• by breach of contract by either parties, or
• by frustration

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Full Performance

• Full performance of a contract is the normal
  desirable outcome where the objectives of the
  contract are met, thus satisfying the Principal
  with the Contractor receiving the agreed reward.

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Termination / Variation by Agreement

• The parties to a contract may mutually agree to
  terminate or vary a contract at any stage
  provided they can reach mutual agreement to the
  terms of such change.
• Normally the contract would include terms
  specific to variations.

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Frustration

• Frustration is the occurrence of a condition
  which prevents the contract from proceeding.
• Example is the loss or destruction of goods
  required for the contract which is beyond the
  control of the parties.

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Practical Completion

• Practical completion does not mean total
  completion.
• This is the stage at which the building is
  substantially and fit for use and/or occupation
  by the proprietor.
• A proprietor may well be able to use the building
  before all work is done and all defects rectified.

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Remedies of Breach of Contract

• When a breach of contract conditions, rather than
  warranties, occurs the contract may be terminated
  and the injured party will be normally awarded
  damages by court if the breach is proven.
• Terms of contract may be referred to as
  Conditions (fundamental) and Warranties (lesser
  significance).
• A breach of warranty may also attract the award
  of damages but does not usually result in
  termination of the contract

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Continued

• The breach may involve specific performance,
  where the court will direct the party in fault to
  carry out the terms of contract.
• Damages that may be recovered for breach of
  contract are damages that naturally arise from
  the breach of contract.
• Typical example of damages would be the loss of
  profit from potential sales which did not take
  place due to the plant not being completed on
  time.

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General Conditions of Contract

• Interpretation and construction of contract
• Definition of terms
• Language and currency
• Relevant legal system and legislative
  requirements
• Nature and conditions of contract
• Type of contract (Lump Sum, etc)
• Documentation
• Form of payment
• Evidence of contract being formed
• Subcontractors

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Continued

• Protection of the parties
• Securities
• Intellectual property
• Protection of people and property
• Insurance
• Right of access
• Superintending the contract
• Duties of Superintendent
• Contractors representative
• Site conditions

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Continued

• Dispute handling and resolution
• Variations to contract
• Payments to Contractor
• Subcontractors and workers rights
• Contract termination
• Practical completion
• Final payment
• Default or insolvency of parties
• Frustration
• Dispute resolution, arbitration, litigation

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Some contract problems
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Leightons Spencer St Station
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Station fiasco heading to courtThe Age
15.07.2004

• Disputes between Leightons and Victorian State
  Government re cost overruns and delays
• Leightons trying to get 24 hour access to certain
  platforms for 6 months
• Government accused of not co-operating in a
  master slave relationship.

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Multiplex Wembley Stadium
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Ruling on Wembley stadium disputeBBC News
5.05.2006

• A High Court judge has ruled that a steel firm
  working on the new Wembley stadium was in breach
  of contract when it walked off the site two years
  ago.
• Dispute between Multiplex and its main contractor
  Cleveland Bridge
• Cleveland Bridge seeking GBP22.6million for lost
  earnings
• Multiplex attempting to sue Cleveland for up to
  GBP45 million.

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References

• Kemelfield, Roger J, Law for Architects,
  Builders Engineers, An Introduction
• Cooke, JR, Architects, Engineers and the Law,
  3rd Edition,
• Derham, Maher, Waller, Introduction to Law
• AS 4000 1997, General Conditions of Contract
  Standards Australia www.standards.com.au

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REMEMBER!

• NO LECTURE NEXT TUESDAY
• MAY 15

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Thanks for your attention