Contracts CTC-470 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. Parts of a Contract • Specifications – include all of contract except drawings • All documents from the invitation to bid on 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 Design Specifications • material and workmanship specifications (method and materials) – 2x4 @ 16” o.c. 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 Specifications – Closed Spec – requires spec’d 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. 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 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 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 Types of Delays • Delay caused by contractor or contractor’s agents – owner can fire contractor • Delay caused by owner or owner’s 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 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 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. 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 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. 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 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., I’ll sell you 100 RR ties for $6 each > You send me a check for $600 you own RR ties. You are in control of whether or not contract is formed. 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. • 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 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. 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 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 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. 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 principal’s performance is made - owner 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 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 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 Elements of a Contract Elements of a Contract • Meeting of Minds • Agreement on a basic meaning & legal implications of the contract. • Unreality of Consent • cannot agree on basics>>no contract • Contract is based on fact. 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 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. 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. 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. Competent parties • Cannot be insane, drunk, or a minor. 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 $ >> 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. 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. 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 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 Stop Notice • Notify owner of non-payment by general contractor. Can be placed by supplier, sub, worker. Forms of Organizations Proprietorship • Owned by individual. No documentation needed to start or terminate - profits, taxes, liability responsibility of owner. 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. 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 Partnership $ Distribution – 1) Outside creditors – 2) Loans or advances from partners – 3) Partner’s capital investment – 4) Profits 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. 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 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. Agents 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. Agents cannot do • Acts that are personal for the principal • Acts that are illegal • Acts that are immoral • Acts that oppose public policy 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 principal’s expense, • or do any self dealing. Agency • Agency created by: – 1)Law or contract – 2)Ratification – 3)Estoppel – At the construction site: – Owner’s 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 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 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.