Contracts by forrests

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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
     • 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
• 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
– 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
• 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
• Fraud or bad faith
• 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
    • 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
     • 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
   • 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
         – 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
         – 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
            Contract disputes
• Usually solved by courts.
  – By using standard provisions in contracts it
    makes it easier for the courts to reach a
     • Courts are not contractors or engineers
     • Need standard language to ensure that Court
       understands contract
     • Want clear, concise, explicit and well defined
       contract terms
– 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.
• Parts of a Bond
  – Principal
     • Principal debtor is party whose performance is
  – Surety
     • Company pays if principal does not perform
  – Obligee
     • Party to whom promise of principal’s performance
       is made - owner
• Miller Act (1935)
     • Surety bond required for all federal assistance
• 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
• 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
    • $10 - $20 uncompleted work per $1 of net working
    • 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,
• 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.
• 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
        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.
• 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
     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
              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
    • 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
• Owned by individual. No documentation
  needed to start or terminate - profits,
  taxes, liability responsibility of owner.
• 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
– 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.
• 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
         Agents cannot do
•   Acts that are personal for the principal
•   Acts that are illegal
•   Acts that are immoral
•   Acts that oppose public policy
– Principal is liable for all contracts made by the
– 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 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
        – 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.

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