Elements of a contract

Signing a contract to build a civil engineering project replicates contract law generally, where a contract is

a legally binding agreement between two or more parties; with the intention to address the (building) scope of a project via an offer by a party with the capacity to carry out the work and an acceptance by a client who needs the facility (built); alongside, a reasonable period of consideration of the obligations involved.

This is formalised somewhat by (national) standard forms of tender- offer and is typified by Australian Standards (AS) standard forms such as AS2125 (1992) Tender form (OFFER).4 _{The terms of a contract are usu-}

ally contained within three or four dozen clauses (within standard forms of contract) that use explicit vocabulary to describe roles. Definitions are given where the ordinary meaning of the words need greater clarification. The builder is obliged to build the facility (defined within the scope) and the client takes on a responsibility for payment of construction within the scope.

Contracts, once signed, continue until practical completion and rectifica- tion of any outstanding identifiable defects in build quality. If a job does go astray, the parties can, in very extreme situations, bring the contract to an end (discharge the contract) before the facility has been built. This usually involves one or the other party seeking compensatory damages for poor performance or parties not fulfilling obligations.

Standard forms of contract are widely used in civil engineering and con- struction. Utilisation of available standard forms is encouraged by vari- ous learned bodies and the professional institutions charged with their preparation. Standard forms can be argued to reduce conflict (because all

obligations and responsibilities are clearly set out), balance risk (between the client who needs the facility built and the builder who seeks payment to construct the works) and generally smooth working relationships (through well-established and long-familiar clauses that define role and duty).

Off-the-shelf standard forms of contract reduce the cost of preparing new, project-specific contract conditions for every job. The use of stan- dard forms of contract, although voluntary, is widespread. The following shows the typical constituents of the general conditions of a construction contract.

generAlconditionsofconstruction contrAct: typicAlconstituents22

• Definitions, documents that confirm scope

• Assignment of work, intellectual property, protection of site- works, insurances, bonds

• Roles, responsibilities, representatives • Site conditions and set-up, cleaning-up • Quality system requirements, testing • Programming sequences, working hours • Suspension when site becomes unsafe • Time and progress, delay expectations • Defects liability and rectification

• Variations to the original scope of works • Payment for acceptable performance • Termination if default occurs

• Claims for work beyond the original scope • Dispute resolution procedures

• Appendices that clarify parties, roles and contract parameters From the 1920s to the 1950s, institutions of engineering helped formulate standard forms and conditions of contract. Various national joint contracts tribunal–type organisations began to take over ownership of this process (typified historically by joint contracts tribunal in the UK5_{). In Australia,}

the main standards authority, Australian Standards (AS), has been increas- ingly empowered to prepare, regulate, review and update standard forms of contract.

A standard form of contract, such as the clause coverage typified by AS4000, in which numbered clauses and their respective intentions are (highly) summarised as follows:

1. Interpretation: Definitions of standard terms (terms written later) 2. Nature: Obligations, contractor does the work, client (principal)

3. Provisional sums: Amount inserted if not possible to determine cost (M&E)

4. Portions: Separate ‘phased’ completions if needed

5. Security: Money paid by contractor held by a third party as a per- formance bond

6. Evidence of contract: Documents constitute the contract 7. Service of notices: Correct address implies receipt

8. Contract documents: Responsibility for correct info, dimensions not scales

9. Assignment: Subcontractors may be used within reason 10. Intellectual property: Patents and rights respected

11. Legislative requirements: Contractor to adhere to all other laws 12. Protection of people and property: Contractor does what is neces-

sary or payment is reduced

13. Urgent protection: Contractor does what is necessary or payment is reduced

14. Care of work/reinstatement of damage: Contractor does what is necessary, except nonresponsibility for war, invasion, radiation and the like

15. Damage to persons and property other than work-under-the- contract (WUC): Contractor does what is necessary

16–19. Insurance: Contractor to insure for loss or damage

20, 21. Superintendent: Fulfils all aspects of the role, in good faith

22, 23. Contractor’s representative, contractor or representative supervise WUC competently

24. Site: Date of site handover, ‘artefacts’ go to client

25. Latent conditions: Contractors expected to inspect site, irregulari- ties to be ‘expected’

26. Setting out the works: Client to indicate survey, contract to adhere 27. Cleaning up: Contractor to remove surplus or payment reduced 28. Material (labour, plant): Contractor uses enough resources for

WUC until practical completion

29. Quality: Contractor to establish and adhere to a conforming qual- ity system

30. Exam and test: Before defects liability, superintendent tests work at client’s expense

31. Working hours: Working hours and days specified

32. Programming: Sequence by contractor, except if superintendent specifies order and time

33. Suspension: Unsafe work stops on-site operations with payment reduced where appropriate

34. Time and progress: Notify all parties if delay expected Extension of time—Requirements and procedures

Assessment—Superintendent assesses contractor’s effort to prevent/ mitigate loss

Practical completion (PC)—Main contractor (MC) requests ‘Certificate of PC’ given (or not) in 14 days

Liquidated damages—Payment by contractor if PC not reached Bonus for practical completion—An agreed amount

35. Defects liability: Contractor rectifies defects as soon as possible after PC

36. Variations: Contractor receives variation order, certified and paid for by client

37. Payment:

Progress payments—Interim staged payments made to the contractor Certificates—Contractor makes progress claims, superintendent

processes for payment certificate

Time—Client pays 7 days after superintendent’s certificate, or 21 days after progress claim

Approval—Payment does not signify that work is acceptable Unfixed plant and materials—On-site materials payment agreed

beforehand

Final claim—Contractor claims all money 28 days after defects liability

38. Payment of workers and subcontractors: Contractor provides evi- dence of payment

39. Default or insolvency: How parties may terminate the contract Contractors default: Examples of breach by contractor

Taking out—Work deemed unsuitable, resources retained/used by client

Adjustment—Superintendent assesses costs to complete work taken out

Principals default—Payments not made specified by contractor Insolvency—Bankruptcy terminates contract

40. Termination by frustration: Events outside of the parties’ control terminates obligations

41. Notification of claims: Superintendent assesses claim and decides validity in 28 days

42. Dispute resolution:

Notice—Differences or dispute acknowledged for attention Conference—Meeting to resolve 14 days after receipt of notice Arbitration—Meeting with third party if unresolved seek default

(default is usually via the UN Commission on International Trade Law)

43. Waiver of conditions—Waivers and variations to be agreed in writing

5.1.2 Contractual category type