Aspects of Contracts and Negligence - Assignment Example

Aspects of Contracts Question 2 The most important consequences for the parties to a contract are the legally binding and enforceable nature of the agreement forming the basis of the contract (Koffman and MacDonald, p. 1). In essence the contract will set out the parties’ obligations in terms of their “undertakings or promises” to which the parties are bound and failure to carry out these undertakings or promises will allow the injured party to obtain a remedy for a breach (Koffman and MacDonald, p. 1). For example, a contractor agrees to construct a building on a specific site for the site owner within a particular timeframe and pursuant to detailed specifications in consideration of a specific price to paid by the site owner. In ordinary circumstances this would be a gratuitous exchange of promises. However, since the parties (site owner and contractor) intend to create legal relations, the agreement is a contract and therefore the voluntary undertakings and promises become legal obligations under the law (Koffman and MacDonald, p. 1). For instance, if the contractor fails to construct the building within the specific timeframe, the site owner has a right to sue the contractor for a breach of contract and can seek compensatory damages for the same. Likewise, if the contractor lives up to his or her undertakings and promises and the site owner fails to pay the promised price for the same, the contractor can sue the site owner for breach of contract and may seek compensatory damages as well. In a typical case, the parties to a contract will expressly state or write out the terms of the contract. In this regard, each of the parties’ undertakings and promises will be articulated. The parties will then have a legal obligation to abide by those express terms (Ashcroft and Ashcroft, p. 50). The express terms of a contract will often have an impact on other persons who are not parties to the contract, although the right to enforce the express terms of a contract will only be applicable to the parties who have formed the contract and negotiated its terms and conditions (Ashcroft and Ashcroft, p. 51). The impact on other parties not parties to the contract can arise in specifically defined circumstances. For example a contract for a contractor to install doors and windows in a dwelling house for a site owner who leases the house to tenants will impact the tenants. In the installation of windows and doors, the tenants will be subjected to disruptions and interruptions in their daily lives as the construction takes place. Therefore if for some reason either the contractor or the site owner delays the installation of the doors and windows, the tenants will be disadvantaged. Therefore in an action for breach of contract on the part of the contractor, the site owner may be entitled to claim additional damages for having to compensate the tenants either by a reduction in rent or a temporary relocation as a result of the delay. Therefore, although privity of contract only means that only the parties to the contract are bound by the specific terms and conditions in the contract, the impact of breaching those terms and conditions on third parties may increase the obligations of the parties to the contract (Koffman and MacDonald, p. 476). In the example provided (a contract for installing doors and windows), the contractor will also have to rely on other parties to ensure that he or she lives up to her specific terms and conditions. For example, the contractor will have to order doors and windows and will also have to enter into a contract for the delivery of the windows and doors. Therefore, two other contracts will come into play under the main contract and any breaches of these incidental contracts can impact the contractor’s ability to live up to the terms and conditions of the main contract (Koffman and MacDonald, p. 477). Therefore, if the windows and doors are not delivered on time, the contractor may be in breach of the contract with the site owner and in an action for breach of contract, the contractor may want to serve third party proceedings on the courier responsible for the late delay so that he or she may be able to claim damages or an indemnity from the courier (Koffman and MacDonald, Ch. 19). All contracts will also be subject to implied terms, conditions and warranty either imposed by law or by the customs of trade (Ashcroft and Ashcroft, pp. 412-413). For example, the American Industrial Hygiene Association’s AHA Construction Committee published a guideline setting out the health and safety risks involved in construction contracts to which all contractors and site owners are bound. In this regard, contractors are required to ensure not only that the equipment used is safe and non-hazardous, but that those who operate the equipment are competent and protected from any danger that might emanate from the construction work and the use of the equipment (AHA Construction Committee, Chapters 4-5). In complying with the health and safety obligations imposed by the customs of trade as articulated by the AHA Construction Committee, there are consequences for subcontractors and employees of both subcontractors and the contractor who are involved in the construction work. All workers on the site will have to subjected to training to ensure that they are able to safely operate the equipment. Moreover, it will be necessary to ensure that all workers at the site have been tested and screened for pre-existing vulnerabilities to potential hazardous material and to ensure that they are drug and/or alcohol free. In addition, the contractor will have to ensure that the construction site is supervised and under observation and safety audit until the conclusion of the work (AHA Construction Committee, Chapters 4-5). County or government committees and officials will also share some responsibility for ensuring that the construction site complies with health and safety requirements. This will typically take place at the planning phase when the contractor applies for a permit or license to carry out the construction. County or government officials will inspect the construction plans and the site to ensure that construction phase and post-construction phase are safe and satisfy the legal requirements that the work itself and the finished product is fit for purpose (AHA Construction Committee, p. 1). Both the contractor and the site owner will also have an obligation to warn anyone who might be reasonably expected to enter the site under construction of the potential dangers associated with the construction. These obligations are extraneous to the contract and are usually imposed by statute (Furst and Ramsey, p. 409). The site owner and/or the contractor can be confronted with occupiers’ liability in that they are either the owner or the party in control of the site under construction. As a result, they can be jointly or severally responsible for ensuring the safety of any persons who might reasonably be expected to enter the site while under construction. For example, a mailman or a county/government inspector might have to enter the premises and knowing this, the site owner or the contractor or both will have to ensure that these individuals are not exposed to harm or the threat of harm upon entering the premises. Such a duty may be discharged by corralling hazardous equipment or defective parts of the premises and/or by posting visible warnings and signs of the possible dangers to health and safety on the premises under construction. The contractor will also have to take into account the hazardous effect of his or her construction project on the environment and this will mean taking into account the effect of this work on stakeholders such as members of the community and the public at large. Given the range of responsibilities for ensuring the health and safety of workers and other persons who are not workers who may be exposed to the construction site, both site owner and contractor will usually obtain insurance coverage for the risk of harm (Demkin). What this means is that insurers will also have to inspect the premises and be ensured that the workers are risk free in terms of drug and alcohol use and that they are properly trained. Insurers will also want to inspect the premises and construction design and plans to ensure that safety precautions are adequate before agreeing to an insurance coverage contract. Question 3 In the formulation of the contract, the parties (site owner and contractor) chose to incorporate a number of documents into the contract. According to Demkin, this is normal in the construction and engineering industry. In site owner-contractor contracts there is usually an agreement which is the “document that the owner and contractor sign” and this usually establishes the “most fundamental or essential terms of their understanding, such as payment terms” (Demkin, p. 867). However, the construction contract itself will usually contain the actual agreement between the site owner and the contractor as well as “everything that is incorporated into that agreement” and these can be “additional documents” that are “physically attached as exhibits to the agreement or are simply incorporated into the agreement by reference” (Demkin, p. 867). The site owner and the contractor in the excerpt of the contract provided for discussion have selected to incorporate a number of additional documents into the contract itself. According to Demkin, it is normal for an actual construction contract between the site owner and the contractor to incorporate the agreement between the contractor and site owner, the “general conditions”, “supplementary or other conditions, drawings, and specifications” into the main contract (Demkin, p. 867). Construction contracts are entirely complex and cannot be properly dispensed with in the form of a document that simply speaks to the contractor’s obligation to perform specific works within a specific timeframe and the site owner’s duty to pay the contractor a specific sum of money for completing the contractual terms. As Loots and Charrett explain, there are a number of technical and legal intricacies involved in construction projects that cover a range of issues and obligations from the oversight of construction, the oversight of subcontractors, health and safety at various stages, licensing, permits, equipment, supervision of workers, and a range of issues involving a number of key actors that are necessary for the satisfactory conduct of the construction and its completion. Many of these issues are covered in separate instruments and involve obligations between either the site owner or the contractor or both and other parties but are entirely necessary for the carrying out of the construction project (Loots and Charrett). The legal and technical documents may include: The “form of agreement” (Loots and Charrett, p. 30). The “general conditions of contract” (Loots and Charrett, p. 30). The “special conditions of contract” (Loots and Charrett, p. 30). All of the “technical specifications” (Loots and Charrett, p. 30). The architect’s plans. The “bills of quantities” (Loots and Charrett, p. 30). The “schedules” (Loots and Charrett, p. 30). Therefore all of the terms of the actual contract for construction are not isolated in a “single document” and instead are contained in a “number of documents including the specification, the general conditions and special conditions and employer’s and contractor’s drawings” (Loots and Charrett, p. 30). Since the terms and conditions of the contract for construction between the site owner and the contractor are contained in so many different documents it is common practice for the site owner and the contractor to specify the priority of these documents in the embodiment of an overarching contract (Loots and Charrett, p. 30). This is exactly what was done in the contract excerpt provided for discussion. The parties have determined which document will have priority in the interpretation of terms and conditions in the event of a conflict or dispute. This approach is entirely necessary because in the course of construction, two or more documents may regulate the same issue. There may be conflicts in their regulatory requirements and expectations. If one document is not given more importance over another, the conflict will not be resolved between the parties and will ultimately end up in a court of law for resolution (Loots and Charrett, p. 30). In this regard, the parties may end up with a resolution neither contemplated nor are satisfied with. Or one party may be advantaged by the outcome to the detriment to the other. Therefore the priority of documents is important to prevent unanticipated outcomes and to ensure that both parties can tolerate the resolution to a conflict and can avoid going to trial which can be expensive and may delay the completion of the contract to the detriment of both parties. Question 5 Legal regulations for health and safety at work provide a mechanism by which the worker-supervisor situation can be more effective and water tight from a legal point of view. In a typical case, the premises under construction incurs health and safety risks that are created by the work that the contractor undertakes and delegates to various agents who are in turn agents of the contractor (Davies, p. 140). Health and safety regulations typically apply to the workplace and are prescribed by statute. For example, in the US the Federal Rules of Construction 1926 provide that once a contract for construction is executed, the “prime contractor assumes all obligations prescribed as employer obligations under the Construction Industry standards” (cited in AHA Construction Committee, p. 6). Even so, by virtue of Rule 16(a) of the Federal Rules of Construction, the prime contractor may agree with subcontractors to arrange for sharing responsibilities for health and safety on a construction site where it is more appropriate to share those responsibilities as opposed to individual apportionment. For example, the subcontractor and the prime contractor may arrange for the subcontractor to make provision for first aid kits at the workplace and for the prime contractor to provide scaffolding or helmets (AHA Construction Committee). However, whenever a prime contractor assumes responsibility for the entire performance of the construction contract, he or she must assume full responsibility for all health and safety issues (Federal Rules of Construction, Rule 16(b). By virtue of Rule 16(c) of the Federal Rules of Construction, a subcontractor who assumes responsibility for some part of the construction work will have responsibility for ensuring that that part of the work is healthy and safe. As the AHA Construction Committee explains: …the prime contractor assumes the entire responsibility under the contract and the subcontractor assumes responsibility with respect to his portion of the work (p. 6). However, in relation to all work that is subcontracted, the prime contractor together with subcontractors will be “deemed to have joint responsibility” (AHA Construction Committee, p. 6). Therefore, health and safety provisions and requirements can be enforced against both the prime contractor and the subcontractor on a construction site where violations are found to exist (AHA Construction Committee). In a typical case, the prime contractor will be fined for violations on a construction site. However, any fines that are attributed to the negligence of the subcontractor will be “charged back” to the subcontractor and the subcontractor will be responsible for any legal fees that the prime contractor discharged with respect to the subcontractor’s breach of health and safety rules (AHA Construction Committee). In order to meet the statutory health and safety requirements, the parties to the main contract and subcontracts will usually prepare a health and safety plan in advance of commencing construction. The health and safety plans will typically be “project specific” in that the plan will take into account the various requirements and hazards specific to a particular project as well as all other generally expected hazards and risks (AHA Construction Committee, p. 6). As the AHA Construction Committee states: Typically, the prime contractor is responsible for preparing an overarching health and safety plan (HASP) that may be presented to all persons and entities present on the worksite…(p. 6). The HASP will provide a detailed explanation of the anticipated risks and hazards associated with the construction project together with the ways in which the prime contractor will control those risks and the precautions that will be taken to minimize or eliminate those risks. In turn, subcontractors involved in the project are expected to “address the potential hazards and the hazard controls involved in the specific activities that they will perform” (AHA Construction Committee, p. 6). In addition: The prime contractor may flow-down the requirement for subcontractors to submit health and safety written program documents and a project specific HASP addressing hazards and hazard controls associated with the specific tasks that they will perform (AHA Construction Committee, p. 6). The subcontractors and the prime contractor are responsible for organizing details for assigning responsibility for examining and agreeing with the subcontractors’ HASP (AHA Construction Committee, p. 6). Question 5 The fact that the contractor has not trained the workers on site in operating the heavy equipment and that there is evidence that the workers are not using the equipment as a lack of training has consequences for the contractor’s obligations under the contract and under law. In most jurisdictions, industry standards require contractors take certain health and safety precautions and these precautions are implied terms of any construction contract (Hughes and Ferrett). In this regard, contractors are generally not permitted to begin construction on a worksite unless and until they are fully aware of all of the potential hazards and have devised a plan to control for and regulate those hazards. This usually includes not only informing works of the hazards and plans for addressing those hazards, but also ensuring that training where required is given (Hughes and Ferrett, Para. 6.3.8). Therefore, the contractors have not only contravened industry standards, but are also in breach of health and safety laws. In this regard, health and safety regulations require all employers to provide a safe and healthy place of work and this includes ensuring that staff is not only provided with safety precautions when operating equipment but that they are competent and properly supervised when operating equipment. In order to ensure competence with respect to operating equipment it is necessary to ensure that staff members receive training. In fact, most jurisdictions specifically require that staff members receive appropriate training to ensure that equipment is operated safely and properly to prevent hazards and health and safety risks to those who operate the equipment and those who are in the vicinity of the equipment while the equipment is being operated (Hughes and Ferrett). In addition to the dangers and risks associated with the faulty operation of equipment, there is always a danger that the improper use of the equipment can produce defective work. Defective work has significant consequences for other employee’s safety and the safety of those who are expected to use the finished premises. Therefore a contractor who reneges on the obligation to properly train workers in the use of equipment can face significant liability for a breach of statutory duty and breach of contract in terms of the delivery of the final product for the end user. In addition, with workers failing to use the equipment as a result of a lack of training, the completion of the work can be further delayed until such time as training can occur. In fact, the training should have taken place before the construction work began and before the workers began construction (Hughes and Ferrett). Question 6 In any construction contract between the site owner and the contractor in which a time for completion of the contract is stipulated with a penalty attached for failure, time is of the essence. This is important because, unless expressly provided for in a construction contract, time will not be of the essence (Cushman, Carter, Gorman, and Coppi). The excerpt of the contract for discussion specifically notes that time is of the essence. Specifically, the contract states that the work begins on 21st October 2011 and will be completed by 20th October 2013. Should the contractor fail to complete the work within the timeframe agreed, the contractor will incur a fine of 300 dinars for each day the work is not substantially completed after November unless the Owner agrees to an extension. The contractor has completed 85% of the work and has not been able to complete the remaining work at the New Airport at Tripoli International Airport. According to the timeframe for completion, the fines is not applicable if the contractor has not substantially completed the work as of November. Therefore the question is whether or not the 85% of the work represents the substantial completion of the Airport. At this point, the 15% remaining may be minor works such as finish work which would not prevent the opening of the Airport on time and its operations. However, if the remaining outstanding work would prevent the Airport opening and operating, this could have consequences for not only the owner, but also the various airplanes that have booked flights and passengers who have purchased tickets in anticipation of flying out from the airport. In other words a substantial number of people stand to suffer losses as a result of the delay. Airplane companies will have to reschedule and cancel flights, return ticket purchases and reroute flights at substantial costs and inconvenience. Meanwhile, passengers will have to reschedule holidays and will likely lose money on hotel and car rental bookings. Vendors who have ordered stock in anticipation of opening restaurants and tourists shops at the airport will probably have to book storage facilities to store goods. For restaurants that have ordered perishable goods, those goods will probably be lost if they cannot use them as planned. Taxi-drivers and car rental companies stand to lose a significant amount of business as they would have been prepared to rent cars to passengers arriving at the airport after October 2013. In other words, a significant amount of individuals stand to suffer significant inconvenience and losses. As disgruntled customers sue airplane companies and car rental companies located at the new Airport, these companies will in turn sue the owner. Likewise, restaurants, stores and vendors who have gone to considerable expense and inconvenience with the expectation that they would be starting their business at the airport by October or November of 2013, will want the owner to compensate them for their losses. The owner is therefore under significant pressure to ensure that the airport is completed on time and will hold the contractor to the timeframe stipulated for completion in the contract. Since time is of the essence, the owner is at liberty to hold the contractor to the deadline for completion. However, if the delay is excusable, the owner may not be able to hold the contractor responsible and may therefore not levy the applicable fines. An excusable delay will arise when there is evidence that the delay is due to some fault of the owner or some party under the owner’s control. Moreover, the contractor is entitled to an extension of time if the owner’s neglect causes the delay or if the architect or another contractor hired by the owner is negligent. If the owner requested changes to the work, the contractor will be entitled to an extension of time. Labor disputes, fire, unexpected delivery delays and any other cause “beyond the contractor’s control” will entitle the contractor to an extension (Cushman and Carter). It would appear from the facts of the case for discussion that the delay in completing the work at the airport is not due to the contractor’s fault. The contractor is unable to complete the work on account of the RTA (Regional Transit Authority). It is therefore out of the contractor’s control and as such, the contractor is entitled to an extension of time and the penalties should not be applied pursuant to the contract terms. Question 7 Owner/Contractor Agreement: The term owner/contractor agreement informs who the parties are to the contract and the type of contract formed. The parties to the contract are expressly named in the opening article of the contract and they will usually be referred to by a term that identifies their roles and obligations under the contract and for ease of reference. In a typical case, specific types of contracts such as the owner/contractor contract will usually have a standard form. In the standard form specific information will be filled in. For instance the contract will begin by stating: This agreement is made on (date) between (Name of Owner) [hereinafter referred to as the Owner] and (Name of Contractor) [hereinafter referred to as the Contractor]. Therefore the remainder of the contract will follow the standard firm when the owner or contractor’s obligations and rights are described in the body of the contract. Witnesseth: The term witnesseth indicates that the contract is executed/signed by the parties in the presence of witnesses or a witness usually under seal. The seal is usually a notary seal indicating that the parties have chosen to formalize their agreement in the presence of witnesses with a notary authenticating that the contract has been signed and witnessed. Thus the term witnesseth establishes that the formal requirements for creating a contract have been satisfied. Contract documents: Contract documents refers to other formalized agreements to which the parties to the contract are bound. These contract documents are usually attached to the main contract and are incorporated as terms and conditions of the main contract. Scope of Services: This term will establish the performance obligations of the parties and the limits to these performance obligations. For instance, the contractor is performing a service for a specific project and the services he or she will be expected to deliver under the contract will be specified under this clause. Contract Price: The services rendered or the work performed by the contractor will be in exchange for a specific price. The price for the performance and the conditions for payment will be specified under this term. Progress payments: If the parties to the contract agree that the contractor will be paid by installments as the work progresses and at different phases of construction, this term will set these terms of payment out. Contractor Affidavit: An affidavit is a document establishing certain facts for a specific purpose and the document containing these facts are sworn and attested to before a notary public. When the affidavit is sworn to by the contractor, it is known as a contractor affidavit. Owner’s representatives/lender’s agents: The owner will usually delegate authority for overseeing and monitoring the construction. These persons will be known as the owner’s representatives. The lender will likewise delegate oversight and monitoring duties to others and these persons to whom oversight and monitoring duties are delegated to will be known as the lender’s agents. Changes in work: Although the work is specified in the contract, the parties will usually stipulate the conditions and requirements for which the work specifications can be modified. This clause in the contract will contain those requirements and conditions for changing work. Fines: This clause will usually establish the applicable penalties for breach of a specific term or condition in the contract. Termination of Agreement: This term will usually set forth the circumstances in which the contract can be repudiated by either party to the contract or when the contract will naturally come to an end. The procedure for repudiating or terminating the contract will be set forth under the clause. Arbitration: The arbitration clause will usually stipulate that in the event a dispute arises between the parties relative to the terms and conditions of the contract, the dispute will be referred to arbitration for resolution as opposed to formal litigation. Assignment of contract: Quite often the contractor in a owner/contractor agreement may want to transfer his or her obligations and performance to another party. This clause will provide for this possibility. The assignment of the contract clause will either state that the contract may not be assigned or that it can be assigned, but only under certain conditions. The conditions for assignment of a contract usually require the owner’s prior approval and proper notice to the owner. Bibliography AHA Construction Committee. Health and Safety Requirements in Construction Contract Documents. Fairfax, VA: American Industrial Hygiene Association, 2005. Andrews, N. Contract Law. Cambridge, UK: Cambridge University Press, 2011. Ashcroft, John, D. and Ashcroft, Janet, E. Law for Business. Mason, OH: South-Western Cengage Learning, 2011. Cushman, Robert, F.; Carter, John, D.; Gorman, Paul, J. and Coppi, Douglas, F. Proving and Pricing Construction Claims. New York, NY: Aspen Publishers, 2001. Davies, Alex. Workplace Law Handbook 2011 – Health and Safety, Premises and Environment. Cambridge, UK: Workplace Law Group, Ltd. 2011. Demkin, Joseph, A. The Architect’s Handbook of Professional Practice. Hoboken, NJ: John Wiley & Sons, Inc., 2008. Federal Rules of Construction 1926. Furst, Stephen and Ramsey, Vivian. Keating on Construction Contracts: Mainwork & Supplement. London, UK: Sweet and Maxwell, 2011. Hughes, Phil and Ferrett, Ed. Introduction to Health and Safety in Construction. Oxon, UK: Routledge. Koffman, Lawrence and MacDonald, Elizabeth. The Law of Contract. Oxford, UK: Oxford University Press, 2007. Loots, P.C. and Charrett, Donald. Practical Guide to Engineering and Construction Contracts. CCH Australia Limited, 2009. Read More