Training Manual on the Law of Contract - Assignment Example

TRAINING MANUAL ON THE LAW OF CONTRACT AND THE STANDARD BUILDING CONTRACT OF 2005 Objective: To train the junior staff about Law of Contract, who do not have any prior knowledge about law of contract or construction law. Target Audience: Junior Staff of the construction company Pre-requisites: Nil No. of Sessions: Total Training Duration: Session: 1 Duration: 1 hour Objective: By the end of this session the trainees will be able to: 1. Define a contract and various characteristics and pre-requisites for a contract 2. Understand and define a Standard Building Contract in accordance with the SBC 3. Identify the different forms of the SBC contract 4. List reasons why different forms of SBC need to be used. What is a contract A contract is an agreement enforceable by law. A contract is made between two or more independent legal entities, by which rights are acquired by one or more, to act on the part of the other. It creates and defines obligations between the parties of the contract. All agreements are not necessarily enforceable by law, e.g. an agreement to build a house is a contract enforceable by law. However, an agreement to go out for a party being of a social nature is not enforceable. It can thus be concluded while all agreements may not be contracts, all contracts are definitely agreements. Essential elements of a contract It may be noted that a contract essentially contains two elements: Agreement and enforceability by law. An agreement is defined as 'every promise and every set of promises forming consideration for other.' This essentially means that there should be an offer and acceptance to form an agreement. It is important that before an agreement is finalized there should be a Consensus ad idem (Consensus to the matter) between the two parties. Both the contracting parties should 'say and mean the same' without which there cannot be a contract. The other element of contract, enforceability by law, emphasizes the importance of intention to create a legal obligation or duty to perform or abstain from performing certain act(s). These acts could relate to social or legal matters. Essential elements of a valid contract Following are the essential elements of a valid contract: 1. Offer 2. Acceptance 3. Lawful consideration 4. Intention to create legal relationship 5. Capacity to contract 6. Genuine and free consent 7. Legal object 8. Certain and clear terms 9. Certainty and possibility of performance What is a Standard Form Contract A standard form contract is a pre-established record of legal terms regularly used by a business entity or firm in transactions with customers. The record specifies the legal terms governing the relationship between the firm and another party. The firm requires the other party to accept the record without amendment, and without expecting the other party to know or understand its terms. Why would anybody use a standard form of contact A Standard Form of Contract is used because the contract record specifies the legal terms governing the relationship between the firm and another party. The firm requires the other party to accept the record without amendment, and without expecting the other party to know or understand its terms. The effectiveness of the Standard Form of Contract is only when it is accepted. The Standard Form of Contract are being used since the 19th century for many commercial transactions like railroad tickets, insurance contracts, lottery tickets and mail order sales contracts. These contracts do facilitate business transactions. Another major reason for using this Standard Form of Contracts are that economize time and effort and dispense with formal contract requirements that would impede business and raise the costs of products. Available Standard forms of Contract 1. Repair and Maintenance Contract. This is a contract used for a home owner/occupier without a consultant. (JCT) 2. Minor Works Building Contract with contractor's design. This is used as a Home Repair and Maintenance Contract. (JCT) 3. Minor Works Contract. This is used for carrying out minor repair works. (ICE) 4. Archeological Investigations Contract. (ICE) 5. Target Cost Contract (NEC3) Why use SBC/Q The SBC/Q contract is appropriate for for larger works designed and/or detailed by or on behalf of the Employer, where detailed contract provisions are necessary and the Employer is to provide the Contractor with drawings; and with approximate bills of quantities to define the quantity and quality of the work, which are to be subject to re-measurement, as there is insufficient time to prepare the detailed drawings necessary for accurate bills of quantities to be produced; and Where an Architect/Contract Administrator and Quantity Surveyor are to administer the conditions. The 1998 and the 2005 forms permit a change to the completion date to take account of matters beyond the control of the Contractor and also to take account of work being withdrawn from the Contractor, with the Consequence that the time period for completion of the work could either increase or be reduced. These situations are now covered under the heading 'Adjustment of Completion Date' rather than 'Extension of Time'. As a result of such changes, standard documentation such as certificates and tender documentation will have to be revised to incorporate the new terminology. 1. The Provisions for Payment Whilst there has been no change to the payment mechanism itself, in the previous edition, where the employer failed to serve a withholding notice a minimum of five days before the final date for payment it was bound to pay the contractor's application as submitted. Under the JCT 05 version the contractor is now paid only what is due under the valuation provisions of the contract. The statement of the requirement for a notice concerning what sums are to be paid and the issue of a withholding notice have been sharpened. Whilst both should be issued, one notice or either notice sufficiently detailed and with all the requisite information will be deemed sufficient, if served correctly. There is no separate Contractor's Design Portion Supplement; design clauses have been amalgamated into the Contract Particulars. The separate Contractor's Design Portion Supplement is no longer applicable and is included in the Main Contract. If required, details provided in the recitals: Employer's Requirements Contractor's Proposals Limit of Contractor's Design Liability Professional Indemnity Insurance details (NEW) Contractor's Design Submission A Contractor's Design submission procedure is provided, as follows: The Contractor prepares and submits two copies of each of the Contractor's Design Documents Within 14 days from the date of receipt, the Architect/Contract Administrator returns one copy to the Contractor marked 'A', 'B' or 'C' Where a Contractor's Design Document is returned marked 'A', the Contractor shall carry out the Work. Where marked 'B', the Contractor may carry out the Work provided comments are incorporated Where marked 'C', the Contractor takes account comments on it and resubmits it The Contractor must not carry out any work in accordance with a Contractor's Design Document marked 'C'. If the response is not within the time stated, the design is regarded as marked 'A' Where the Architect/Contract Administrator marks a Document 'B' or 'C', he/she indicates why he/she considers that it is not in accordance with the contract. 2. Dispute resolution The JCT 05 forms recognize the increasing utilization of mediation, and the new forms contain a clause that allows for consideration of mediation of disputes as an impartial method of settling disputes, where both parties agree. The Adjudication provisions have been simplified from previous editions and are now carried out under the Scheme for Construction Contracts, with provision for selection of a specific Adjudicators Nominating Body in the Contract Particulars. 3. Architects administrators' instructions This Directive deals primarily with: (a) Clause 3.14-'Instructions requiring Variations' and Clause 3.16 - 'Instructions on Provisional Sums' of the JCT 2005 Standard Building Contract. (b) Clause 3.11-'Instructions requiring Variations' and Clause 3.13-'Instructions on Provisional Sums' of the JCT 2005 Intermediate Building Contract. (c) Clause 3.9-'Instructions requiring Changes' and Clause 3.11-'Instructions on Provisional Sums' of the JCT 2005 Design and Build Contract. (d) Clause 3.6-'Variations' and Clause 3.7-'Provisional Sums' of the JCT 2005 Minor Works Building Contract. The Architect/Contract Administrator/Employer's Agent is empowered to issue instructions to the contractor on any matter where the relevant clause of the Conditions of Contract authorize this, and the contractor is bound by the contract to carry them out. When the Architect/Contract Administrator/ Employer's Agent issues an instruction to the contractor, more often than not it has the effect of varying the design, quality or quantity of the work and therefore it affects the value of the building contract, i.e. it is a variation. References: 1. http://www.lex2k.org/sfc/discussion.html 2. http://www.jctcontracts.com/JCT/contracts/98/9805sbc.jsp 3. http://www.ricsbooks.com/downloads/JCT%20construction%20contracts%20general%20guide.pdf 4. http://www.brunswickis.co.uk/standard-form-contract/nec-forms-contract.asp 5. http://www.brunswickis.co.uk/standard-form-contract/ice-conditions-contract.asp 6. http://www.jctcontracts.com/JCT/contracts/view_contracts.jspfamilyId=1 7. http://www.solomonseurope.co.uk/uploadedfiles/PDFs/JCT_Suite.pdf 8. Read More