The Foundations of Engineering Contracts

F R Roulston, M.O'C. Horgan, F.R. Roulston

• Publisher: Routledge
• Year: 2003
• ISBN:
  9781135833787
• Edition: 1
• Topic: Arquitectura
• Subtopic: Métodos y materiales arquitectónicos

This highly readable guide explains the main features of contracts applicable to the design, construction and servicing of civil, building, electrical or mechanical works. The emphasis throughout is on practical guidance, with clear explanations of the essential elements including legality, uncertainty, undue influence, agencies, overseas works, sub-contracts and quality assurance. Numerous appendices give common terms used in contracts, typical sets of standard conditions and further useful information. The book is particularly suitable for those new to the subject who will find practical guidance on understanding contracts in a wide range of civil engineering and construction works.

1: Engineering contracts

1.1 THE PROJECT AND ITS ENGINEERING CONTRACTS

The contract is the bedrock of any engineering scheme—that is, apart from minor works which might be undertaken by one’s own labourforce. At law, a simple contract (under signature of the parties concerned) is essentially a bargain between the two (or more) parties who have agreed to it. They could equally be organizations duly represented by nominated persons or others qualified to commit their organizations. The essentials of all contracts are:

• Something of value changes hands in each direction—the ‘consideration’— which forms the ‘bargain’. An undertaking or a gift by one party may be just as legally enforceable, but strictly speaking it is not a contract.
• The parties are in full and total agreement on everything the contract says, not just with the aims of the contract. Usually this agreement is manifested by one of the parties making an ‘offer’ and the other accepting it without changes or conditions.
• Any negotiations between the parties are on the terms comprising the ‘offer’, and take place before the offer (or a revised offer) is made. Subsequent negotiations may lead to a ‘counter-offer’, not an acceptance.
• Both parties want the terms of their agreement to be legally enforceable. Two friends may agree to meet for dinner, to split the cost, but they will not expect to go to court if one of them doesn’t turn up— i.e. they do not form a contract as there is no desire to make their agreement legally enforceable.

There are, of course, other features which a proper contract must show, and we will be examining these in Chapters 2 and 3. For example, the persons signing an engineering contract on behalf of their respective companies must be legally empowered to commit them. A storeman, a director’s secretary or an office-boy deputed to sign the mail will not suffice. The company could later repudiate them and their contract, if it wanted to do so on discovering disadvantages in keeping to its undertakings. Some legal aspects of a contract are embodied in Acts of Parliament, by the words they use or the requirements they specify. Such a form is known as statute law, and to avoid or contravene it is to break the law. Other matters may have become common usage by tradition or the results of earlier cases heard by the judiciary. Such findings have built up what is known as the common law, which has been established as good and proper by earlier case law. In latter-day litigation involving any such feature of a contract, the party called to account must show why earlier dicta by the courts have not been obeyed, or how closely and clearly the present-day case resembles those of earlier cases. Such arguments are usually given by professional lawyers, who have the facilities and experience needed to locate and elaborate earlier findings. Matters are normally not left to a project manager alone to handle, and lawyers co-operate to reach such decisions. Nevertheless, he must be wise to the situation when he is dealing with tenderers, and appreciate when he needs to call for aid from the Employer’s legal department.

Of the three volumes comprising the present work, this first is admittedly the most difficult for an engineer to read and to assimilate. It deals with the legal aspects, and however basically these are touched upon here, we must depart from the practical world in which the engineer has grown up and enter the more recondite ways of the legal profession. Contracts are essentially legal documents: it is necessary for any engineer to understand their arguments, and to follow their phraseology when evaluating any contract, or when setting out to prepare one. As far as possible, we have avoided the complex language lawyers habitually use in their striving for greater precision, and the special meanings they attribute to every-day words, together with their legal jargon and their not-infrequent use of Latin phrases. The last named can convey little to those of us who never got beyond ‘amo, amas, amat…’ or perhaps on special occasions ‘dona nobis pacem’. It has been our endeavour to avoid misleading anyone whenever we have found it necessary to simplify the legal outlook. A first-aid manual never tells the whole medical story, it aims to give the person using it all he wants to know at a given time and place where first-aid is needed. He is enabled to take the right decisions and the correct action. In complicated or esoteric cases, the professional medical man is consulted and his advice obtained. A full diagnosis will be made and the person is told what he must do for the best. When such a point is reached, it is important in both the medical and contractual cases that nothing has been said or done at an earlier stage which adversely affects the treatment deemed appropriate by the professionals. A project manager must call for advice as soon as he finds a situation he cannot resolve on his own. On many occasions, in practice, the matter will work the other way round: the Employer’s legal advisers may be keeping a watching brief on the progress of the project, and realize when their non-legal colleague is running into trouble. For example, the Employer will certainly refer ref er to his legal advisers any contract he is advised to sign by his project manager. Hopefully their advice will support that of the project manager, and back his decision and applaud the steps he has taken to get the legalities right; but if he has overlooked important matters or made any grave mistakes, their attentions will act as a long-stop. They are on his side and will support him as far as they possibly can.

It must be underlined at this point that all contracts forming a project are between the Employer and his Contractor. However important he sees himself, and however much responsibility the contract gives to him for managing it, the project manager (or his equivalent, the Engineer) is not a party to the contract. His duties are strictly limited to those set out for him in the contract’s terms, and consequently approved and accepted by the contractor. If he tries to go further, a contractor is entitled to remind him he has no right to do so, and can ignore his orders accordingly. A project manager must not issue any documents which accept a contract or alter its terms: he is not a party to the agreed bargain and cannot interfere. The Employer must do it for himself.

A project manager (even if he is the appointed agent of the Employer) must be careful that he does not unwittingly undertake responsibilities such as paying the contract price to the contractor. When he is called upon to represent the Employer as his agent, he must make sure that his actions are clearly specified and also that he is acting solely as agent on behalf of the Employer. He must (to protect himself from later accusations) make sure the appointment as agent states precisely how far he is expected to commit the Employer—and he must beware of going any further. The Employer ‘owns’ the project: his project manager is his employee to manage the contract on his behalf, and to offer him advice and what action he is recommended to take. Both the decision and the action are by the Employer himself, and a project manager must take all steps to protect himself if he is ever called upon to do the Employer’s work for him.

Luckily, as we shall discover later, most of the Standard Conditions of Contract allot space for the naming of the Employer’s manager (or the Engineer) and their subsequent clauses spell out his duties. These have already been accepted by the contractor when signing the contract.

1.2 HOW CONTRACTS ARE FORMED

Contrary to popular belief, contracts do not all have to be in the form of comprehensive documents. A contract can be made verbally or on a scrap of paper, the back of an envelope, always provided that it fulfils the necessary legal requirements. Many of our daily activities, which we undertake without giving them a second thought, are really perfectly good legal contracts and we can be sued if we fail to fulfil the promises that we have undertaken, for example, ordering a meal at a restaurant and then not paying for it. A contract may arise in one of several different ways.

1.2.1 Contracts formed solely by actions

Such a contract may involve no paper-work or any specific verbal agreement; the example of the restaurant, above, is a good one. The waiter proffers you a menu, making an offer on behalf of the proprietor at the price stated therein. There is an implied term that you will pay for whatever you order as soon as you have consumed it, before leaving the premises or at some other time by prior arrangement with the proprietor or his agent. You make your choice of dish and order it, it is subsequently brought to you and you eat it. Your acceptance of the offer is implicit in your accepting the proffered dish and consuming it; no further acceptance is necessary to complete the every-day ‘offer and acceptance’ formula. You then have to carry out your part under the contract with the proprietor—you must pay the sum arranged.

A purchase at an auction is an interesting example of a contract formed by action only, and we shall refer to it below in another context. You make a bid (offer) by waving a paper or twitching your ear, from the body of the crowd. In due course, the auctioneer accepts one of the offers (yours) by banging his desk with his gavel. You have yourself a contract and must pay the sum you offered (bid), but no word has been uttered. There are implicit terms in keeping with the universal customs of the trade of auctioneering, and any court would enforce them if appealed to by either party to the purchase.

At first sight, one might be tempted to think that the same holds good for a railway journey. British Rail offer to take you to, say, London for a stated sum of money. You duly buy your ticket from their appointed agent (the booking-clerk) and the train is presented to you at the platform. You board it and take the trip, hopefully being duly delivered to London. However, on examination, this contract is not based solely on actions: if you look at the reverse of your ticket, you will see that British Rail have drawn up a full contract in writing and you are deemed to have read it and accepted its terms from your action in buying a ticket. Copies are available at every booking-office, so that you can actually read the clauses first. If you do not, that is simply your fault, not theirs; the conditions of contract were drawn up by British Rail, so they may be said to favour the rail people and not the traveller. They form an intrinsic part of their ‘offer’ to transport you to London. They disclaim all responsibility for being late or for you having to stand all the way in a crowded train, even for not getting you to London at all if they are prevented by something outside their control. Here the technical term is ‘frustration’ of the contract You have accepted it all! It would be nice (if one had the money!) to challenge them for such failure, on the grounds of ‘negligence’ and breach of contract, especially having in mind their latest obligations under the more recent statutes. If they go unchallenged, much internal bungling can be laid at the door of ‘Force Majeure’.

A project manager must keep his eyes open. He may find himself faced with a stranger who has a lorry-load of brick hardcore from a demolished building, or so he says. He offers it for a ‘couple of quid the lot’, and the project manager tells his clerk of works to dump it into his stock, pay the lorry-driver and get rid of him. By accepting delivery and making payment, the project manager has accepted the offer and formed a contract with the lorry-driver to buy the contents of the lorry. Has he considered his position if:

• the lorry-driver does not, in fact, own the hardcore, but it belongs to somebody else?
• the top surface is good, clean hardcore, but underneath it is dust?
• the lorry-driver sends him a bill for transporting and dumping it at the site?
• the lorry is only half-full—i.e. a half-lorry load?
• it is not clean hardcore, but recovered from a dump where it has lain for years and accumulated a lot of soft earth during recovery?

This leads on direct to the verbal contract.

1.2.2 Contracts formed verbally

Legally, this approach could be used for most engineering contracts, other than those involving land (see below), but the trouble arises later in establishing just what has been agreed. Witnesses never listen to details of what is discussed, or appreciate the points likely to prove important, if some disagreement arises, and the case inevitably comes to the courts for settlement. A wealthy relative in the Midlands (at the time when there was a universally recognized statement that ‘an Englishman’s word is his bond’) transacted all his business in the way the Midlands knew, with some notes on a scrap of paper (unsigned) and a shake of the hand. When he died, his solicitors spent over three years trying to establish his exact position, and even so failed to satisfy the probate authorities. His executors had a harrowing job. He was found to own brickworks, collieries, housing estates, and goodnessknows-what else, all bought from their previous owners with nothing more than a cheque and a handshake.

The writing is thus on the wall for all sales and technical staffs, striving to complete a deal with a customer. They must not postulate anything verbally that they are not in a position to carry out. They may well find themselves ‘stuck’ with some technical improvement or elaborated specification—much-improved example of a modern scientist’s dream—but at the old price! The writing is on the wall for the project manager, too: he must insist on everything being recorded in agreed minutes of meetings, in letters, memoranda and, especially, in contract documents. We have already made the point elsewhere, but we repeat it here with emphasis: have it recorded in writing.

1.2.3 Contracts required by law to be in writing

There are some subjects which are required by law to be dealt with by contracts in writing—i.e. the whole contract must be written out. They include contracts dealing with the transfer of stocks and shares, bills of exchange, promissory notes (notes beginning ‘I promise to pay…’ and marine insurance. Some purchase contracts using the special rules for hire-purchase under the 1965 Act also need to be contracted in writing. Generally speaking, none of these subjects is likely to come the way of a project manager stationed in the UK: any such matters would be dealt with by the specialized professional staff who are employed by his Employer. He may meet them, however, when he is at a site abroad and acting with additional powers from his Employer because of large distances involved. Largely for this reason, we have included this class of subjects, so that such a manager will be aware of their special needs.

1.2.4 Contracts required by law to be ‘evidenced in writing’

There is a significant distinction between a contract which is required to be ‘evidenced in writing’ and one which has to be completely in writing. The former phrase calls for something less formal, namely that it must be backed up by memoranda which have to be signed by the parties and retained as available evidence. They must between them record all the material terms of the transaction: the names and addresses of the parties, the subject of the transaction, the consideration, terms of payment, contractual dates, and so on. The memoranda should preferably be signed by both parties, but one will suffice as long as it is clear what it purports to be. The memoranda need not be specially prepared, but can comprise several letters, minutes of meetings, records of negotiations, etc. as long as all relevant details are covered. One such subject relates to money lending and this is not likely to affect our project manager; others which might affect him include:

• Contracts relating to land.
• Contracts relating to guarantees.

The former must include a definition of the land, and whatever the phrase is intended to cover (not only its location and extent, but also any specified growing crops, growing and felled timber singly or in plantations, specified and described buildings or machinery erected on or lying on the land as described). The record must also apply to the use of land—e.g. leasing; disposition of rights-of-way; rights of shooting, fishing, hunting or boating and nowadays water-skiing; rights of bathing; removal of soil or mineral ores from the land; taking away water or soil from the land; movement of vehicles over the land, freeranging or by tracks already existing; and so on. Any of these might affect a manager in charge of a site, especially one who is remote from his Employer and having to stand on his own.

The second subject of guarantees should not be confused with their near-relatives, warranties, especially in the sense of an undertaking of freedom from faults. A ‘warranty’ is also a class of term of contract (we deal with this more fully under breaches of contract). It is one of the features of a guarantee that is given by a third party, that is one of the parties is ‘backed’ by a third party who stands as his Surety or Guarantor.

A party to a contract cannot, himself, give a guarantee—it then becomes a ‘warranty’, and the party is said to ‘warrant’ such-and-such. The third party undertakes to make a specified restitution (usually in the form of a sum of money —up to a stated maximum amount) if the party he is guaranteeing tries but fails to fulfil his obligations under the contract. Note that a guarantee is not an alternative solution which a party may choose to adopt: the second party must have tried and failed before a surety will accept action. He will rarely guarantee ‘specific performance’ (Section 5.5) but normally restricts himself to a sum of money. The subject of guarantees is a complicated one, and we return to it in more detail in Chapter 5.

1.2.5 Written contracts

This is the form of contract normally negotiated between two parties interested in a project, and the one most frequently met with or adopted by the project manager. It closely resembles the class mentioned above in Section 1.2.3, except that it is at the discretion of the parties, and not required by the laws of the land. A written contract can take several forms but, in each case, the clauses and conditions which express the intended courses of action to be taken in various situations are spelled out in legal terms, and these are either included in the contract itself or referred to in the documentation.

In its simplest form, a contract may comprise a formal order (on one of the purchaser’s standard order forms) accompanied by his standard conditions of purchase. It is accompanied by a simple acceptance slip, which the seller signs and returns. Note that such an order and acceptance together form the purchase contract, and supersede any earlier negotiations between the two parties regarding the purchase. As the order form is sent out by the Employer’s purchasing department, it may be done without the knowledge of the person who has been actively negotiating, and may indeed upset the...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Introduction
• Prologue Extracts from Shakespeare’s
• 1: Engineering contracts
• 2: Contract legality, offers, acceptances and considerations
• 3: Uncertainty, undue influence, misrepresentation, mistakes, frustration, etc.
• 4: Agents and agencies
• 5: Authentication, agreements, bonds, guarantees and warranties
• 6: Exports: Shipments and payments
• 7: Subcontracts, preferred subcontracts, nominated subcontracts, prime costs, contract assignment and insolvency
• 8: Quality assurance, reliability, the Limitation Acts, latent damage, strict liability and the Consumers Protection Act 1987, occupier’s risks and arbitration
• Appendices 1–14