SCHOOL OF GRADUATE STUDIES

 COURSE : GBEPM 63O

 TOPIC :Contracts Law and Importance of

 Conditions (Lect-3)

 LECTURER : DR.Eng. M.K.Nsefu

1
 No Such Thing as “the Perfect Agreement”

 Agreements must be tailored to the specific situation .No one

right way to do it .

 Consider from the Outset

 The parties with which you might be in a possible dispute .
 The subject of a possible dispute
 Which state’s law might apply

 •Remember One Way to Avoid Legal Fees Later Is by

 Proper Drafting!
 A contract is a legally enforceable agreement between two or more
parties where each assumes a legal obligation that must be completed.

 Many aspects of daily life involve contracts, including buying

property, applying for a car loan, signing employment-related
paperwork, and agreeing to terms and conditions when buying
products and services or using computer software.

 Legal issues involving contracts arise most often when one party fails
to perform the legal obligation it has agreed to do.

 When a party breaches a contract by failing to perform, the other

party can often sue for money damages, or, in some limited cases, can
ask the court to force the other party to perform as promised.
 Contracts can also be the source of legal disputes when they are not
written clearly.

 Parties who misunderstand the terms of their agreement may sue each
other and have a court settle the argument.

 Additionally, when a company signs a contract and later goes out of

business or is unable to fulfill its promises, the other party may have
to pursue legal action in civil or bankruptcy court to obtain relief.
 A breach of contract is a failure, without legal excuse, to perform any
promise that forms all or part of the contract.

 This includes failure to perform in a manner that meets the standards

of the industry or the requirements of any express warranty or implied
warranty, including the implied warranty of merchantability.

 The breach could be anything from a late payment to a more serious

violation such as the failure to deliver a promised asset.
 A breach of contract is a failure, without legal excuse, to perform any
promise that forms all or part of the contract.

 This includes failure to perform in a manner that meets the standards

of the industry or the requirements of any express warranty or implied
warranty, including the implied warranty of merchantability.

 The breach could be anything from a late payment to a more serious

violation such as the failure to deliver a promised asset.
 There are several common remedies for breach of contracts. The
appropriate remedy depends on the terms of the contract, the nature of
the breach, and the specific circumstances of the case.
 1. Compensatory Damages

 An award of compensatory damages is the most common of the legal

remedies for breach of contract.

 The calculation of compensatory damages is based on the actual

losses you have sustained as a result of the breach of contract.

 They typically fall into two categories: expectation damages and

consequential damages.
 Expectation Damages
 Expectation damages—also referred to as general damages—are those
that directly result from the breach of contract.

 For example, imagine a company that provides bus tours enters into a
contract to buy a bus for $100,000. However, the seller backs out of
the contract and refuses to sell the bus.

 The bus company finds another seller with a similar bus, but they
won’t take less than $110,000. In that case, the expectation damages
would be $10,000—the difference between the contract price and the
amount the company had to pay another seller for the same product.
 Consequential Damages
 Consequential damages are those that flow as a natural consequence
of the breach.
 Consequential damages often comprises profits that a company lost as
a result of the breach.
 In the case of the bus example, imagine it took an extra week to
secure the new bus. As a result, the tour company had to turn away
1,000 customers that would have each paid $50 for a bus tour. In that
case, the company could likely recover consequential damages for the
$50,000 they lost in ticket sales.
 Often the breaching party will attempt to avoid paying consequential
damages by claiming that they are too speculative or that they are not
foreseeable. Also, sometimes parties to a contract may limit or
preclude either party from recovering consequential damages. An
experienced attorney can help you combat these arguments and
maximize your damages award.
 2. Specific Performance
 Specific performance is a type of remedy for breach of contract in
which a court orders the breaching party to perform their end of the
bargain.
 Monetary damages are typically favored over specific performance as
a remedy for breach of contract. However, specific performance may
be available when monetary damages won’t adequately compensate
you. For example, they may apply to a contract for something that is
unique and can’t be easily replaced.
 In the bus example above, monetary damages would be sufficient to
compensate the tour company for its loss. But imagine that the new
bus had been used previously by a famous singer. The tour company
wanted to use the bus for tours of the singer’s home town. In that
case, the tour company could argue for specific performance rather
than monetary damages because no other bus would be comparable to
the one it contracted to buy.
 3. Injunction
 Injunctions serve a similar purpose as specific performance. The
difference is that with specific performance, the court orders a party to
do something. With an injunction, the court often orders a party not to
do something.

 An injunction may be permanent or temporary. Temporary injunctions

are often ordered while litigation is pending to prevent potential
damage.
 For example, in a lawsuit that concerns a breach of a non-compete
contract, a court might order the defendant to cease the allegedly
competitive activity until the lawsuit is resolved.

 A permanent injunction, as the name suggests, is permanent. A judge

may issue a permanent injunction as part of their final ruling in a
lawsuit.
 4. Rescission

 Rescission allows a non breaching party to cancel the contract as a

remedy for a breach. Rather than seeking monetary damages, the non
breaching party can simply refuse to complete their end of the
bargain.
 Rescission puts the parties back in the position they would have been
in had they never entered into the contract.
 However, to justify rescission, the breach must be material. That
means that it has to go to the heart of the contractual agreement.
 For example, imagine that you contract to provide catering services
for an event. The contract requires the other party to pay half the
contract price by a certain date, but they never pay.
 Since payment goes to the heart of the contract, you would be
justified in rescinding the contract and refusing to provide the catering
services.
 5. Liquidated Damages

 Liquidated damages are a specific amount the parties agree to in the

contract as compensation for a breach.
 Contracts often use liquidated damages provisions where it might be
difficult to calculate the correct amount of compensatory damages.
 Real estate purchase agreements and construction contracts
commonly rely on liquidated damages. They might be a specific sum,
such as the amount of the earnest money on a purchase contract.
 Or they could depend on a formula, such as a certain amount of
money for each day a deadline is not met. Partnership agreements are
also likely to include liquidated damages provisions.
 Although courts typically uphold liquidated damages clauses, they
may disregard them if the amount of liquidated damages is drastically
smaller or greater than the value of the actual harm the plaintiff has
suffered.
 6. Nominal Damages
 A court may award nominal damages as a legal remedy for breach of
contract when the plaintiff cannot support their claim for
compensatory damages.

 With nominal damages, the court recognizes that a breach of contract

occurred, but no harm can be calculated.

 While receiving nominal damages may feel like a pyrrhic victory, the
plaintiff does get the benefit of the ruling in their favor. This may be
simply a moral victory, or it may pave the way for the plaintiff to
pursue another type of legal action.

 If the contract has an attorney fee provision, an award of nominal

damages may also enable the plaintiff to seek their attorney fees from
the defendant.
 The conditions of contract are the terms that collectively describe the
rights and obligations of contracting parties (i.e. the employer and the
contractor) and the agreed procedures for the administration of their
contract.

 Contract conditions determine the allocation of risk and consequently,

price. Typically these conditions address the following:


 a) The parties’ main responsibilities e.g., the employer provides the

site and the right of access thereto while the contractor provides the
works in accordance with the requirements established in the contract.
 b) The timing of the works, e.g. start date, time for completion, period
for defects liability, etc.

 c) Testing and remedying of defects.

 d) Payment, e.g. manner in which the works are to be assessed and

certified, time for payment and interest on overdue amounts.

 e) Variations and claims, e.g. the manner in which variations to the

contract are to be evaluated and paid for and how the costs which
result from employer liabilities are assessed and paid for.

 f) Title (ownership) to objects, materials within the site, etc. g) Risks and
insurances, e.g. what are the employer’s and contractor’s risk and what
insurances each party will take out.


 g) Termination, e.g. the reasons for termination, the procedures for

termination and the payment to be made upon termination.

 i) The resolution of disputes, e.g. by adjudication, mediation, arbitration,

litigation (court of law) or a combination thereof.

 Confidentiality :

 The parties to this Agreement agree that each shall treat as

confidential all information provided by a party to the others
regarding such party’s business and operations, including without
limitation the investment activities or holdings of the Fund.

 All confidential information provided by a party hereto shall be used

by any other parties hereto solely for the purposes of rendering
services pursuant to this Agreement and, except as may be required in
carrying out the terms of this Agreement, shall not be disclosed to any
third party without the prior consent of such providing party.
 Force Majeure.

 In no event shall the Trustee be responsible or liable for any failure or

delay in the performance of its obligations hereunder arising out of or
caused by, directly or indirectly, forces beyond its control, including,
without limitation, strikes, work stoppages, accidents, acts of war or
terrorism, civil or military disturbances, nuclear or natural
catastrophes or acts of God, and interruptions, loss or malfunctions of
utilities, communications or computer (software and hardware)
services; it being understood that the Trustee shall use reasonable
efforts which are consistent with accepted practices in the banking
industry to resume performance as soon as practicable under the
circumstances.
 Indemnity. The Warrant Agent shall be liable hereunder only for its
own gross negligence, willful misconduct or bad faith.

 The Company agrees to indemnify the Warrant Agent and save it

harmless against any and all liabilities, including judgments, costs and
reasonable counsel fees, for anything done or omitted by the Warrant
Agent in the execution of this Agreement, except as a result of the
Warrant Agent’s gross negligence, willful misconduct or bad faith.
 Intellectual Property Ownership. The Employee hereby assigns to the Company
all rights, including, without limitation, copyrights, patents, trade secret rights, and
other intellectual property rights associated with any ideas, concepts, techniques,
inventions, processes, works of authorship, Confidential Information or trade secrets
(i) developed or created by the Employee, solely or jointly with others, during the
course of performing work for or on behalf of the Company or any affiliate of the
Company, or the predecessors of any such entities, whether as an employee or
independent contractor, (ii) that the Employee conceives, develops, discovers or
makes in whole or in part during the Employee’s employment by the Company that
relate to the business of the Company or any affiliate of the Company or the actual
or demonstrably anticipated research or development of the Company or any
affiliate of the Company, (iii) that the Employee conceives, develops, discovers or
makes in whole or in part during or after the Employee’s employment by the
Company that are made through the use of any of the equipment, facilities, supplies,
trade secrets or time of the Company or any affiliate of the Company, or that result
from any work the Employee performs for the Company or any affiliate of the
Company, or (iv) developed or created by the Employee, solely or jointly with
others, at any time before the Employment Period, that relate to or involve the
Company’s businesses (including, but not limited to, the business of the Company
Group) (collectively, the “Work Product”).
 Mutual Non-Disparagement. Subject to applicable law, each of the Parties
covenants and agrees that, during the Standstill Period, or if earlier, until such time
as the other Party or any of its agents, subsidiaries, controlled affiliates, successors,
assigns, partners, members, officers, key employees or directors shall have breached
this Section 12, neither it nor any of its respective agents, subsidiaries, controlled
affiliates, successors, assigns, partners, members, officers, key employees or
directors, shall in any way publicly criticize, disparage, call into disrepute, or
otherwise defame or slander the other Party or such other Party’s subsidiaries,
affiliates, successors, assigns, partners, members, officers (including any current
officer of a Party or a Party’s subsidiaries who no longer serves in such capacity
following the execution of this Agreement), directors (including any current director
of a Party or a Party’s subsidiaries who no longer serves in such capacity following
the execution of this Agreement), employees, stockholders, agents, attorneys or
representatives, or any of their businesses, products or services, in any manner that
would reasonably be expected to damage the business or reputation of such other
Party, their businesses, products or services or their subsidiaries, affiliates,
successors, assigns, officers (or former officers), directors (or former directors),
employees, stockholders, agents, attorneys or representatives.
 Conditions of contract can be standardized so that the same conditions of
contract can be used on different projects, in which case they are referred
to as standard forms of contract.

 The public sector generally uses one of the following standard forms of
contract when engaging main contractors for construction works contracts:
 a) FIDIC (French initials for International Federation of Consulting
Engineers) (1999) (Short contract and Red, Yellow and Silver Books).
 b) General Conditions of Contract for Construction Works (GCC).
 c) JBCC Series 2000 (Principal Building Agreement and Minor Works
Agreement).
 d) New Engineering Contract (NEC3) (Engineering and Construction
Contract and Engineering and Construction Short Contract).

 Typically, conditions deal with:

a) General obligations to perform the works;

b) Provisions for instructions, including variations;
c) Valuation and payment;
d) Liabilities and insurance;
e) Provision for quality and inspection;
f) Completion, delay and extension of time;
g) Role and power of the certifier or project manager
h) Disputes and their resolution
 In general, Conditions of Contract are a set of conditions whose
primary purpose is to lay down procedures of general application
for work that will be carried out.

 The norm is to use standard set of conditions.

 The main objective for Conditions of Contract is to facilitate the

efficient control and administration of the work, while at the same
time providing certainty for timely execution of work.
 Managing contract risks

 Service failure – the most obvious and common risk is that the supplier does
not deliver the service to the standard or timeliness specified in the contract.

 Service failure can range from a relatively minor shortfall against required
service levels to complete failure.

 Minor failure could be driven by, for example, the customer providing unclear
specifications, a lack of supplier capability, or a supplier cutting corners to
improve profitability.

 At the extreme, financial or other problems could cause the supplier to go out
of business, unilaterally withdraw from the contract, or be unable to deliver the
service.

 Reputational damage – even if the service is provided as specified in the
contract, there is a further risk that the supplier in some manner causes
harm to the customer organization's reputation.

 For example, the supplier may act illegally or in a manner that conflicts
with government policy.

 Supplier problems could result in sensitive or personal information not

being kept secure, or a supplier may be dealing with vulnerable citizens
where poor performance would have operational implications and cause
reputational damage to the customer organization.
 Additional cost – this category of risk covers cases where the contract
costs more than expected or budgeted, and those costs do not represent
value for money.

 The amounts paid to the supplier may increase as a result of changes in the
quantity or quality of the services delivered or their prices. For example,
user demand may be higher than expected.

 In such cases, additional costs may be reasonable and offer value for
money. But it is vital that processes are well managed so that value for
money is tested and achieved on this additional expenditure.
 Michael Forington in his book ‘Civil Engineering Contracts
and Claims’ says

 “I believe that many of the difficulties in which Contractors

find themselves, and many of their losses, arise from the
unknowing acceptance of unfavourable Conditions of
Contract, and that with more understanding of the
implications of the Contract, most of these difficulties would
be avoided”.
 The most important document for any construction project is the contract.
This details all the rights, responsibilities and obligations of the parties to
the contract.

 There should always be a copy of this document available for site

personnel to refer to. Other contractual documents are also important and
should be stored carefully.

 Documents that have contractual reference include:

 a) The main contract.
 b) Subcontracts.
 c) Labour contracts
 d) Plant - hire agreements.
 e) Delivery notes.
 f) Programmes and bar charts.
 g) Site - meeting minutes.
 h) Notifications for inspections.
 i) Correspondence with the employer/employer’s representative.
 j) Payment certificates.
 k) Completion certificates.
 l) Daily labour sheets and materials and equipment usage where work is
performed on a cost reimbursable basis.
 m) Health and safety file containing relevant health and safety documents.

 Construction contract documents are listed and enumerated in the
agreement and referred to in the conditions of the contract for the work to
be performed.

 They are the documents that are a legal part of the contract and describe the
work. The contract documents describe the proposed construction (referred
to as the Work) that results from performing services, furnishing labor, and
supplying and incorporating materials and equipment into the construction.


 Contract documents consist of both written and graphic elements and

typically include the following:
a) Specifications

b) Bill of Quantities (BOQ)

c) Drawings

d) Method statement

e) Other documents
 This is the document which describes the work to be carried
out, often in great technical detail.

 Detail at times may be summarized by use of known standard

specifications such as use of appropriate British standards or
codes of practice . i.e ISO standards.
 Alternatively, the specification may describe the performance
required, leaving the details to the contractor.

 The specification may make requirements for the method of

working to be adopted.

 In such cases, a change in the specified method may require a

variation order, with the contractual obligations.
 For example in the design and build contract, the
specifications acquires particular significance, because it must
set out the employer’s requirements to which the contractor
designs, or detailed design, must comply.

 Strictly speaking, these will be ‘contractor’s proposals’ but

will be submitted with the tender and will need to be
incorporated as part of the specification.
 Bills of Quantities basically contain quantities and
descriptions of work to be carried out.

 They give an indication of what a contractor is to do and what

the client is to pay for.

 BOQ form part of the contract documents. BOQ basically

provides information for Tendering, Design information and
Contract Management.

Bill of quantities is divided into the following:-

 The preliminary and general items

 Specifications

 Bills of Quantities
 Historically, these documents were non-contractual measurements
(taken off drawings) to assist tenderers in quoting lump sum prices.

 Eventually, the practice developed for tendering contractors to retain

a quantity surveyor to draw up a bill which all tenderers could use
as the common basis for their pricing.

 Hence bills acquired another use, namely assessing interim

payments by approximate measure under the lump sum
contract.

 Bill of Quantities are now used in Civil and Mechanical contracts.

  All construction contracts have some drawings.
 There will be two kinds incorporated into the contract;

1. Contract drawings
2. Amendments (revisions) of the contract drawings or further
details necessary for the construction of the work.
 Amendments often give rise to claims for additional payment.

 So ideally, drawings must be issued at the date of the contract

(except in the case of design and build, or management
contracts).

 All notes written on drawings are construed (interpreted) as

being part of the drawing and hence part and parcel of the
contract
 Difficulties can arise at implementation stage because of lack
of integration in the case of specialist teams working
separately.
 This requires contractors to specify their intended method of
construction.

 Initially, this was intended as protection to the employer by

ensuring that he would have the benefit of the contractor’s
particular method (which otherwise would be changed at the
contractor’s option).

 Employer’s must be clear as to the effect of a method

statement if they wish to have such a document incorporated
into a contract.
 Form of Agreement or Articles of Agreement’ which must be
provided with the printed form of contract.

 Another function of a formal contract is to list the contract

documents which gives the opportunity for including other
documents.

 Additional documents will include the contractor’s tender and

correspondence in which the parties have negotiated the final
agreement (which would qualify the tender or conditions of
contract).
 Work contracted may require variation as the work proceeds.

 The magnitude of variations tends to be greater in engineering

works, reflecting the greater element of the unknown in such
operations.

 But such is rare event on building contracts.

 Such variations will have cost implications and must be

provided for in the contract