Legal Principles Applicable With The Hierarchy Of Contract Documentation

Formation of a Contract

Question:

Discuss Legal Principles Applicable With The Hierarchy Of Contract Documentation?

It’s very obvious that a construction project will vary either with a significant variation or with a slight change. The best thing is that the parties involved may talk to each other and agree on the extent to which a variation should be accommodated. This also brings another effect to the entire contract. Sometimes, the variation may be written, other times it may be oral.  This paper will be a discussion of some of the problems that occur after the commencement of the project regarding variation. In particular, the paper will look at a case between Agro builder and Ego Architect.

The main question is whether there was an actual formation of a contract. In the law of contract, the key components of an enforceable agreement are offer and acceptance, lawful consideration, and intention to creation a legal relation.[1] In determining whether there was an enforceable agreement between Agro builders and Ego architect, this paper shall examine these elements. For one, there was an offer. The requirements for a valid offer are that an offer should be communicated to the offeree, and it should be definite.[2] Agro made an offer to Ego architects requesting it to create drawings for the project. For the rules of acceptance, the law states that acceptance should be communicated in a clear manner.[3] Eventually, there was still acceptance since Ego architects accepted the offer. A valid contract should also have a legal consideration. The House of Lords described the rules of consideration stating that it's "price that one to a contract pays for the promise or the performance of the other party.”[4] Regarding this test, their agreement passes that test since Agro was paying Ego in three states and Ego accepted the consideration described above.

Additionally, an intention to create a legal relation is seen within this case. For one, the agreement was in writing, plus the fact that the parties were in a business contest. The rule that parties should have an intention to create legal relation doesn’t bring difficulties in a commercial contest. In most cases, the court will presume that the parties wanted to create a legal relation.[5] This comment brings a clear indication that there was a valid contract. After formation of a contract, the law requires that each party to perform as it had promised. So Ego was supposed to act as per the terms illustrated in the contract. Also, in construction law, if one party to construction contract fails to do its part, the other party can also be discharged from its obligations. With this concern, Ego didn’t perform as required by the contract, hence Agro rejected the drawings. One point to note is that even though Agro had approved the drawings, it had the right to disapprove them as far as the work was not in progress.

Nevertheless, it’s well clear that “Courts will not generally make the contract for the parties. It is for the parties to make their contract and they must express their agreement in a form that is sufficiently certain for the courts to be able to enforce it.”[6] In this notion, if parties go back and decide to vary their contract, the new contract becomes as enforceable as the old one, and the older terms become extinct.

Performance of the Contract

Additionally, there is acceptance by conduct. This happened when Agro Builders used the drawings. It impliedly accepted them in the construction, meaning that they were valid for that purpose. Its conducts showed that it accepted them and it was supposed to act in good faith as it had demonstrated while accepting the drawings.

In this question, the parties had agreed in writing, but later when defect arose with the drawings, they agreed orally to use the ‘new’ drawings. It’s normal for a construction contract to vary. After all, circumstances may cause parties to have a partly written and partly oral contract. In most cases, these type contracts happen where a party writes to the other, and then the other one expressly agrees to the terms. Also, it goes on in a construction contract where the parties vary the contract to suit the variation of the job. “When two or more parties enter into a written agreement, the presumption is that the agreement is a full expression of the parties’ respective rights and obligations unless it is shown not to be the case. Strong evidence will generally be required before oral terms will be found to be introduced into a written contract” [7]

The court doesn’t struggle in finding substantial evidence for affirming oral changes. Significantly, the court may decide to look for partial performance. For example, the court ruled that Udevco should pay Wagner because the developer had established an express oral waiver which Wagner relied on upon while performing the extra work.[8]  To clarify, Udevcor had orally requested the Wagner to modify the framing of the cabinet and doors because they didn't match original design, and hence could not fit the prefabricated roof trusses did not fit. When Wegner did as requested, Udevcor withheld the payments disputing that an oral agreement could not modify the contract.[9]

The second concept for substantial evidence that the court can use is the ground of inducement. “In the cases where a party to a written agreement has induced another's to make oral changes, and that party acts in reliance upon that misrepresentation, the first party may be estopped from benefiting from such misrepresentation.”[10]

Also, the court can recognize evidence of oral changes from the examination of the conduct of the parties. Where there is a conflict of terms of the parties in a contract, the court rules that the last terms will prevail. In other words, where A issues its terms and B replies with its terms, the contract would be ruled by the terms of the last party. Note that this only happens when parties start performing before they agree on the terms.[11] This simply means that if both parties were mistaken on which terms prevailed, it definitely the terms of the oral variation.  

In the examination of these principles, it’s very clear that Agro accepted the drawings since it invited Ego to change the written contract. If this was an inducement, the contract is still valid. Also, the conducts of the parties is a real proof that they acted according to oral terms. That is, they used Ego’s drawings in the construction.

Variation of the Contract

It’s obvious that construction projects will continue to hold series of papers. Byrne stated that construction disputes "involve consideration of an enormous number of documents and due to the availability of modern computerized techniques for document management means that there is now no incentive to limit the number of these documents deployed at trial”.[12] These documents contain crucial construction information and provisions. However, the more documents they are, the higher the chances of conflicting information. The best thing is that construction professionals have found a way for dealing with this predicament. The most common technique is including a clause to handle such disputes in future. To emphasize on that, the clause may state that if there were any controversy with the documents, the contract would enumerate the entire hierarchy of documents.[13] At sometimes, these papers may be arranged in a hierarchical order and their layout will simply denote the order in which the documents should be consulted in case of a dispute.

Articles of Agreement together with the Conditions of Contract; contract drawings; bills of Quantities; specifications; information release schedules, if all design information has not yet been made available to the contractor; a list of tender adjustments or clarifications negotiated and agreed after the receipt of tenders and prior to the signing of the contract; the requirement for the contractor to provide any required bonds, warranties and guarantees.” [14]

Additionally, a contract can also include a clause addressing issues of ambiguities or discrepancies with the documents to the contract administrator; i.e. ‘orders of precedence.'[15] Conversely, it's not a wonder that some contract will lack a provision for conflicts resolution on documents ambiguities. In that case, common law provides that the parties can also look at the wording of the contract to see the initial intention of the parties during the formation of the contract.[16]

A standard construction project involves about four parties, the owner, engineer/architect, contractor, and the subcontractor. Among them, the engineer owes more duties than anyone else in the team. The engineer owes two duties to the owner. These are contractual obligations and the legal profession. It also owes the contractor legal professional duties.  In general, the architect’s duty is to exercise its professional duties, where in the case of failure, it would be held liable for professional negligence. Denning LJ summarized the duties of the architect as;

“The law does not usually imply a warranty that [the professional man] will achieve the desired result, but only a term that he will use reasonable care and skill. The surgeon does not warrant that he will cure the patient. Nor does the solicitor warrant that he will win the case.”[17]

Nevertheless, the engineer does owe its obligations either impliedly or expressly within the contract. In most of the contracts, the supervising authority awarded to architect gives it a professional control. This control does not only come with privileges, but it also comes with liability to the architect in all the cases of the negligence. In particular, it's liable for errors caused by misinterpretation of the building documents and specifications. In construction projects, the effects of stamping specifications on the future of the contract lie in two concepts. For one, it has always been held that the engineer cannot go back once it has approved the work materials after the work starts. Also stamping documents implies acceptance of obligation. At other instances, the engineer has the duty to inform the owner of contractor’s mistakes.[18] Generally, the architects assume all the responsibilities after sealing the drawings and plans.[19] Furthermore, within the construction, the engineer cannot change the contract to affect either the owner or the contractor.[20]

Hierarchy of Contract Documentation

Almost every construction experience som variations. There are different causes of variations, but the most common one comes from omissions of important details in the specifications. At other times, they can result from the failure of the professionals to work in a workmanlike manner. When variation happens, it sometimes leads to  “scope-of-work” disputes.[21] Also, variation can happen where the contract documents fail to adequately describe, define, or delineate the work to be performed. In countering these errors, the construction team can take more time in discussing the project. At the same time, they can revisit the site to carry out a feasibility check on the plans before drafting and signing the contract.[22]

A significant number of variations in construction projects usually arise in the beginning during the examination of drawings of specifications. Sometimes it’s possible for the construction team to miss out specific data or information that leads to errors. There are some procedures that a construction manager can adopt to avoid variation.  They can first make sure that the budget sufficiently covers the entire project.

Another good technique of avoiding mistakes is that the engineer can ask another qualified engineer to review the specifications. Other thing that may help reduce the variations are;

1. Providing adequate budget for drafting specifications.
2. Work with a set of carefully prepared, coordinated front-end documents.

• Making sure that it’s only the engineer or architect with the authority to alter specifications as well as doing other editorial duties.

1. Always using the same set of master specification documents for every job.
2. Always keeping the master specification updated.
3. As an architect or engineer, it’s good to make sure that you use the same set of front-end documents on all projects to minimize contract administration problems and to ensure that there has been no contractual variation in the owner’s risk posture.

Construction disputes differ in their subject matter, causes, and their complexity. Simple cases constitute payments of debts, while the complex ones involve data and factual differences. Simplistic disputes can use preventive ADR methods which are negotiation and mediation. These are usually applied as soon as the dispute arises. In negotiation, the parties talk between themselves, while in mediation the disputing parties get a third party who assists them but not to make a judgments or determination. Agro and Ego can employ these methods in their disputes. Other methods of ADR that they can use are conciliation and arbitration. Conciliation involves the call for a third party who helps the parties in evaluating the dispute and also actively aids them in reaching an agreement. Arbitration is a determinative method where the disputing parties get a third party who listens to both sides and determines a case.

Expert determination is dispute resolution process where the third party with expertise in a particular field brings the disputing parties to an amicable decision.[23] In engineering or construction projects, disputing parties may use an expert determination to issue a valuation or of work completed. Experts assess the quality of work delivered, or determine other facts or legal issues in dispute. Expert determination is used to solve disputes, and it’s perceived as holding grand benefits over both litigation, and arbitration.[24] It can also serve well for settling Agro and Ego dispute.

Claims in court depend with how well a party substantiates its case. Courts applications succeed depending on the amount of evidence that a party supplies. Without enough evidence, the court might be denied the power to issue a remedy even where the breach seems clear on open to the eyes of the complainant.[25] Even though that evidence is necessary, there are also limits set to the extent a court of can admits the evidence. The first rule that governs the evidence goes to the written document. The court states that every written document brought to the court will only be admitted if it was written during working hours. This rule calls for parties to bring written diaries that were filled during working hours.

Conclusion

The next principle concerning the use of documents is that those providing evidence on the construction site should be made at the site. Thirdly, it is also recommended that the person who made the material at the site be available to bring his/her testimony in court. Lastly, the court would require the information in the document to have come from a credible source.

In the case of Agro and Ego, Agro may bring the contract document to show how the terms that were agreed between the parties. It would also need to bring the daily work report to demonstrate how the work progressed. Telephone recordings also substantiate a claim magnificently, so it would be advisable for Agro to take them to court.  In case there were tests undertaken at the construction site, it would also be necessary to bring them to court. Besides, the claim report should include the results and structure where test materials were installed. Finally, the parties should bring the copies of submittals and the date they were submitted if they were not submitted on the same day.

 Before a court uses the assistance of expert witness, it must assess two main elements; " it must be agreed or demonstrated that there is a field of “specialized knowledge”; there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert.”[26] Secondly, “The opinion which is given must be “wholly or substantially based on the witness’s expert knowledge”[27]

There are lots of issues affiliated with expert witnesses. One is the lack of consensus where two expert witnesses have different opinions; this lead to rejection of witnesses.[28] This also brings another significant problem when one theory may be standard while the other is highly divergent from the prevailing technical view.[29] Additionally, there is a possible risk with too much involvement of an expert witness to a case. When that happens, they tend to become biased, and the court rejects their evidence.  Finally, expert witnesses are costly, and the general public may be limited to acquiring them.[30]

In Victoria, Building and Construction Industry Security of Payment Act 2002 is the current law that secures payments of people in a construction sector.    Tom and Phillip stated that;

“The Victorian Building and Construction Industry Security of Payment Act 2002 applies to construction contracts in respect of construction work in Victoria. Its object is to ensure that ‘any person who undertakes to carry out construction work or ... to supply related goods and services under a contract is entitled to receive, and is able to recover, progress payments in relation to ... that work and the supplying of those goods and services’ (NSW Department of Commerce 2004).”[31]

Making a successful claim involves following the rules specified in the act. As an illustration, the law requires that each person claiming his/her payments should serve the claim to the respondent. The law also sets different dates of the claim. So with this, each claim should include the earliest date, which is the date that the claimant made the claim.[32] In addition, the claim should bear the latest date that the claim can be served.[33]

This act allows the claimant to only claim the unpaid amount or the money due. It’s a good point to note that one can only claim the money agreed in the contract. If the agreement doesn't mention the price, the claimant can do an estimation of the performed work and claim the expected price. The act explains various types of dates. In particular, there is the periodic progress payment, final payment or a single payment. Parties to a contract are free to define the reference date and the latest date. When it comes to a periodic progress, they should wait for three months after the reference date.  Also, a periodic progress payment provides duration of not less than three months and one day before serving a payment claim.  After making an application for a final payment, there should be no further claims.

In making periodic progress claims, it's a good point to know that the claimant can't make a progress claim for contracts providing for a single payment. Also, the parties can agree on the contract to set the dates for making periodic claims. Where the contract doesn’t provide for a date,  the claim can be made after 20 business days from the date the work commenced. For a final payment claim, the act allows the contract to prescribe the dates for making a claim. If no date, then the contract should provide for a final certificate, with the earliest date being the date following the final claim.

When it comes to final payment claim, the Act allows the parties to a construction contract to choose the dates for making a final payment claim. If the contract doesn’t mention any date but it prescribes for a final certificate, the claimant can count the earliest date being the date following the final claim.

Conclusion

It's always essential to keep records of everything that happens in construction or building site. Keeping records enables people to avoid simple disputes that may lead to complex disputes if they are overlooked. This paper has examined at the formation of a construction contract, and different methods that can be employed to solve construction disputes. To sum it up, it's always advisable that parties to a contract can keep referring to their agreed terms to avoid any future liabilit

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