Ch. 9 - Selected Contract Issues

Question 1

Agent

Answer 1

a person authorized to act on behalf of another party known as the principal, usually through express authority. owes a duty to act in the principal’s best interests but must decide whether to be impartial or biased towards the principal.

Question 2

Agency relationship

Answer 2

three parties: the principal, agent, and the third party.

In most situations, the principal is the owner, the agent is the engineer/architect, and the third party is the contractor

Question 3

Express authority

Answer 3

(aka actual authority) is often create by a contract (may/may not be written) between the principal and the agent. Any change by the agent that fits within the express authority is binding on the principal, even if the principal doesnt like the change.

Question 4

Apparent authority

Answer 4

(aka ostensible, implied authority) is created by representations (written or oral statements, representations by conduct) made by the principal to the third party. Contract between principal and third party must always contain these representations.

Question 5

Principal and authority

Answer 5

if either express or apparent authority exists, the principal is bound by the contract or contract amendment negotiated by the agent. Both types of authority dont have to be present

Question 6

Agency Principles

Answer 6

1) a representation by an agent to a third part cannot create any type of agency
2) agency may be limited in scope
3) agents arent personally liable for the obligations they commit their principals to
4) If a person holds themselves out as an agent and has no authority to act as an agent, the principal is not responsible but rather the agent is to any contracts agreed to.

Question 7

Indemnity

Answer 7

an agreement bu one party to bear the financial loss of another party for a specified event. Insurance policy is most common type. In a contract in Canada, its a means to allocate risk to each party for its own failures, whether to the contracting party or a third party. Adds clarity to avoid litigation and gives the indemnified party contractual remedies. May create liability where none existed but unless it contains an express statement that eliminates liability, it will not take away liability that already exists.

Question 8

Change Orders

Answer 8

Changes to scope of work occur frequently on construction projects. result from design changes or unforeseen conditions. Changes that result in an increase of contract price are an extra, ones that decrease the contract price are a credit. Require third party and principal to agree on a fixed price for a change.

Question 9

Extras for Design negligence

Answer 9

contractors are entitled to extras for design changes, owners often allow 5-10% contingency of the contract amount for changes. Owners have right to recover costs of design changes from a consultant, but generally waive the right if amounts are small

Question 10

Performance Under protest

Answer 10

used by a contractor to reserve the right to dispute payment for extra work the owner instructed the contractor to perform before a price was agreed upon.

Question 11

Subcontracting and issues

Answer 11

governed by same contractual rules that govern prime contracts. Additional issues include:

1) subcontract formation through bidding process
2) pay-if-paid clauses
3) incorporation by reference
4) one-tier payment bonds
5) project delivery

Question 12

Pay-if-paid clause

Answer 12

shifts the risk of non-payment by the owner from the general contractor to the subcontractor. Makes payment to the subcontractor contingent on the general contractor being paid by the owner. Condition that must be satisfied before payment is made

Question 13

Paid-when-paid clause

Answer 13

applies only to the timing of payment, no whether payment must eventually be made. General contractor still obliged to pay the subcontractor even if the owner never pays the general contractor.

Question 14

Incorporation by reference

Answer 14

the terms of the main contract often are incorporated into the subcontract. Although difficult due to time constraints of a project, bidding subcontractors should always review the main contract before submitting a price because it may contain onerous terms like a no-damages-for-delay clause.

Question 15

Payment Bonds

Answer 15

owners may insist the general contractor take out a labor and material payment bond to reduce the risk of construction liens. if one-tier, the claimant refers to the first level of subcontractor hired directly by the general contractor. Also may be two-tier, and subcontractors should confirm the bond description to see if they are also considered under the claimant definition.

Question 16

Unforeseen Conditions

Answer 16

refers to conditions that are known to be possible, but arent expected to occur. Owner is required at the tender stage to divulge all available info regarding unforeseen conditions. bidders seldom have time to thoroughly assess the risks of unforeseen conditions. Contract may shift the risk onto the contractor but is often economically inefficient.

Question 17

Specifications

Answer 17

detail the scope of work, including quality and standard of materials and workmanship. Read together with drawings. Are clear, concise, and complementary. Can be either performance or standard specifications

Question 18

Performance specss

Answer 18

sets out the operating parameters that must be met by the final product

Question 19

Standard specs

Answer 19

describe in detail all of the individual components of the final product.

Question 20

Contract Administration

Answer 20

Typically the agent. may have limited authority, scope of duties should be clearly defined, must be impartial at times, must not interfere with the contractor on how to perform work. must perform tasks (inspect shop drawings, conduct field reviews, provide advice) in a timely manner or face impact or delay claims

Question 21

Administrator and field reviews

Answer 21

duties may not be clearly laid out in contract but should have reasonable scope and frequency decided with the owner. Timing of review must be adequate, standard of review is defined by the contract and NOT by the fees the owner pays the admin.