Lecture 4 - Construction Contract and Law Flashcards
What is a Contract?
* An __________ that affects the legal ____________ between
two or more persons.
agreement, relationships
Restatement of the Law of Contracts:
– “A _________ or set of promises for the breach of which the ____ in
some way recognizes a duty.
promise, law
Uniform Commercial Code:
– The “total _______ obligation which results from the parties’ ___________
legal, agreement
Typical Contracting Process
1. Design __________
2. Pre-qualify constructors
3. Advertise and ________ for bids
4. Bids received
5. Open bids and determine low bid
6. Low bidder submits bonds and documents
7. Award ________
8. Preconstruction conference
9. Notice to __________
10. Monitor, payment schedule
11. Closeout, walk-through, punch-list
12. Final __________, warranties
complete, request, contract, proceed, payment
Construction Contract Documents
* _________ Conditions
* Supplementary ________
* Technical Specifications
* Drawings
* Other: _______, instructions to bidders, bid forms, bond
forms, non-collusion affidavit
general, conditions, addenda
Documents created during construction:
– Submittals,
– RFI’s (_________ for Information),
– NCN’s (Non-Conformance ________),
– as-built drawings,
– O&M manuals,
– Progress ________, etc
request, notice, schedule
Elements of Contracts:
Offer and acceptance
* Mirror ________ Rule: Acceptance must be a “_________ image” of the
________.
image, mirror, offer
Mirror Image Rule: Acceptance must be a “mirror image” of
the offer
When a local cement supplier ran out of stock, a contractor
ordered 850 bags to be delivered by a source upriver at a higher
price. Shortly after placing the order, the local supplier’s cement
shipment came in. The contractor decided to buy from the local
supplier and pay damages for returning the cement upriver. Two
days later a shipment of 1,000 bags from upriver arrived. Since
850 bags had been ordered, the contractor said he refused the
entire shipment of 1,000 bags.
Q: Will the contractor be liable to the upriver supplier for
damages?
The contractor’s order of 850 bags from the source upriver
created a binding contract for delivery of that quantity. By
accepting delivery of the cement from the local supplier, the
contractor breached the contract with the upriver supplier.
The shipment of 1,000 bags from the upriver supplier
constitutes a valid tender of performance, and the
contractor’s refusal to accept the entire shipment was a
breach of contract. The contractor may be liable to the
upriver supplier for damages.
Consideration
A contractor sublet the foundation to a subcontractor, who
in turn sublet the excavation to a sub-subcontractor. The
subcontractor did not pay the sub-subcontractor so the subsubcontractor quit. The contractor told the subsubcontractor to finish the work and he would pay him
$3/yard extra. When the sub-subcontractor finished the
work, the contractor refused to pay since there was no
consideration. He had simply asked the sub-subcontractor
to do what he had already contracted to do.
Q: Must the contractor pay for the work?
The contractor’s offer to pay the sub-subcontractor an
extra $3 per yard if he finished the work is considered a
conditional offer and lacks consideration. Since the subsubcontractor was already contracted to finish the work,
the additional payment was not a new consideration for a
new agreement. The contractor’s refusal to pay is likely
valid as there was no new contract formed.
Meeting of the Minds
A roofing contractor entered a purchase agreement with a
supplier of roofing materials for a set price. The contract
could be altered due to “strikes, fires, transportation, and
business conditions that render performance commercially
impracticable”. Both parties were beneficiaries of the
clause. The price of roofing materials spiraled up (+25%).
The supplier refused to deliver at the agreed price
contending it was “commercially impracticable”.
Q: Was the supplier obligated to deliver?
It depends on the specific terms of the agreement and the conditions
that existed at the time of performance. If the price increase of the
roofing materials was due to one of the reasons listed in the agreement
as making performance commercially impracticable (strikes, fires,
transportation, business conditions), then the supplier may not have
been obligated to deliver the materials at the agreed price. The
agreement may have allowed the supplier to modify the terms of the
agreement in such circumstances.
In this case, the supplier is likely still obligated to deliver at the agreedupon price. A 25% price increase, while inconvenient, does not meet
the threshold for “commercial impracticability” under most legal
standards unless the supplier can provide strong evidence that the price
increase resulted from an extraordinary and unforeseen event.
Meeting of the minds
* Mistakes of _______ (result in no meeting of the minds)
* Unilateral mistake or ________ error
* Innocent misrepresentation
* Fraud (_______ representation)
* Fraud (___________ failure to provide information)
* Duress
* Subject matter does not exist (fire, death, etc.)
fact, mutual, false, deliberate
Lawful Subject Matter
A contractor entered an agreement with a landowner
to erect a building on a given plot of land. The
contractor agreed to lease the building when it was
complete and to lease the land for a given sum until
the building was completed. It was discovered that the
land consisted of a burial ground and that the building
could not be built. The landowner sued to receive
payment for the lease of the land.
Q: Is the landowner entitled to any payment?
In this scenario, the contractor’s agreement to lease the land from the
landowner may have been void due to the fact that the land was
discovered to be a burial ground, making it impossible to build a building
on it. This is known as the doctrine of “impossibility of performance.” If
the court determines that the building could not be built on the land, the
contract between the contractor and the landowner may be deemed
unenforceable and the landowner would not be entitled to receive
payment for the lease of the land. However, the exact outcome would
depend on the specific terms of the agreement and the applicable laws.
What Are Surety Bonds?
A surety bond offers ____________ to the owner of a
construction project that the contractor will _________ the work specified in the _________ and pay certain
subcontractors and suppliers.
assurances, perform, contract
Parties involved in Surety Bonds
– ____________ (constructor)
– __________(owner)
– ________ (bonding company)
principal, oblige, surety
Surety Bonds vs. Traditional Insurance
* Surety bonds are ____ insurance:
– _______-party instruments
– Presuppose no losses
– _______ of any kind are covered
– Indemnification of surety by principal
not, three, losses
Insurance
__-party
risk transfer
duty to ________
regulated by state insurance departments
premium actuarially __________
usually term specific
policy _______
2, insured, determined, policy limits
Surety Bonds
____-party
risk transfer
duty to _______
regulated by state insurance departments
premium fee for prequalification ________
project specific
penal ____
3, oblige, services, sum
Benefits of Surety Bonds
Owners
* Provide a _____ of qualified bidders
* Reduce _____ of liens and financial loss
* Increase likelihood of timely _____ completion
* Protect ________ defective materials and workmanship
pool, risk, project, agianst
Benefits of Surety Bonds
Contractors
* Increase the ________ of projects for which a
contractor can qualify
* Ensures _________ protection for subcontractors, suppliers
and laborers
* Technical, managerial or financial _________ can be made
available in certain circumstances
number, payment, assistance
Bid Bond
* Assures if the contractor submitting the bid is _________ the
contract, the contractor will:
– Provide the required _____,
– _____ the construction contract, and
– _________ the contract
awarded, bonds, sign, execute
Loss = Next Low Bid – Bid Price
* Surety issues ____ Bond to ____ damages/loss if contractor ______
bid, pay, cannot
how much is the amount of the bid bond
5-10% of bid amount
Performance Bond
* Assures owner that GC will _______ the contract:
– On ______
– On budget
– According to __________
– Free of ___________ workmanship and materials within one
year of completion
perform, time, specifications, defective
What happens if the contractor defaults on the
project’s contract?
* Surety steps in to “cure” the problem or make __________ out of the Performance Bond (___-___% of Bid Price)
payments, 1-5
Payment Bond
* Assures owner that GC will ______ selected _________, subcontractors, and suppliers associated with the project
pay, laborers
Issued at a cost of between _____ and _____% of Bid Price
* Cost of Payment Bond is typically ________ with
Performance Bond
0.6, 2.5, bundled
What happens if the contractor defaults?
– Surety _____ damages to _____ demanding parties
pays, all
Federally Funded Projects
* Heart Act (1893) and
_____ Act (1935)
* Protects the ________ of the subcontractors,
suppliers and laborers, if the construction
firm/general contractor ____ to make payments
Miller, interest, fails
