Importance Of Contract Law In Construction Law

Formation of a Contract between Agro Builders engages Ego Architects

The doctrine of contract law as a constituent of construction law helps the construction team in managing their promises and working within the agreed terms. Even though contract law urges people to make written agreements, sometime it becomes hard due to circumstances and people have to agree orally. The court doesn’t impose an agreement to people to form agreements, but it enforces any agreement in case one party requires its involvement. This study will discuss the importance of construction law through a case study of an Agro builder Ltd and Ego Architect Ltd

Part A (1) Formation of a Contract between Agro Builders engages Ego Architects

This subject of this question regards the components for the structuring of a legitimate contract. A valid agreement must have an offer, plus it should have an acceptance. Secondly, a legitimate offer must originate from the offeror, and then communicated to the offeree. Likewise, an offer should exhibit a deliberate intention. Acceptance should originate from the offeree, bearing the readiness of the offeree to accept the offer (Brudner 2013).

Consequently, the law requires an offer to have a lawful consideration, and both parties should show their commitment to be legally tied to the agreement (McKendrick, 2014). Considering these facts, Agro and Ego had a written agreement with all of the elements mentioned above. For the terms of their contract, Ego Architects Ltd was to make the drawing, and Agro Inc was to compensate for the drawings in 3-stages.

As mentioned earlier, Agro and Ego had express terms and duties. Apart from those, some contracts have implied terms as an additional to those expressed in the contract. So for this case, Ego had an implied duty to come up with the drawings that matched Agro’s instructions. So even if the contract didn’t mention that, there was an implied term would still apply (Klass, 2010).  Consequently, if one of the parties doesn’t deliver as per the agreed terms, or it communicates to the other party that it won’t be able to fulfill its promises, both actions would amount to a breach.

When a breach occurs, the law allows the innocent party to suspend its obligation. So where a party performs contrary to its promises, the innocent party has the right also to dismiss its promises. Such dismissal of the responsibility nullifies the entire contract (White, 2011). So this means that Ego didn’t produce quality drawings and Agro Inc had to withhold the payments. Considerably, Agro Inc had the rights to disapprove the drawing as far as the construction had not commenced. So since Agro disapproved them immediately after approval, and no work had commenced using the faulty drawings, the court cannot force Agro to pay for them.

Changing a Written Contract With an Oral Amendment

The next point concerns variation. In construction law, variations form a part of a contract as far as both parties have approved them. So parties to a dismissed contract can decide to go back and change the same contract. Considering this case, Agro and Ego went back and decided to alter their contract. After that, the new modification made the dismissed contract as enforceable as the old one. Therefore, they were under the administration of the new terms, and they couldn’t act on the dismissed agreement. Secondly, there is acceptance by conduct. While the court is looking whether it can enforce a variation, it tests whether any of the parties treated the variation as a valid contract. This resulted from actions of Agro Builders using the drawings. Its conducts were an indication of accepting them so it couldn’t back to work under the dismissed agreement.

Part A [2] Changing a Written Contract With an Oral Amendment

The main problem here is a question to the extent that an oral variation should be accepted to vary a written contract. In (Bailey 2011, p73), the work states that after making a written agreement, there is always an assumption that the parties expressed themselves fully regarding their rights and duties. So if there would be a future modification through a verbal agreement, such agreement should be supported by substantial proof.

The explanation of Baileys means that a court will have an easier time enforcing a written agreement than it would with an oral contract. However, (McKendrick 2014) went further to clarify that, even though the law advises parties to create a written agreement, it doesn’t mean that it won’t put its force when a breach of oral agreement occurs. However, there must be ambiguous evidence that truly the parties wanted the oral variations to prevail. So for an oral variation to be admitted, the court must analyze the observable facts. The first factor that the court analyzes is the way the parties conducted themselves. The verdict in (RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH, [2010]) was a definite suggestion of how the parties’ conducts can manifest their readiness to honor the terms of uncompleted contract. While deciding this case, the Supreme Court found that the parties’ performance matched the terms stated in the unsigned agreement despite the fact that the parties had failed to agree.  To simplify, the court decreed that the way the parties conducted themselves was an indication that they were honoring the unsigned contract treating it as though it was completed.

Hierarchy of Contract Documentation

Secondly, the court would look to find if the parties gave assent to the modifications. The law designates that parties to a contract must agree in case there would be further amendments coming after finalization of the contract. For example, in (Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd [2016]), the Court of Appeal found that the parties had consented to oral modifications.

Thirdly, the court will always look to find whether any party was acting on misrepresentation, inducement or whether there was a promissory estoppel. For example, in (Keane Telecom Consulting, Llc V. Manhattan Telecom Corp, [2013]) the court found that it could not let one party benefit from its misrepresentation. Furthermore, the issue of misrepresentation was explained in (Byrne 2007) as if one party would act on believing on the promise, representation, assurances, or conduct of the other party, the court will not allow such party to benefit from its lies.

Lastly, when only one party performed in reliance to the oral modification, the court will rely on that partial performance in enforcing the oral modification. For example, in (Udevco, Inc. v. Wagner, [198]) the court favored Wagner and ordered Udevco to release the payments. The court found that Udevco was relying on a clause that overlooked oral modification yet it was the one who had expressly brought the modifications. In reliance on all the three facts, the court would enforce the oral modifications found on the agreement between Agro builders and Ego architect. 

Part A (3A) Hierarchy of Contract Documentation

It’s normal for construction projects to include a heap of papers. Byrne in (Byrne 2007) found that due to the complexity of construction projects, the work they involve going through of numerous papers. He continues to state that the availability of computerized systems brings a notion that these documents would even be more.

However, it’s also necessary to look at the other side of having all these documents. One of the problems that construction team face is the discrepancies arising from the information contained in these documents. The most common problem happens where each document stipulates different terms over one matter. But since this has been a problem facing most of the construction team, the problem created a necessity to handle such problems when they happen. Following this, different engineering teams and the law have come up with methods for resolving these problems. In (Rosen and others 2013, pg 93) the work finds that most construction teams are suing a way of introducing a limitation that manages discrepancy with the documents. To simplify, construction team may assent to incorporate a clause declaring that if any discrepancy arose, the construction agreement’s instructions would prevail.

Approving Specification and Future contractual Status

Apart from that, there are other methods that most scholars have identified. For example, different scholars have agreed on the application of common law as one method. Plus, the team can also organize the papers in a way that their order signifies their importance. That means anyone referring to them would judge their significance by their order.  In most cases, (Davison and Mullen. , 2009) found that the order starts with the contract, followed by specification document, thirdly, the drawings, and lastly, the team can attach the bills of quantities and any other document should follow below.

While looking at the application of the common law, the team may employ different methods. In most of the times, that law will advise the team to refer to the documents by implementing a logical man’s viewpoint. For instance, in (Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001)] the stated that parties should think in a reasonable man’s perspective given all the grounds that the parties had. Still on the use of the common law, the court in (Lewis Construction (Engineering) Pty Ltd v Southern Electric Authority of Queensland (1976)] gave an idea of carefully analyzing the cause of the ambiguities. Remarkably, the common law will urge the team figuring out the discrepancies to determine the conflict by going through the entire contract while they analyze the very first intentions.. Lastly, (Westpac Banking Corp v Tanzone Pty Ltd (2000)] the court advised that parties can strike out the clauses that are causing the confusion.

Part A (3B) Approving Specification and Future contractual Status

Every engineer to a construction site must understand the liabilities and responsibilities that are carried by the stamps. Engineers have different stamps, and one of them is the approval stamp. Unlike the drawings, specifications include the actual materials that should be used in the construction. A failure in the specification may lead to weak results. Approving specifications in addition to other authoritative functions in construction are all the duties f the architect/engineer.

There is a need to understand that liabilities of an engineer can only rise from its negligence. For example, if the owner strictly instructs the engineer to use specific materials, any future defects resulting from using those materials cannot be blamed on the engineer. The responsibility of the engineer/architect is more of duty to care or an obligation to work in a professional manner and avoidance of negligence. Denning LJ (Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners (1975)] summarized the tasks of the architect as; it would be irrational if the law would expect the professional man to give the aspired outcome of the project. However, the law implies a term that the engineer would employ its right care and expertise. He explains further to say that a surgeon can’t warrant a full recovery of the patient.

As a part of the responsibilities of an architect, it’s a good point to know that their obligations don’t end at the expressed terms of the contact. They still owe an implied duty. Allowing or approving any specifications means that the architect has accepted to exercises its supervising authority by over those specifications. However, there’s also need to know that the failure of a contractor to perform as instructed by the architect would not result to damages on the side of the architect. This would give the architect has the right to petition the contractor. Coming back to the approval of specification, approval at sometimes relieves the architect the rights to disapprove them lately when they have already been used in construction. In (Tomlinson v Ashland County (1919)], the judge held that it was too late for the engineer to disapprove the specification in the middle of construction.

In the ruling of (SD Bldg. Auth. v. Geiger-Berger Assoc.[1987]),  the court puts it clear that stamping documents implies acceptance of obligation. In the mentioned case, the court found the Engineer/Architect in breach of its breach of implied duty since it had placed its stamp authorizing the expert’s drawings. The same concept was also employed in (Kerry, Inc. v. Angus Young Assocs., Inc., (2005)], the court found that the engineer was supposed to report to the owner on any mistake that the contractor made. In generally, the court does take it that the engineer assent to take duties as well as liabilities after stamping the documents.  Likewise, the decision of (Ambassador Baptist Church v. Seabreeze Heating & Cooling Co., [1970]) held the same principle.

Part A 3C: Procedures for Avoiding Valuations Problems In the course of Construction

In (John, 1994), variation is given two meanings. The first meaning is stated as alteration through addition or omission to the physical project as required by the contract. The second meaning is refers to the change of contractual terms as required by the expected work. To avoid these disputes, it is sometimes necessary to hold that variations should happen with the directions of the principal, and the directions can be either be express or impress.

In a general rule, (Chittick V. Taylor, [1954]) set the main rules or test that should be used to denote a variation. The first rule quashed a claim for anything provided for within the contract as an “extra” or a variation. The second rule touches on circumstances when the claimant provides better and quality materials that are termed fundamental for the fulfillment of the contract. The conditions that were set in this rule were that if materials the plaintiff can only recover those materials or work provided from the instructions of the defendant.

Thirdly, the court dismissed a claim of extra work where the claimants act in its own directions. To illustrate, one cannot claim for the material or work provided without the request or instructions of the defendant. Notably, the instructions can be impressed or implied.

Lastly, the court allowed the plaintiff to claim for any extra work or material supplied from the directions of the defendant even though such instructions were not provided for in the contract. Such work can be charged as extra, provided that there were implied or express directions. 

From all these explanations, avoidance of variation problems involves going performing as per the contract document. Where the principal needs a variation, it’s good to have such variation in writing.

Resolution of technical disputes

Like explained above, disputes in a construction project can easily occur due to variations or other causes. There are different methods of ADR depending on the intensity of the conflict. Some of these are negotiation and mediation. These two are used where the dispute has not intensified, and the parties are willing to settle in good faith. Other methods for complicated cases are conciliation, arbitration, and expert determination.

Regarding expert determination, (Pickavance, 2013) finds that the third party is usually held to have an expertise in a special discipline to assist them to resolve the disagreement. In the crucial concerns of technical matters, the conflicting parties would use an expert. Following the use of experts, the ruling in (Heart Research Institute Ltd v Psiron Ltd [2002]) made it that the conflicting parties can call Expert who comes and performs an evaluation of the work results, evaluates the facts, and determine other legal issues. Also, regarding using experts to resolve a dispute, many construction projects incorporate clauses rebutting any action to go to court before the parties’ attempt to involve an expert. This was evident in (Lines MacFarlane Marshall Pty Ltd v Fletcher Construction Australia Ltd [2000]). Also, in (Robert, 2002), Robert finds that its very common for current construction contracts to include a clause referring disputes to an expert rather than to the courts.

Part B (4A) Substantiating Claim of Inadequate Specifications

Courts must demand substantial evidence to administer justice to the wronged parties. Construction claims differ from other claims. These require a high degree of a meaningful use of proof. When a construction conflict calls for a hearing, this would demand the court to need to analyze the development of the dispute. For this purpose, the court will begin assessing the provided testimony back from the time before the parties broke up. So without adequate written testimony; it becomes hard for the court to handle any construction claim. Moreover, courts do not just accept evidence from any paper.  This fact calls for the rules for eligibility of written documents.

The first rule requires that the documents to qualify to have been written or prepared within working or construction times. Secondly, the court would need a claim to include the diary should have a diary. And as a rule, diaries prepared outside working time would not be accepted. Another rule regarding eligibility of documents is that no material can form a part of proof concerning the construction site if that report was developed out of the construction site.

Additionally, the court is likely to dismiss the report if the person who made it would not be present to offer an oral testimony. Finally, the court would dismiss the proof if ti won’t be coming from a reliable and a convincing source.

In short, an outsounding claim would require that the parties bring the contract document. The next thing should be the diary containing all work records. This diary should explicitly have all the names of the parties as well as the time those parties participated in the site. Plus, its necessary that the diary records the workflow. All communication should also be documented and presented to the court. This calls for letters, telephone recordings or any report from any medium that was used to communicate for the purpose of the construction. Additionally, it’s necessary that the parties provide the submittals indicating the specific dates that they were submitted or approved. If there were variations, they should also be indicated.

Use of Expert Witness

The use of expert witnesses is very common in construction disputes. Nevertheless, courts accept expert witness when they deem it fit and if the expert passes its assessment. Courts evaluate experts and their testimony testing two main components; In (Makita (Australia) Pty Ltd v Sprowles [2001]) the court stated that the there must be contemplation that the evidence would demonstrate that there has come an issue of “specialized knowledge.” From that point, then there should be a recognized features of that profession where now the witness would show the reasons specified study. Secondly, the opinion coming from the expert should be adequate and substantial.

From the use of expert witness, the work of also, the work of (Kelleher and Walter, 2009) found different problems of using expert witness and stated that there are some notable limitations to using experts’ opinion. For one, such expert’s engagement in the conflict can lead to expert developing what he called a “personal stake.” If such happens, it would definitely compromise the expert’s credibility, and this will cause the expert to become an adversarial party in the case.

Secondly, an expert at some point may bring some challenges to the attorney in the hearing especially in the matters of Federal Rules of Evidence. Also, acquiring an expert is expensive, and both costs of the case and expert become an enormous expense to the parties.

Part B (4b): Requirements for an Application within Building Industry Security of payment Act (Victoria).

The (Building and Construction Industry Security of Payment Act, 2002) monitors the dealings within a construction work that may lead to future disputes. The Act confers rights to a claimant as far as the defendant has remitted no payments. In particular, the claimant acquires the right to claim for progress payment of all the unpaid amounts owed by the respondent. However, starting a successful application requires the applicant to understand the method designated in the Act.

In Building and Construction Industry Security of Payment Act, 2002) the claimant must use the prescribed form that would hold the necessary information. On the part of the claim, it should state the construction project or relevant goods and services in question. Also, the application must show the value of the progress payment. All this should be the amount that claimant understands that they are due and it’s crucial that the claimant state that he/she is making a claim under the provisions of the Act. In short, a claim should have all adequate information, something that would be easily understood by the respondent.

Conclusion

Construction law combines different law, and all work towards offering a comfortable ground where construction team can work and exercise their rights at the same time. This study has covered the development and execution of a construction contract, and it has also covered different methods that parties to a construction team can employ in resolving their dispute. 

Bailey, J. (2011). Construction Law. 1st ed.  Informa Law

Brudner, A. (2014). The unity of the common law. 2nd ed. Oxford: Oxford University Press.

Byrne, D. (2007). The Future of Litigation of Construction Law Disputes, Speech delivered at the Reception to Announce His Honour’s Appointment as the Patrol of the Construction Law Program. University of Melbourne

Davison, P. and Mullen, J. (2009). Evaluating Contract Claims. 2nd ed. Wiley-Blackwell

John, D. (1994). Variations. Building and construction law, 6(3), pp.156-170.

Kelleher, T. and Walters, G. (2009). Smith, Currie & Hancock’s common sense construction law. 4th ed. Hoboken, N.J.: John Wiley & Sons.

Klass, G. (2010). Contract Law In The USA.1st ed. Kluwer Law International

McKendrick, E. 2014. Contract Law. 5th ed. Oxford: Oxford University Press

Pickavance, K. (2013) Construction Law And Management. 1st ed. Taylor and Francis

White, F. (2011). Commercial And Economic Law In Ireland. 1st ed. Kluwer Law International

Cases

Ambassador Baptist Church v. Seabreeze Heating & Cooling Co., (Mich. Ct. App. 1970)

Chittick and Taylor (1954), 12 W.W.R. (N.S.) 653

Globe Motors Inc & ors v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396.

Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners [1975] 1 WLR 1095

Heart Research Institute Ltd v Psiron Ltd [2002] NSWSC 646

Keane Telecom Consulting, Llc V. Manhattan Telecom. Corp., 2013 N.Y. Slip Op 32261 (Sup. Ct. 2013).

Kerry, Inc. v. Angus Young Assocs., Inc., (Wis. Ct. App. 2005) 694 N.W.2d 407

Lewis Construction (Engineering) Pty Ltd v Southern Electric Authority of Queensland [1976] 50 ALJR 769

Lines MacFarlane Marshall Pty Ltd v Fletcher Construction Australia Ltd (2000) VSC 358

Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70 210 CLR 181.

Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; 52 NSWLR 705

Rosen H and others, Construction Specifications Writing (6th edn, Wiley 2013)

RTS Flexible Systems Limited v Molkerei Alois Muller GmbH [2010] UKSC 14.

SD Bldg. Auth. v. Geiger-Berger Assoc., 414 N.W.2d 15 (SD: Supreme Court 1987).

Tomlinson v Ashland County (1919) 173 NW 300, 170 Wis 58.

Udevco, Inc. v. Wagner, [1984] 678 P.2d 679, 100 Nev. 185

Westpac Banking Corp v Tanzone Pty Ltd [2000] 9 BPR 17, 521

Legislation

Building and Construction Industry Security of Payment Act 2002 (Vic)