Monday, February 8, 2010

Construction Contract Law

Definition of a contract

The term Contract used in the Construction management can be defined as: "An agreement entered into by two parties under the terms of which one party agrees to perform a specific job for which the other party agrees to pay. Contract documents attached to and/or stated in the agreement form integral parts of the contract" 

Essentials of Contract Validity

The parties to the contract must be competent, and legally capable of playing their intended part. The law can not enforce the agreement on someone who has not the legal capacity to enter into an agreement. This could be due to infancy, lunacy, drunkenness, or being restricted from entering into such agreement by a prior in date agreement or scope of authority.

The subject matter of the contract must be lawful and definite in respect of requirements and duties of each party. For example a contract violating municipal regulation is not binding and is void in courts. Also uncertainty in respect of the what is wanted may result in the contract being not enforceable by law. 

Proposal and acceptance: There must be a proper proposal by one party and its absolute and unqualified acceptance by the other party. The proposal is not binding without a clear acceptance and is not binding beyond its date of validity.

Free consent of parties to the contract: Consent is said to be free when it is not caused by force, or undue influence or fraud or misrepresentation.

Breach of Contract

Breach of Contract is the failure to perform it. However, not every failure to perform an obligation amounts to a true breach, as there are a number of excuses for non performance. When a contract has been broken without sufficient excuse or justification, the party who suffers by such breach is entitled to receive from the party in default, a compensation for any loss or damage caused by such breach. 

Termination of a Contract

A contract may be terminated or brought to an end in either of the following ways: 

Full and satisfactory performance by both parties to their obligations under the contract.

Breach of contract, when the default of one party releases the other party from the contractual obligations.

Mutual agreement of the parties to terminate the contract.

Unforeseen circumstances beyond the control of either party render it impossible to perform his duties or obligations stated in the contract.

Operation of law to terminate a void contract.

Types of contracts commonly used in construction

Lump sum contract
Item rate or unit price contract
Percentage rate contract
Cost plus percentage rate contract
Cost plus fixed fee contract
Cost plus fluctuating fee contract
Target cost contract

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