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CE 476 – Construction
Contract Management
Spring Semester 2015

Muhammad Hasnain
Lecturer, CE&M
NIT-SCEE
Hasnain.civil82@gmail.com
Ph: 051 – 9085 4169
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Contract Management Course

Lecture # 6
CONTRACT TERMS AND
CONDITIONS

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Introduction
• Most construction contracts include ‘general conditions of contract’. These
are usually a set of written conditions covering matters common to
construction contracts such as progress payments, construction program,
variations, etc.
• Various organizations have published their own set of standard general
conditions of contract for various types of contract.
• More often they are published by an organization with a view to
protecting the interests of its members by assigning risks to clients of
members rather than to members, or by a principal with a view to
assigning risks to contractors. Different sets of general conditions of
contract vary greatly in fairness, quality of drafting and matters covered.
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PURPOSE OF GENERAL
CONDITIONS OF CONTRACT
A standard set of general conditions serves several purposes.
First, it obviates the need to draft conditions covering routine matters and
allows the person preparing the contract to concentrate on conditions
specific to the proposed project. Use of standard conditions usually
expedites the tender invitation process.
Second, if the standard conditions selected are familiar to contractors who
may be tendering for the project, the contractors will not need to spend
time examining the conditions.
Third, if the standard conditions have been in common use in the
construction industry for many years, it is less likely that disputes will arise
over interpretation.
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CONTRACT FRAMEWORK
The contract framework includes clauses covering
the agreement
• scope of works
• what is to be done
• who is involved
• times

documents
• financial arrangements
• payments
• liquidated damages
• insurance

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CONTRACT FRAMEWORK
management arrangement
• responsibilities
• relationships
• subcontracts

legal arrangement
• contract conditions
• legal courses of action

administration
• procedures

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CONTRACT FRAMEWORK
• The parties should understand contract conditions and the implications of
agreeing to particular conditions and changing standard conditions.
However, there are problems in understanding general conditions. The
first is that they consist of words, and words do not always convey the
same meaning to different people. In the event of a dispute which cannot
otherwise be resolved, judges will interpret the words.
• To understand general conditions, one has to attempt to predict what
interpretation a judge would put on the words.
• For example: a judge had to interpret a condition: ‘Any delay in giving
possession shall not be deemed a breach of contract or entitle the
contractor to compensation’.
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CONTRACT FRAMEWORK
The judge held that the words did not prevent the contractor from
recovering compensation where the principal refused to give
possession of half the site for a period of ten weeks. From a study of
the way judges interpret contract conditions, it was quite predictable
that the judge would find that the condition did not protect the
principal. Almost exactly the same clause still appears in many
contracts. Parties to a contract rarely have the time or expertise to
study how judges have interpreted particular contract conditions. That
is why they so often have to get expert legal advice to interpret
conditions.

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 Risk Allocation
• The term ‘risk allocation’ is commonly used to describe obligations. It is a
fundamental function of contract conditions to allocate obligations to
each of the contracting parties.
• The obligations should be allocated on the basis of who is in the best
position to control risks and for whom it is economically feasible to carry
such risks.
• It is sometimes argued that the obligation allocation exercise should be
carried out in the most equitable manner.
• Those obligations and risks that are within the control of the principal
should be borne by the principal, and those obligations and risks that are
within the control of the contractor should be borne by the contractor.
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 CONTRACT TERMS AND
CONDITIONS
Duties And Responsibilities of the Architect/Engineer (A/E)
• Act as the owner’s representative
• Validate progress and progress payments
• Initiate, prepare, and sign change orders
• Clarify and interpret drawings and specifications
• Approval and disapproval authority on submittals
• Reject defective work
• Determine dates of substantial completion and final completion

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Topics/ Clauses Frequently
Covered or Avoided in Contracts
• A description of the project including its location and the nature of
the project.
• The scope of work including a statement that the contractor agrees to
furnish all materials and perform all work in accordance with the
contract documents.
• A description of the role of the architect/engineer.
• Information on access to the work site including how it will be
provided and by whom.
• A list of what the contractor is required to furnish during construction.

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Topics/ Clauses Frequently
Covered or Avoided in Contracts
• A description of what the owner will furnish during construction.
• Adjustments for alternatives or revisions required after the bid is
awarded.
• A location where the lump sum contract price is entered or a
description of how the contract price will be determined.
• The method that will be used to verify and issue progress payments.
• A discussion on the amount that will be withheld for retainage until all
items in the contract are complete. The amount is typically ten
percent (5%-10%) of the contract price.

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Topics/ Clauses Frequently
Covered or Avoided in Contracts
• Work in Place and Stored Materials – The work in place is calculated as a
percentage of the total work to be completed for each work item.
Contractors may be able to receive payment for materials stored on site,
or at other locations, if they are able to verify that the materials have
been paid for with a bill of sale or other proof.
• Statements about the right of a contractor to suspend work for non-
payment by the owner.
• The time at which construction will commence and when it has to be
completed to avoid paying liquidated damages if they are to be assessed
on a project. This is provided in number of calendar days, not workdays.

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Topics/ Clauses Frequently
Covered or Avoided in Contracts
• Information on what would allow a contractor time extensions
including force majeure (acts of God or circumstances beyond the
control of contractors such as floods, lightning strikes, hurricanes,
earthquakes, tsunamis, monsoons, and tornadoes if they are not
common occurrences in a particular geographical area).
• Circumstances under which a suspension of work will be enforced by
the owner.
• The project schedule provided by the contractor. If owners were to
provide a schedule in the contract, whenever there was a delay the
subcontractors would be able to sue the owner not the contractor.

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Topics/ Clauses Frequently
Covered or Avoided in Contracts
• Time is of the Essence: This phrase refers to the importance of
completing a project within the designated time frame.
• Damages for Delays: In this clause the owner sets forth the amount of
damages per day that would have to be paid to the owner by the
contractor if a project is not completed on time. Damages could only
be assessed if owners are able to prove the amount they would be
losing per day if a project were not completed on time.
• Incentive clause: This clause states the amount per day that an owner
would pay a contractor for each day that the contractor is able to
complete a project ahead of schedule.

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Topics/ Clauses Frequently
Covered or Avoided in Contracts
• Consequential Damages: This clause explains how the affects of
consequential damages will be addressed if delays are caused during
construction. Consequential damages are delays that happen to
peripheral activities or succeeding activities when one or more
activities are delayed during construction.
• Coordination with the Work of Others: This clause outlines how
multiple contractors on site simultaneously have to coordinate with
each other in order to perform their work in such a manner as to not
interfere with each other.

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Topics/ Clauses Frequently
Covered or Avoided in Contracts
• Owner’s Right to Supplement or Complete Work: If this clause is
included in a contract it provides an owner with the legal right to
perform work on the construction project even though a contractor is
building the project. A contractor could not claim that an owner is
interfering with a project when the owner is performing work if this
clause is included in a contract.
• If a Termination for Convenience and Default clause is in a contract it
provides an owner with the right to cancel the contract at any time,
even without a legitimate reason. Government contracts include this
clause because funds to continue projects may not be available if they
are not approved by taxpayers or the legislature.
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Topics/ Clauses Frequently
Covered or Avoided in Contracts
• Changes in the Work clauses explain how any deviations from the original
scope of work will be dealt with during construction. This clause provides
an owner with the legal right to make changes during construction using
change orders if the contractor agrees to make them for appropriate
compensation.
• Changed Conditions: This clause provides information on how a contractor
should address conditions that are not as stated in the contract documents.
• Inspection of Site, Local Conditions, and Work in Place: This clause indicates
that the owner, or an owner’s representative, has the right to inspect the
work to determine whether it is being built in accordance to the contract
documents.
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Topics/ Clauses Frequently
Covered or Avoided in Contracts
• A Price Adjustment clause provides information on how price changes will be
handled during construction.
• Responsibility for Safeguarding Existing Structures: When a construction project is
being built, neighboring structures could be compromised during the excavation
stage since the adjacent structures had their foundations analyzed with the soil in
place where the new project is being built and its attendant soil pressure. Either
the owner or the contractor will be designated in this clause as being responsible
for underpinning adjacent structures to ensure their structural integrity during
construction of the new structure.
• Inspection: This clause allows the owner’s representative to order work to be
removed, to inspect work that has been covered up by the work with no recourse
for the contractor, and at the expense of the contractor, for replacing the work.

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Topics/ Clauses Frequently
Covered or Avoided in Contracts
• Effect of Preliminary Approvals: This clause explains the consequences
of any preliminary approvals that are issued during construction.
• Protests and Disputes: The procedures for addressing protests or
disputes are discussed in this clause and they may include formal
written or informal oral procedures.
• Claims: This clause outlines how claims will be processed during
construction and it could include a detailed formal, written process.
• Arbitration: A clause could be included that states that either binding
or nonbinding arbitration will be used to settle all claims that arise on
a construction project.
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Topics/ Clauses Frequently
Covered or Avoided in Contracts
• A Wage or Labor Standard clause explains the procedures for
documenting wage and benefit rates that will be used during
construction. For government contracts, the prevailing wages and
benefits will be paid during construction.
• Safety: Instructions will be included on who is responsible for safety
during construction and what it involves.
• First Aid: Normally this clause will indicate that the contractor is
responsible for maintaining a first aid station during construction.

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Topics/ Clauses Frequently
Covered or Avoided in Contracts
• Environmental Protection: The rights and responsibilities of a
contractor are stated in this clause as to what will be required to
protect the job environment and the area surrounding the job site.
• Security and Fire Protection: Contractors are normally responsible for
providing security and fire protection during construction and this
clause confirms this requirement or clarifies measures or options that
will be utilized by the owner.
• Compliance with Laws: Requirements for complying with federal and
provincial laws that affect construction such as labor laws, non-
discrimination laws, and equal employment opportunity laws.

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Topics/ Clauses Frequently
Covered or Avoided in Contracts
• Utilities: The contract will state whether the owner or the contractor
is responsible for supplying temporary utilities during construction.
• Permits and Licenses: This clause indicates whether the owner or the
contractor is responsible for securing permits or licenses.
• Subcontracting Requirements: Requirements are explained as to how
and what may be subcontracted during construction.
• Performance Bonds: Whether performance bonds are required and
the specific format that they must be submitted in with the bid
estimate.

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Topics/ Clauses Frequently
Covered or Avoided in Contracts
• Payment Bonds: Whether payment bonds are required and the
specific format that they must be submitted in with the bid estimate.
• Insurance and Risk Management: Provides a list of the different types
of insurance policies that are required to be maintained at all times
during construction. Contractors are normally responsible for
obtaining insurance policies since the cost of insurance policies is
based on the risk factors related to the contractor not the owner.
• Indemnity: If present this clause will state that the contractor
indemnifies the owner, which means that the contractor is taking on
the liability of the owner in addition to his or her own liability.

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Topics/ Clauses Frequently
Covered or Avoided in Contracts
• Acceptance and Final Payment: The conditions under which the
owner will accept the project as having met all of the contract
requirements for completion of the project. This clause sets the dates
for final inspection, certification of completion, acceptance of work,
and issuance of the final payment including retainage.
• Governing Laws: A statement as to which state laws pertain to the
construction project.
• Jurisdictional Venue: The court system that would have jurisdiction,
and that would try any case, resulting from disputes during execution
of the contract.

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PERFORMANCE OF CONTRACT

Substantial performance
• Substantial performance if it is completed except for small items
• Structure is fit for habitation
• A punch list is generated
• A typical clause on substantial performance is: the accomplishment of all things
essential to the fulfillment of the purpose of the contract, although there may be
insignificant deviations from certain contracts or deviations.
• Once a project has reached substantial completion, the engineer will issue a
certificate of substantial completion

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PERFORMANCE OF CONTRACT

Partial performance
• Not fit for habitation
• Partial performance – no contract remaining
• This is the condition where a contractor is in default and in breach of contract.
• Owner could sue the contractor and receive damages but the contractor should
still be able to recover some of their fee for services rendered to the owner if
they invoke unjust enrichment. Contractor is compensated for work performed

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BREACH OF CONTRACT
Breach by other Party
• If there is a breach by the other party clause when one party breaches
the contract, this would allow the other party to terminate their work.
• The person who has breached the contract and could be liable for
damages

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BREACH OF CONTRACT
Types of Breach of Contract
1) Total breach
Invalidates a contract and relieves the other party from performance of
the contract
2) Partial breach
Courts to determine the damages for breaching part of the contract
3) Anticipatory breach
When one party realizes that the other party will breach the contract
and they breach it in anticipation.
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REMEDIES FOR BREACH OF
CONTRACT
When a breach of contract occurs, there are several different remedies
for breach of contract that the courts could award to compensate the
party that was materially harmed by the breach of contract
1. Nominal Damages
2. Pencitory Damages
3. Liquidated Damages
4. Restitution

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REMEDIES FOR BREACH OF
CONTRACT
1. Nominal Damages
Nominal damages are awarded by the courts in order to recognize that
a breach of contract has occurred but no harm was caused by the
breach of contract. The nominal damages would be small sum that
demonstrates that a party has breached the contract.
2. Pencitory Damages
Pencitory damages attempt to return the person that was materially
harmed by the breach of contract back to the position they were before
the contract started. If this is not possible, they provide monetary
compensation to the plaintiff.
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REMEDIES FOR BREACH OF
CONTRACT
3. Liquidated Damages
• The amount prescribed in contract document to be paid to the State/
Owner or to be deducted from any payments or become due the
contractor, for each day’s delay in whole or any specified portion of
the work beyond the time allowed in the contract.
• Liquidated damages could only be assessed if an owner is able to
prove that he or she is losing a certain amount of money per day for
each day that the completion of project extends beyond the
scheduled completion date.

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REMEDIES FOR BREACH OF
CONTRACT
4. Restitution
Restitution is used to return plaintiff to a position that they would have
been able to achieve if the contract had been completed or they are
awarded an amount of money that would be equivalent to the value of
the project that was not completed at the time of breach of contract.

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WAYS TO TERMINATE CONTRACT
• Both parties perform their contractual obligations
• Mutual agreement to terminate the contract
• No longer possible to perform the work due to an act of God that
destroys the project
• Legal system could terminate it if one party files for bankruptcy
• Breach of contract

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NEVER GIVE UP ON SOMETHING
THAT YOU CAN’T GO A DAY
WITHOUT THINKING THEM
~WINSTON CHURCHILL

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