Beruflich Dokumente
Kultur Dokumente
NISHANTH R K (PGP-26160) PRAVEEN APURI (PGP-26161) SANJAY B K (PGP-26165) SIDDHARTH BHAT (PGP-26172) VINAYAK RAKKASAGI (PGP-26188) BHARADWAZ YAGALLA (PGP-26190)
Contents
CONTENTS....................................................................................2 ABSTRACT.....................................................................................3 1. INTRODUCTION...........................................................................4 1.1 1.2 1.3 1.4 1.5 1.6 1.7 PURPOSE.....................................................................................................4 SCOPE ......................................................................................................4 BACKGROUND ..............................................................................................5 TYPES OF CONTRACTS......................................................................................6 ESSENTIALS OF CONTRACT VALIDITY......................................................................8 BREACH OF CONTRACT.....................................................................................8 MAIN PARTIES OF THE CONTRACT..........................................................................9
2. FIDIC GUIDELINES ..................................................................11 2.1 SERVICES..................................................................................................11 2.2 ACTIVITIES.................................................................................................11 2.3 FIDIC CONDITIONS OF CONTRACT TYPES OF MANUALS..........................................12 3. FIDIC: CONDITIONS OF CONTRACT FOR CONSTRUCTION..............14 3.1 3.2 3.3 3.4 THE EMPLOYER...........................................................................................14 THE ENGINEER............................................................................................16 THE CONTRACTOR........................................................................................17 FORCE MAJEURE..........................................................................................19
4. CASE DISCUSSIONS...................................................................21 4.1 WALTER LAWRENCE AND SON LTD VS. COMMERCIAL UNION PROPERTIES (UK) LTD (1984). 21 4.2 IN PACIFIC ASSOCIATES V. BAXTER AND HALCROW (1988).......................................21 4.3 FALKLAND ISLANDS V GORDON FORBES CONSTRUCTION (FALKLANDS) LIMITED...................22 5. REFERENCES............................................................................25
Page | 2
Abstract
A construction project is continuous in nature usually spread over number of years. The problems that arise in the working of the projects are sometimes not foreseeable or even if they are foreseeable, their magnitude may not be foreseeable before or during the execution of the contract. In the Construction contract, where huge money is involved, an early and inexpensive dispute resolution is required otherwise the project will overrun in time resulting into the huge losses of money, idling of manpower and machineries. This is facilitated by the construction contract laws. At the global level the FIDIC guidelines form a good reference where as from the point of view of India, the Indian Contract Act, 1872 and various industry specific traditions, trade practices, sector specific usages form part of the entire domain of law. We also look at few of the FIDIC guidelines and some cases that were resolved using these guidelines.
Page | 3
1. Introduction
1.1 Purpose
The purpose of the report is to analyze the construction contract laws at the global level as well as from Indian perspective. In connection with the construction contracts at the global level, the FIDIC guidelines are pertinent whereas from the point of view of India, the Indian Contract Act, 1872 and various industry specific traditions, trade practices, sector specific usages form part of the entire domain of law.
1.2 Scope
In India there is no specific law with respect to construction contracts per se except for the states Gujarat and Tamil Nadu where they have passed laws with respect to infrastructure. Hence we refer to the guidelines issued by Fdration Internationale Des Ingnieurs-Conseils (the International Federation of Consulting Engineers) (FIDIC) through its various books Red, Green, Silver etc. For our purpose we restrict ourselves and omit the turnkey based construction contracts. We also limit ourselves to small construction contracts. For this purpose we use the FIDIC Red Book as a reference. We refer to popular cases that are judged based these guide lines. We also cover topics of arbitration that acts as an Alternative Dispute Resolution mode. We define and explain various terminologies used in construction contracts.
Page | 4
1.3 Background
A construction project is continuous in nature usually spread over number of years. The problems that arise in the working of the projects are sometimes not foreseeable or even if they are foreseeable, their magnitude may not be foreseeable before or during the execution of the contract. Since the number of the parties involved in the construction contract is high it is oblivious that the disputes will arise between them if one party failed to perform their obligation in terms of the contract. In the Construction contract, where huge money is involved, an early and inexpensive dispute resolution is required otherwise the project will overrun in time resulting into the huge losses of money, idling of manpower and machineries. Disputes can be resolved either through litigation or through alternative disputes resolution mechanism, which includes Mediation, Conciliation and Arbitration. In India where the courts are already heavy burdened with the backlog of cases, the dispute hangs over for years. Litigation is expensive as well as time consuming. If litigation is resorted for every problem, then, such problems will likely increase rather than to resolve the tension generated by the emergence of such problems. Though Mediation and Conciliation is very inexpensive mode of dispute resolution mechanism but the decision of the Mediator and Conciliator are not enforceable. Due to this reason the Mediation and conciliation fails in most of the cases. Arbitration is also one of the Alternative Dispute Resolution modes, which is more successful than mediation and conciliation because the Award passed by the Arbitrator is as good as the decree passed by the Civil Court Construction Law deals with all legal issues relating to the construction process from land acquisition and project financing to post-construction claims settlement. These include such matters as, building contracts, bonds and sureties, construction and builders' liens, tendering, and construction claims, which affect all participants in the construction industry, including lender financial institutions, architects, general contractors, subcontractors, suppliers, builders, owners, planners, designers, developers and engineers. It covers legal issues and disputes arising from building and improvements of all sizes and complexity from basic, residential work (private projects), to large, complex projects such as: government or commercial and industrial projects, including high-rise buildings, light-rail transit systems, nuclear and fossil fuel
Page | 5
power plants, hospitals, business office complexes, nursing homes, schools, shopping malls, historic renovations, bridge and highway construction, prisons, steel mills, continuous galvanizing lines, hydroelectric projects, sports and entertainment facilities, ships, cogeneration and alternative energy projects, development communities, and water and wastewater treatment plants. In addition, there are host of other laws which are also pertinent to construction contract law in India. Apart, depending upon the subject matter of construction, in addition to the above, some other laws like Labour Law, Tort Law, (law relating to civil wrongs like negligence, etc.,) Tax Law, Intellectual Property Rights law, Insurance and Arbitration Law are also relevant. For example, if the construction activity revolves around laying of Highways or building of fly-over, then land acquisition laws (both Central and State) play a significant role. Similarly, if government is a party to a Construction Contract, then Constitutional law is applicable. Particularly, in connection with Tendering, Black Listing, etc., the aggrieved party is entitled to invoke appropriate fundamental rights as against the governmental authorities assailing their decision making.
Page | 6
These types of contracts are favoured where the scope of the work is indeterminate or highly uncertain and the kinds of labour, material and equipment needed are also uncertain. Under this arrangement complete records of all time and materials spent by the contractor on the work must be maintained.
Page | 7
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.
install the electrical systems needed in the house. Generally the subcontractor will either relieve the main contractor of part of the building work, or will be able to perform work at lower expense or at a greater skill level than the general contractor could. Frequently, though, hiring a subcontractor, or several, is a way to avoid problems in construction. Specialized workers like plumbers, electricians, or people who install heating and cooling devices, often called HVAC workers, tend to have more knowledge and training in their given field. While simply building something requires training and knowledge, people who are specialists better perform certain types of work. A subcontractor often holds licenses in his or her specialty field. He or she might hold a general license to conduct work in a state, and also hold advanced licensing. Such licensing implies a certain amount of hours practicing his or her trade and knowledge regarding state building codes.
Page | 10
2. FIDIC Guidelines
The acronym FIDIC stands for Fdration Internationale Des IngnieursConseils, a French acronym which when translated reads the International Federation of Consulting Engineers. The founding member countries of the FIDIC were Belgium, France and Switzerland. It was established in 1913. Its headquarters is located at the World Trade Centre in Geneva, Switzerland
2.1 Services
FIDIC aims to represent globally, the consulting engineering industry by promoting the business interests of firms supplying intellectual services based on technology for the built environment and the natural environment. Run mostly by volunteers, FIDIC is well known in the consulting engineering industry for its work in defining Conditions of Contract for the Construction Industry worldwide. Companies and organizations belonging to FIDIC national member associations are encouraged to announce themselves as FIDIC members and use the FIDIC logo.
2.2 Activities
FIDIC organizes conference, seminars and training courses. The FIDIC training manual Guide to Practice - the business of a professional services firm is well known throughout the profession of consulting engineering. FIDIC also runs a bookshop and publishes international contracts and business practice documents which are used as guides and templates the world over. FIDIC is best known for its range of Standard Conditions of Contract for Construction, Plan and Design-build, EPC/Turnkey Projects and Design, build and operate projects. Details are available in the FIDIC Bookshop. FIDIC also publishes the Client/Consultant Model Services Agreement together with the Sub-Consultancy Agreement and the Joint Venture Agreement. FIDIC publishes the MDB Harmonised Edition of the Construction Contract that is used by Multinational Development Banks including the World Bank for their projects.
Page | 11
Until 2002, FIDIC was responsible for FIDICdirect, the International Directory of Consulting Engineers. This printed and online directory listed international construction companies including engineers, contractors, architects, surveyors and their professional advisors including banks, lawyers, risk managers and security from the fields of infrastructure, development and environmental projects worldwide. In 2002 this service was transferred to a new website, ICONdirect.
The test edition of these models was published in 1998, and FIDIC solicited opinions throughout the world for additional time to publish the official texts in 1999. Now FIDIC condition of contract has been applied worldwide, especially in the projects invested by World Bank, Asia Development Bank, Africa Development Bank etc. The following are the various books which contain guidelines to different circumstances involved in the construction contract. They have been colour coded and hence are referred to as the Red Book, Green Book etc.
Page | 13
Page | 14
Page | 15
implied by the contract, the engineer shall be deemed to act for the employer. b) The engineer has no authority to relieve either party of any duties, obligations or responsibilities under the contract; and
c) Any approval, check, certificate, consent, examination, inspection,
instruction, notice, proposal, request, test or similar act by the engineer (including absence of disapproval) shall not relieve the contractor from any responsibility he has under the contract, including responsibility for errors, omissions, discrepancies and non-compliances
Page | 16
3.2.5 Determinations
Whenever these conditions provide that the engineer shall proceed in accordance with this sub-clause 3.5 to agree or determine any matter, the engineer shall consult with each party in an endeavour to reach agreement. If agreement is not achieved, the engineer shall make a fair determination in accordance with the contract, taking due regard of all relevant circumstances. The engineer shall give notice to both parties of each agreement or determination, with supporting particulars. Each party shall give effect to each agreement or determination unless and until revised under clause 20 [Claims, Disputes and Arbitration].
Page | 17
The contractor shall be responsible for the adequacy, stability and safety of all site operations and of all methods of construction. The contractor shall, whenever required by the engineer, submit details of the arrangements and methods which the contractor proposes to adopt for the execution of the works. Prior to the commencement of the tests on completion, the contractor shall submit to the engineer the as-built documents and operation and maintenance manuals in accordance with the specification and in sufficient detail for the employer to operate, maintain, dismantle, reassemble, adjust and repair this part of the works. a) Performance Security: The contractor shall obtain (at his cost) a performance security for proper performance, in the amount and currencies stated in the appendix to tender. b) Contractors Representative: The contractor shall appoint the contractors representative and shall give him all authority necessary to act on the contractors behalf under the contract c) Subcontractors: The contractor shall not subcontract the whole of the works. d) Co-operation: The contractor shall, as specified in the contract or as instructed by the engineer allows appropriate opportunities for carrying out work to: a. The employers personnel b. Any other contractors employed by the employer, and c. The personnel of any legally constituted public authorities Who may be employed in the execution on or near the site of any work not included in the contract.
Page | 18
to (iv) of Sub-Clause 19.1 [Definition of Force Majeure] and, in the case of subparagraphs (ii) to (iv), occurs in the Country, payment of any such Cost.
Page | 19
Page | 20
4. Case Discussions
4.1 Walter Lawrence and Son Ltd vs. Commercial Union Properties (UK) Ltd (1984)
In the case of Walter Lawrence and Son Ltd v. Commercial Union Properties (UK) Ltd (1984) where a contractor was suing for returning of amounts deducted as liquidated damages. Held that: .. When considering an extension of time under FIDIC 1999 Edition clause 8.4(c), on the ground of exceptionally inclement weather the correct test for the architect to apply is whether the weather itself was exceptionally inclement so as to give rise to delay and not whether the amount of time lost by the inclement weather was exceptional ..
compromised when the Ruler of Dubai agreed to pay Pacific some 10m in full and final settlement of its claims against him. In March 1986Pacific issued a writ claiming 45 m from Halcrow, being the unrecovered balance (including interest) of its claim against the Ruler of Dubai. The Court of Appeal held: (1) In considering whether a duty of care existed it was relevant to look at all the circumstances and these included the contract between the Ruler of Dubai and Halcrow. (2) There had been no `voluntary assumption of responsibility' by Halcrow relied upon by Pacific sufficient to give rise to a liability to Pacific for economic loss in circumstances in which there was an arbitration clause. The position might well have been otherwise if the arbitration clause or some provision for arbitration had not been included in the contract. SUMMARY It would seem from the decision in Michael Salliss & Co Ltd v. Calil (1987) that architects and engineers could have a liability to a contractor if they fail to act fairly.
Disputes arose between the parties and these were referred to arbitration. During the course of arbitration an issue arose as to the meaning of clause 53 of the FIDIC Conditions. Clause 53 sets out a procedure which the contractor must follow in the event that he intends to make a claim. Briefly, Clause 53 requires that if the contractor intends to claim any additional payment under the contract, he is required to give notice of his intention to the Engineer within 28 days of the event giving rise to the claim. The contractor is then duty bound to keep such contemporary records as may reasonably be necessary to support any claim he subsequently makes. The Engineer is given rights to inspect those records and to call for further contemporary records. The contractor is then to send to the engineer an account giving detailed particulars of the amount claimed and the grounds upon which the claim is based. Clause 53(4) concludes by saying that if the contractor fails to comply with any of these provisions, his entitlement to payment is restricted to such amounts as the Engineer assesses the claim to be worth based upon whatever contemporary records are available. The entire purpose of clauses such as FIDIC Clause 53 is to provide a disciplined way of dealing with claims for additional payment. Claims have to be notified at the time they arise and contemporary records have to be kept and regular accounts rendered. The whole contractual system is aimed at the early resolution of any queries at the time the claim arises, with the likelihood that plant, manpower and witnesses are still on site. The obligations of Clause 53 fall almost entirely on the shoulders of the contractor and the wording of the contract is mandatory, the contractor "shall" do these things. The essential substance of such clauses is therefore that if there is no contemporary record to support the claim, the claim fails. Unsurprisingly, both the Falkland Islands government and Forbes Construction agreed this interpretation. Forbes was keen, however, that the court should agree with a clarification. They wanted to produce witness statements which would help to fill in the gaps in any situation where there was a shortfall in the contemporary records. Before answering that question, Judge Sanders felt it appropriate to clarify what was meant by the term "contemporary record". The term is not defined in FIDIC and it has not been the subject of judicial guidance previously. Judge Sanders concluded the contemporary records meant original or primary documents or copies thereof, produced or prepared at or about the time giving rise to the claim, whether by or for the contractor or employer. The making of the record does not have to be instant, and whether or not a record was to be regarded as contemporary would depend on the facts surrounding the making of that record.
Page | 23
It would however be exceptional if any record could be regarded as contemporary if made more than a few weeks after the event. Judge Sanders concluded that it would be perverse if a contractor who had failed to comply with the terms of the contract should then be allowed to produce noncontemporary records to support a claim, particularly as these could not properly be investigated by the employer at a later date. The rights of the employer to inspect the records at the time the claim arose were fundamental to the FIDIC procedure. This fairly strict interpretation leaves little room for contractors to manoeuvre. The requirement to keep good records of activities on site in the event of a claim remains paramount. Judge Sanders confirmed that there is however exceptions where witness statements may be brought into play. If contemporary records are in some way ambiguous or unclear, it would be acceptable for the tribunal to take into account witness statements which seek to resolve that ambiguity or lack of clarity. Judge Sanders also commented that a valid claim might exist, despite the absence of direct contemporary records, where inferences could be drawn from the existing contemporary records to show that otherwise unsupported parts of a claim were valid. An example of this would be where the contractor claimed four weeks work by labourers but the available contemporary records only supported a claim for weeks 1, 2 and 4. It may be reasonable for the tribunal to infer from these records that the contractor continued to provide work for all four weeks and witness statements may be admitted in support of that contention. The tribunal would need to bear in mind however that the burden of proof in all such matters rested with the contractor.
Page | 24
5. References
1. FIDIC Red Book 1999 2. 150 Contractual problems and their solutions, Roget Knowles, 2003 3. Falkland Islands v Gordon Forbes Construction (Falklands) Limited http://www.brewerconsulting.co.uk/cases/CJ0318CL.htm 4. Liquidated damages and extensions of time in construction contracts, Brian Eggleston 1997 5. Civil Engineering Blog, http://civilengineerblog.com
Page | 25