Business Procurement and Contractual Practice
Answer 1
After due consideration of the case study, the following facts are given and need to be of utmost importance:
- Jim Akis Khan wants to develop 4 units of 3-bedroom houses in one of his lands situated in South East London.
- He wishes to use three of those units to rent and one of the units for living.
- He was a reasonable amount of involvement in the project.
- Environmental concerns are important to him.
As his senior commercial manager and Legal advisor, I would like him to opt for the traditional procurement method, as the same is most suitable to his case. Traditional method: In this case, the liability of the contractor is limited only to building the structure. Everything else, such as designing the structure and managing the contracts is taken care by the engineers or consultants and therefore, the role of contractor is limited. This is suitable to Mr. Khan’s project.
There are other procurement methods as well which include:
Design and build method of procurement: In the design and build method, a procurement route is settled where a primary contractor is appointed who is mainly responsible to plan, organize, control and construct. This is opposed to the system of traditional appointment contract, where initially consults are appointed who design the building and at a later stage, contractors are appointed to construct the structure. In a design and build procurement route, the employer provides a document that states requirements of the employer. This helps in ensuring that the client has a say in the construction project. The contractor then responds to the requirements with his proposal, which lays down details like estimated price of the construction project. According what suits the employer (also the client in this case), the contractor can be hired to perform all design related work or the employer can hire a designer cum consultant who will design and outline the concept of the building according to the specifications provided by the client and then the contractor is to be appointed solely for the purposes of construction. Under the design and build procurement method, there is a single point of responsibility and is most suitable for smaller projects where the main area of focus is not design per se. where design is considered as important by the client, but the design and build method has been chosen, and if the contractor is not himself a designer as well, he has three options before him: he can either use his in-house designers if available, or they appoint external designer consultants or even the client may suggest a designer.
Management contracting: This method is the complete opposite of the traditional method. Here the client, contractor, specialized contractors and consultants act as partners and participants. Consultants are involved with designing the project, the contractors are basically managers and do not undertake the real construction work. The building of the structure, in this case, is the responsibility of the specialized contractors. The client has to undertake the responsibility of finance and operations. This method is not suitable for Mr. Khan as this is too complicated and requires excessive involvement of the client, for which Mr. Khan does not have the time.
Other methods of procurement such as joint venture and private financing initiative are not suitable according the above stated case-study. Thus, it is suggested that Mr. Khan opts for the traditional method which is most suitable to the requirements of his case. Choosing the correct procurement method is crucial to the success of any project.
Answer 2:
Tort is a civil wrong or a violation of civil provisions which allows the victim to recover damages for the loss or injury suffered by him due to certain act or omission of a party who had a certain duty or obligation in the eyes of law and the same was violated. The three torts that can occur in construction projects are as follows:
- NEGLIGENCE: Negligence takes place when the law places a duty to take care and the same is breached. To prove that there has been negligence on part of a contractor, for instance, one must be able to prove:
- There was a legal duty on the part of the defendant to take care.
- There was a breach of that duty by the defendant.
- The breach of the duty to take care has resulted in loss or damage.
The duty to take care need not arise out of a contract specifically. It can arise independently of a contractual obligation and even where no contract exists. According to the Defective Premises Act of 1972, “Any individual performing work for dwelling provision carries burden of care to (its employer) and to each individual who derives an interest (whether legitimate or equitable) in dwelling to visualize that work which he performs on in done in a workmanlike or as scenario could be, professionalized kind with appropriate substances and so that as regards that work dwelling shall be matched for habitation when finished”. The House of Lords, in Donoghue v. Stevenson noted:
“There can be no special duty attaching to the manufacturer of food apart from that implied by contract or imposed by statute. If such a duty exists, it seems to me it must cover the construction of every article, and I cannot see any reason why it should not apply to the construction of a house. If one step, then why not fifty? If a house be, as it sometimes is, negligently built and in consequence of that negligence the ceiling falls and injures the occupier or anyone else, no action against the builder exists according to the English law, although I believe such a right did exist according to the Laws of Babylon”. This case came to form the base of tortious liability in case of negligence in the construction industry.
Defenses:
- Contributory negligence
- Act of God
- Inevitable accident
- STRICT LIABILITY: Strict liability is also called “no fault liability” where the person is responsible even if there is no direct negligence.
- NUISANCE: Nuisance refers to unreasonable interference with the right of undisturbed enjoyment of one’s property. Nuisance is generally of two kinds:
Private Nuisance: Private nuisance affects the rights of private persons to use their land or enjoy their property. This may occur due to damage to the building, excessive smoke or noise. In order to claim damages for private nuisance, one must be able to establish actual or prospective damage. However, the damage need not be physical damage.
Public nuisance: Public nuisance is when the rights of people at large is effect through the nuisance and the same is capable of constituting a public nuisance.
Construction industry can be a cause of nuisance to many. However, it was noted in Andreae v. Selfridge & Co. Ltd that “..in respect of operations of this character, such as demolition and building, if they are reasonably carried on and all proper and reasonable steps are taken to ensure that no undue inconvenience is caused to neighbors, whether from noise, dust, or other reasons, the neighbors must put up with it”.
Some effective steps include informing the neighbours informed, working at reasonable hours and not late into the night, taking steps to minimize demolition and dust, limiting noise and vibrations as far as possible.
Defenses:
- Prescription
- Statutory Authority
- TRESPASS: Trespass in the construction industry refers to interference with the intrusion into the property of another without due permission. Trespass can occur in two ways. First by a person entering into a property where he is she has not been authorized to enter or secondly, by placing something in someone’s property without their permission. In case of construction, this may include leaving cranes, scaffolding or other machinery in the neighboring property. A suit for trespass can be filed even if no damage has been caused to the plaintiff. If it is case of such nature, injunction will be issued to prevent the trespass from taking place in the future. However, where loss or injury has been caused, the damages are recoverable. Thus, where the land of the neighbor is to be used, it must be done with their permission or in exchange of a payment.
Defenses:
- Existence of a valid license
- Justification by law
- Necessity
- Just Tertii
Answer 3
According to the contract, the contractor needs to comply with all the conditions. Nevertheless, sometimes unreasonable conditions will arise during construction work and some contracts may restrict the contractor from continuing with the project if unbearable conditions occur. If such conditions occur, the contractor should notify the client about them. Contract conditions are subject to mutual agreement between both parties. Most international types of design contracts refer explicitly to soil conditions and give managers and workers a tradeoff position to eliminate risk.
The IChemE structure for minor works contract (The Orange Book) 2003 provides:
“The things that give the worker for hire the option to demand an augmentation of the term are delays brought about by: experiencing conditions at the site that couldn’t have been sensibly anticipated on the date of the project worker’s citation. By an accomplished project worker dependent on data accessible to them at that point, or by visual assessment of the Site or sensible examination. “
According to the FIDIC condensed contract structure (1999) business duty includes “actual obstacles or conditions other than the climatic conditions found on the site during the execution of the works, the hindrances or states of which couldn’t have been sensibly predicted by an accomplished project worker and that the project worker will quickly inform the project worker answered to the business. “
The ICE Design and Build contract (2001) provides: “In the event that the Contractor experiences states of being (other than climatic conditions or climatic conditions because of climatic conditions) or counterfeit hindrances during the execution of the Works, whose conditions or obstacles as it would see it couldn’t have been sensibly anticipated by an accomplished project worker, the Contractor will, accordingly, advise the business’ delegate recorded as a hard copy as quickly as time permits. “
NEC3 states that when the accompanying happens, it is viewed as a “remuneration occasion”:
With the above agreements together, there is a danger of unfavorable conditions that is placed upon the worker immediately, to the extent that he (or an accomplished workman) should have expected them. There are some contracts which do not refer to the actual information about the worker for hire. While it is generally acknowledged that disregarding what the project worker really knew would not be a precise translation of these statements. As a result, the authentic information of the worker for hire should also be considered.
Answer 4:
- Escalation in a formal way is known as multi-tier dispute resolution system clause(s) or MTDRCs. This is an agreement between parties that allows them to follow a series of steps with respect to different procedures in the event of a dispute in order to determine the dispute. The parties may include a multi-tier resolution system clause at either of the two stages, i.e., either before the dispute actually arises or after the dispute arises. This is popularly known as pre-arbitration clause and post-arbitration clause. In a pre-arbitration clause, parties decide before a dispute arises, the manner the dispute will be settled in case it arises. In post arbitration clauses, parties decide to refer a matter to arbitration after the dispute has arisen or at an appellate stage. In Collin v. Collin, it was held that “An arbitration is a reference to the decision of one or more persons, either with or without an umpire, of some matter or matters in difference between the parties.”
Apart from arbitration, there are other alternative dispute resolution systems as well. Mediation and conciliation are often used interchangeably. However, there is a slight difference between the two. In mediation, the mediator is an independent third party who merely assists the parties to reach a conclusion whereas in the case of conciliation, a conciliator who is a third party tries to bring the disputing parties to an agreement.
- b) The principles of NEC contracts are:
The key principles of New Engineering Contract (NEC) are as noted below with the help of landmark cases:
- It was held in Arcadis UK Ltd v May and Baker Ltd (t/aSanofi) [2013] EWHC 87 (TCC), where there is a dispute between the same parties on the issue similar to an issue which has been previously adjudicated, the second adjudicator can refer to the decision of the first adjudicator.
- In J Murphy & Sons Ltd v W Maher and Sons Ltd [2016] EWHC 1148 (TCC), it was observed that the phrase “”any dispute arising under or in connection with this subcontract” is wide enough to cover any dispute which allegedly arises under a settlement agreement.
- In the Fiona Trust & Holding Corp v Privalov [2007] UKHL 40, [2007] 4 All E.R. 951, it was held that even where parties have reached full and final settlement with relation to a dispute, these disputes could still be made subject to adjudication.
- In Universal Piling & Construction Ltd v VG Clements Ltd [2016] EWHC 3321 (TCC), it was observed that “under Clause 50, which incorporated the NEC short form contract NEC3 ECSC, when read with clause 10.1, the sub-contractor has the obligation to make payment applications, but such applications or their assessments are not conclusive as to the value of the work carried out.”
- In Anglian Water Services Ltd v Laing O’Rourke Utilities Ltd [2010] EWHC 1529 (TCC), it was observed that mandatory adjudication process does not fetter the right of the parties to refer the parties to a condtruction agreement to arbitration at any stage of the dispute resolution process.
- In SGL Carbon Fibres Ltd v RBG Ltd [2012] ScotCS CSOH 19, it was held that the onus of proof in case of a construction contract is on the employer where he seeks to recover overpayments and not the contractors, consultants, etc.
- C) Donoghue v. Stevenson is a leading case law in tort law dealing with negligence. It is important because it established the concept of duty of care. According to it, in order to prove negligence, one must prove the following:
- There was a legal duty on the part of the defendant to take care.
- There was a breach of that duty by the defendant.
- The breach of the duty to take care has resulted in loss or damage
This caselaw also established the neighbor principle or the neighbor test. Lord Atkin observed, “You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbor. Who, then, in law, is my neighbor? The answer seems to be persons who are so closely and directly affected by my act that I ought reasonably to have them”.
Further, it was established that a contractual relationship is not necessary to establish a case of negligence. The accepted defenses to the tort of negligence are: Contributory negligence, Act of God and Inevitable accident.
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