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Dr. Tanvir Manzur

Department of Civil Engineering, BUET

CE 301: PROFESSIONAL PRACTICELegal Aspects of Professional Practice: Contract

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Introduction Regardless of the scale, constructed facilities use the project as an

organizing device

Projects tend to arranged in a way that epitomizes the fragmentedform of hierarchical network organization, in which contracts arehighly specialized

The usual approach relies on price-based contracting methods Often results in adversarial relations between participants

The AEC industry is rife with miscommunications &misunderstandings

Such an environment creates the need to be aware of the legalconsequences of ones actions and knowledgeable enough to knowwhen the advice of an attorney should be sought

Dr. Tanvir Manzur, CE, BUET

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Contract Law


A contract is a legally binding agreement that sets forth each

partys responsibility to each other

No projects should be pursued without a written agreement

To do otherwise would leave the assignment of

responsibilities to assumption and key provisions to the

vagaries of memory

The contract is a key aspect of client-design professional

communication

Violations of responsibility and/or obligation can result in

legal action

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Contract Law


There are many terms used to categorize contracts:Bilateral/unilateral

Involving two parties/involving one partyEnforceable/unenforceable

Containing all necessary elements/not containing all necessary elements(e.g., statute of frauds requiring certain contracts to be in writing to beenforceable or statute of limitations has passed)

Void Missing one or more elements, perhaps due to an oversight

Voidable Giving a party the right to call the contract void

Express/implied Agreeing explicitly/ relying on parties actions toward one another

Written/verbal Text or orally based

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Contract Law


For a Contract to be binding, six elements must be present:

Agreement Acceptance of an offer

Consideration Agreed upon or perceived value

Legality

Adherence to public policy (enforceability)

Authentication Signature or corporate seal (attestation)

Capacity

Signatories sane and have authority to represent business entityLegal purpose

Subject of contract must be legal

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Contract Formation


Several issues need to be considered when formatting

contract

These include:

Assumption of liability

Professional liability insurance

Disparate bargaining power

Indemnifications

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Contract Formation


Assumption of Liability

Liability in contract law centers on whether a contract provisionhas been breached

If a civil engineer agrees in a contract to act in a non-negligentmanner, a negligent act would create both tort & contractualliability

A good approach is to avoid provisions that obligate moreassumptions of responsibility than common law requires

This would include provisions that require civil engineers toperform at the highest professional level

The standard of practice requires only ordinary skill andacceptance

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Contract Formation


Professional Liability Insurance

Assumption of liability has major implications for professionalliability insurance coverage

Most policies exclude coverage of liabilities assumed in the

contract, a fact that should be discussed with the client

If well-informed by the civil engineer, clients may be persuadedto

Drop such problematic causes

Pay the added cost for such coverage

Or may become interested in including additional services (e.g., field

observation)

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Contract Formation


Disparate Bargaining Power

Disparate bargaining power occurs when one party has an unfairadvantage over another during contract negotiation

A contract adhesion can result when one party to the contractappears to have little power in relationship to the other This can happen, for example, when a very large client offers the only

opportunities for commissions in a small town

A civil engineer, who is forced to accept an onerous contractclause in order to secure a commission, can follow-up with aletter to the client stating that the provision was accepted

because the civil engineer needed the work and the principle ofdisparate bargaining power was at work

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Contract Formation


Indemnifications

A good definition of indemnificationis to secure against loss or

damage

Contract clauses can include indemnifications to protect either

party

For example, the client could indemnify the civil engineer for anycertifications required

Construction contracts between the contractor and the owner

often indemnify owners and design consultants to protect them

from being sued by workers and/or visitors injured on thejobsite

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Contract Formation


The best measures to take when entering into a contract with

a client are to:

Perform professionally

Create realistic expectations

Make clients aware of risks

Minimize ones own (engineers) risk

Obtain liability insurance and be sure of coverage

Consult a knowledgeable attorney

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Contract Wording


Words are never more important than used in contracts

Common words must be selected and used with care Words such as all, every, none, whose, who, he/she,

his/her, can be significant

Definitions are needed because interpretations of variouswords and phrases may differ dramatically

For example, hazardous materials may mean different

things in federal, state, and/or private work

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Contract Wording


Attorneys play an important role in reviewing contracts for

appropriate language and conformance with applicable

clauses & laws

However, civil engineers should not abdicate their

responsibility to attorneys

A contract is a communication tool, and reaching a mutual

understanding of responsibilities and restrictions with the

client can set the tone for all the work that follows

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Typical Contract Formats


Contracts assume various forms; but a minimum, regardless of theform, all contracts for civil engineering services should include:

Scope of services General conditions

Performance schedule Fee proposal

Some of the more commonly used contract format include: Conventional proposal Negotiated terms and conditions Multiple contracts

Special contracts for major projects

Client-developed contracts Purchase orders

Model contracts

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Conventional Proposal


Civil engineers often acquire work by preparing a proposal in

response to a RFP or RFQ

In qualifications-based selection (QBS), the work scope

included in the proposal becomes part of the contract

between the client and civil engineer

If the client is using a fee-based selection method, the clients

proposal should have (but not always does have) a well-

defined SOW

In either case, the SOW is an important component ofconventional proposal

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In QBS, the civil engineers proposal to the client can clarifythe SOW

In fee-based proposals, the civil engineers cover letter canidentify areas needing modification

These conventional proposals also typically include a section

under the heading ofGeneral Conditions General conditions are nontechnical understandings between

the two parties to the contract They include the business context & mutual responsibilities, such as when

payments are due and any limitations of liability

Most design firm have developed standard general conditions

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Whether the selection method being used is two-envelopeQBS or fee-based, conventional proposals will include some

mention of fee Generally including staff rates/time

Computer use

Testing

A schedule of fees Costs for additional services

A schedule for the services provided also will beincorporated into the contract

The schedule should depict milestones, such as completiondates and dates of major deliverables

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Negotiated Terms and Conditions


Negotiation of contract terms & conditions is not strictly

related to monetary issues

Often the decision centers on scope of services needed Sometimes the client may not agree to everything in general conditions,

such as indemnification provision

Clients and the civil engineer may want to shift risk Contemplating the assignment of risk is best done in the

earliest stages in order to minimize its effect

Sometimes general conditions are rewritten, or an addendum(Special Conditions)may be attached to the contract

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Multiple Contracts


Sometimes owners contract separately and simultaneously

with the prime (designer or contractor) and the sub-

consultants or subcontractors

This approach gives the owner more management

responsibility and more control

Sub-consultants have greater access and may receive more

prompt payment

Additionally, the prime designer may reduce vicarious

liability, in other words, exposure to liability stemmingfrom contractual relationships with other design professionals

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Special Contracts for Major Projects


For large projects, standard general conditions seldom suffice

Custom contracts with standard contract clauses frequentlyare developed, requiring attorney involvement

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Client-Developed Contract


Large clients can be powerful, and they sometimes attempt

to shift risk (liability) to their designers-engineers &

architects

Some client developed contracts attempt to shift more

liability to the designer than is required by law or custom

Typically, these additional risks are not accepted by insurance

companies

In such cases, the civil engineers may become the clients

source of free insurance

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Client-Developed Contract


To offset this increased risk, civil engineers can: Read RFPs and/or RFQs carefully-responses can become part of the

contract Have their attorneys review the client-developed contract very carefully

Charge a free premium over the usual amount charged for similar services

List outstanding issues in a cover letter accompanying the proposal andnegotiate later

Attempt to make the client accept risk

Civil engineers need to proceed cautiously with clients whoaccept risk too willingly

Clients must be able to honor the changes they have agreedto, that is, they need to have sufficient monetary resources tocover increases risk

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Purchase Orders


Occasionally, clients use purchase orders to hire civil engineers

This typically happens when a public client, who may have a

critical need, does not have time to conduct a formal selection

process

Public contract codes limit the amount public agencies can

commit through the use of purchase orders, so projects using thistype of contract tend to be small

Purchase orders are designed primarily to purchase materials and

are not really appropriate for professional engineering services

Civil engineers need to exercise good judgment when signing such

agreements

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Model (Standard Form) Contracts


Model contracts are developed by professional associations. InUSA such associations are:

American Institute of Architects (AIA) ConsensusDOCS LLC (Associated General Contractors (AGC) and 20 other

organizations)

Design Build Institute of America (DBIA)

The document produced by these organizations provide a vitalfunction

They provide a economical way for parties to contract with oneanother without lawyering up

More contract clauses have tested over time The documents are revised periodically to reflect changes in law

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Model (Standard Form) Contracts


Internationally, the International Federation of Consulting Engineers(FIDIC) is a leader in standard form contracts

The FIDIC, headquartered in Lausanne, Switzerland, is a coalition ofinternational, independent consulting engineers

Its forms are widely used in developing countries abd are recognized bytheWorld Bank

The joint Contract Tribunal (JCT) for the Standard Form of Building

Contract publishes documents commonly used in the United Kingdom The Engineering Advancement Association of Japan (ENAA) publishes

contracts, also recognized by the World Bank, used on power plantprojects constructed on a design-build basis

Although these organizations attempt to create contracts that are fair &balanced, it should be noted that there may be some bias in favor of theirmembership

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Contract Interpretation


Courts interpret contracts as a whole and attempt to give

reasonable meaning to all terms

However, specific negotiated provisions are given more weight

than general terms

Words and how they are used in a specific industry are every

important Courts look at the performance of the individuals involved in the

contract in question (course of performance), as well as how they

performed in previous contracts (course of conduct)

Unilateral mistakes and/or unexpressed intentions are not

considered part of the contract

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Think Twice Contract Clauses


Certification

Consequential Damages

Construction Cost Estimates

Construction Monitoring

Curing a Breach

Discovery of Unanticipated Hazardous Materials

Excluded Services

Freedom to Report Indemnification (to secure against loss or damage)

Jobsite Safety

Limitation of Liability

Maintenance of Service

Ownership of Instruments of Service Records Documents

Right to Reject and/or StopWork

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Certification Problem: contract may require Civil Engineer to certify that certain

conditions exist before, during, or after construction; but certify can beinterpreted as guarantee or warrant

Solution: if clause cannot be eliminated from contract, include definition

of certify acknowledging that Civil Engineer cannot certify conditions

whose existence cannot be known with certainty

Consequential Damages

Problem: Civil Engineer may be held responsible for damages as a

consequence of an event over which the Civil Engineer had no control;

damages could be completely out of proportion with the Civil Engineersfee

Solution: establish a general limit of liability in the contract

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Construction Cost Estimates Problem: the client may view a construction cost estimate provided by the

Civil Engineer as a guarantee maximum; an inaccurate estimate could

trigger claims Solution: hire (or have the client hire) a consultant who specializes in

preparing construction cost estimates; in the contract, refer to opinion ofprobable construction cost rather than cost estimate

Construction Monitoring Problem: no set of plans or specifications depicts the project completely; the

contractor must complete the design according to custom, which can besubject to debate in court; regular site visits by prime designers, geotechnicalengineers, and structural engineers can be beneficial in recognizing andsolving problems in a timely manner

Solution: construction monitoring should be an additional service included inthe contract and the Civil Engineer should accept only the responsibility thatis spelled out in the contract

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Curing a Brach Problem: difficulties can arise when the method for curing a breach is not

addressed in the contract Solution: identify mutual responsibilities and what a breach does, and

does not, imply

Discovery of Unanticipated Hazardous Materials

Problem: injured employee or other party can file claim Solution: when earthwork or existing structures are involved, add

contract clause acknowledging effects of changed conditions

Excluded Services

Problem: seeks to eliminate a claim that client was not made aware thatcertain services were unavailable

Solution: identify excluded services

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Freedom to Report Problem: some contractors file claims against Civil Engineers when their

reports are critical of the contractors work Solution: client indemnifies Civil Engineer or Civil Engineer reports

confidentially to client (client disseminates report rather than Civil

Engineer)

Indemnification (to secure against loss or damage) Problem: some forms of client-proposed clauses are more onerous

(distasteful) than others

Broad form: Civil Engineer agrees to hold harmless and indemnify

client from any and all liability, including cost of defense, arising out ofperformance of work; requires Civil Engineer to cover clients costs,

even when problem has been caused solely by the client

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Intermediate form: Civil Engineer agrees to hold client harmless from

and against liability arising out of Civil Engineers negligence, whether

it be sole or in concert with others; Civil Engineer may be required topay 100 percent of damages though has caused only 1 percent

Limited form: Civil Engineer agrees to hold harmless and indemnify

client against liability arising out of Civil Engineers negligent

performance of work; potentially mixes tort law liability with contract

obligations making the Civil Engineer liable both in tort and contract

law; liability insurance may only cover tort liability

Solution: attempt to eliminate such clauses or add clause regarding

disproportional payment for liability; have contract examined by legal

council and work with professional liability insurer; have contractorsinsurance carrier add owner and owners agents under contractors

liability insurance

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Jobsite Safety Problem: claims can arise from clauses making the Civil Engineer

responsible for acceptance of stop-work authority Solution: avoid clauses that go beyond the Civil Engineers responsibilities

normally required by law because these clauses could void liability

insurance coverage; suggest language to be used in the clients contract

with the general contractor stating that contractor agrees to waiveliability claims against the owner and owners agents for injury or loss;

refuse engagement if you believe safety matters will not be managed

effectively

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Limitation of Liability Problem: some clients may not see the value of limiting Civil Engineers

liability Solution: discuss the issue in terms of risk management and add a risk

allocation contract clause; a Civil Engineer always has a liability limit, whichis the amount of money available to satisfy claims; the fee should reflect risk-some projects are more risk prone; also include the money amount for

aggregate liability Maintenance of Service

Problem: when a Civil Engineer is a sub-consultant, the prime contract maybe cancelled; someone else may do construction monitoring, which cancreate problems in interpreting plans and specifications

Solution: include a contract provision that enables the Civil Engineer tocarry-on work even if owner prime designer contract is dissolved

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Ownership of Instruments of Service Problem: client may want to own the plans, specifications, reports,

boring logs, field data and notes, laboratory test data, calculations, andestimates, which can result in unauthorized reuse; if the jurisdiction views

these as products; any defects (errors and omissions) might be treated as

product defects, which could invoke the doctrine of strict liability rather

than negligence and could obviate professional liability insurance Solution: include a contract provision that indemnifies Civil Engineer

against unauthorized reuse and compensates Civil Engineer for the cost of

any defense

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Record Documents Problem: clients may want the Civil Engineer to provide record

documents (as-builts) based on information furnished by others; theaccuracy of this information is difficult to verify and the Civil Engineer

may be held liable for losses arising from errors

Solution: include a contract provision that makes clear the potential for

inaccuracies and eliminate terms like as-built drawings or correctedspecifications, which imply without error; use terms such as record

specifications and record drawings and add a prominent notice on each

page of record plans and specs

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Right to Reject and/or StopWork Problem: client may want the Civil Engineer to reject a contractors work

or to stop work if corrections are not made; the Civil Engineers roleshould be based more on observing and monitoring

Solution: add a contract provision that clearly states that Civil Engineers

responsibility; advice client to reject work that does not conform with

Civil Engineers recommendations, specifications, and design; if the clientinsists on a Civil Engineer stop work provision, include a contract clause

that provides Civil Engineers full waiver from any claim or liability, as

well as indemnification