It is probably beneficial to begin by briefing outlining the general character of a contract. .Seeley (1997) defined a contract as an agreement that directly creates and contemplates an obligation. In a simpler form, a contract is a promise or set of promises the performance of which the law in some way recognizes as duty. The word is derived from the Latin contractum, meaning drawn together. Where the contract terms are set out in writing in a document, which the parties subsequently sign, then both parties are bound by these terms even if they do not read them. In construction, it is universal practice for the contract to be formalized in the form of a written document. Its main purpose is to define exactly the rights and obligations of each party (i.e. owner, contractor and society). It describes precisely the legal, financial and technical provisions of the work. It usually contains clauses that specify completion time of the project, liquidated damages, particulars concerning payments to the contractor, scope and nature of the work to be done e.t.c.
The ideal contract would be where all information was complete in every detail before commencement, no variation issued and completed on time and allowing the contractor to make his anticipated profit. One of the important elements of a valid contract is the absence of any possible fault, either in the formation or execution of the contract.
Faults in building contracts are mistakes, glitches, defects, omissions or oversights that could occur in the formation and execution stages of the building contract. A contract is voidable if there was a fault either in the formation or execution of the contract. A fault could arise before or after the offer or proposal made by the contractor is accepted by the owner, when obligations are not being performed or observed in exact accordance with the stipulated terms of the agreement outlined in the contract documents.
A fault can be in form of a breach at the execution stage. However, faults which occur between the period of formation and execution of a contract are detrimental to the proper progress of work on site during construction.
Absence of fault in any building contract is already a prerequisite for a contract to be valid. This research focuses on the relevance of absence of fault in building contracts and how it affects the quality of execution of contracts.
2.0Fault at formation stage of building contract
The formation stage refers to the period between the pre-tender and pre-contact stage. The pre-tender stage is where all contract documentation, tendering particulars and qualifications and preliminaries are handled .this stage is where the employer ;
ensures that the basis on which tenders will be evaluated is clearly set out in the tender documents,
ensures that the procurement documents are clear and comprehensive and set out the rights and obligations of all parties,
ensures that all contract documents are available and the terms of the contract are clearly spelt out for clarity and understanding .
The pre-contract stage deals with offering the contract for bidding , there is invitation to tender from prospective offerees and the acceptance of the tender. Under Standard Form, the contractor undertakes to carry out the work under prescribed conditions and in accordance with the contract documents.
So, when a clause is either ignored or omitted during documentation, this can affect the effectiveness and efficiency of discharge of contract. The law relating to contracts gives the employing party the right to enforce the fulfillment of these terms, so the accepting party has to be clear about the terms of the contract before proceeding on the project proper. The following are some of the faults which occur at the formation stage of the contract:
2.1Contract formation – how rough is an estimate
Building professionals must say whether or not the estimate includes for any possible increase in cost and the extent to which it does so. Some types of contracts allow for extra costs that might be incurred in the course of carrying out the project while some do not.
2.2omissions of important documents or clauses – how important can a piece of paper be
The ideal contract would be where all information was complete in every detail before commencement, no variation issued and completed on time and allowing the contractor to make his anticipated profit. The rights and obligations of the owner and the contractor are defined in a document called the contract document. This document generally follows a standard format for construction contracts entered into by government and public bodies. The contract document consists of the contract agreement and the following set of documents, each page of which is signed both by the owner and the contractor:
Notice inviting tender (NIT)
Schedule of issue of materials
Conditions of contract: the terms and conditions of contract specify the rates of each item of work, manner of payment to contractor, time of work completion, arbitration for settlement of disputes among others. When the contractor does not carefully read and under stand the contract before executing the work, there could be cases of misunderstandings later on.
2.3interpretation and implied terms – the rules of interpretation
The contract documents of the design professional are the ‘bible’ for the project; when approved they will be the basis for all approval and inspection. Obviously, if they do not reflect code compliance, they will never be approved by a code official committed to strict enforcement by law but when this procedure is boycotted, there is possibility of there being fault in the document.
Once a contract has been reduced to writing, ’verbal evidence’ is not allowed to be given… so as to add to or subtract from, or in any manner to vary or qualify the written contract.
2.4Post-tender planning is used in chalking out specific details for execution of the project. Inadequate planning at this stage inevitably results in delays leading to heavier expenditure than originally estimated.
2.5performance, completion and payment
2.6liquidated damages and extensions of time
3.0fault at execution stage
The execution stage is also called post-tender stage or construction stage. This stage commences with the acceptance of the tender and extends till completion of the contract. After the pre-tender stage, the contractor has to undertake detailed planning to organize various activities of construction work so that the project may be completed within the scheduled time. At this stage, much of the fault would probably occur on site and this would in turn affect the quality of job and time delivery of the job. Here are some of the defects that occur:
3.1delay in completion time: technical problems can arise on site which can cause delay in progress. A delay in the delivery of project is a fault in contract because there is a breach of which obligatory performance has been omitted. However, some factors could be responsible for this particular fault at the execution stage of a contract which could be totally unpredictable. They are:
During execution of the work, labour wages and material prices may increase as a result of inflation (this is different from fluctuation). If the contract conditions do not include an appropriate clause for proper payment of escalation to the contractor, this leads to sudden halt of work on site. Generally, escalation payment is made for increase in the cost of labour, materials and petrol, oil and lubricants (POL) and the percentages of three components are taken as under:
Labour30% of contract price
Materials65% of contract price
POL5% of contract price
The compensation for escalation is usually worked out at quarterly intervals with respect to the cost of work executed during that period.
Site disputes may arise between the building professionals on site because of several factors such as alleged delays, delays in payment of labour jobs or subcontractors, defective work, excess consumption of materials and wastage of materials. The relationship between the site manager and the labourers is also anther major source of concern, if their relationship is strained, it would lessen the level of cooperation between these individuals. These labourers could resort to abandonment of work on site leading to unnecessary delay in project work.
3.1.3Force majeure and natural disasters
Natural disasters are acts of nature such as unprecedented floods/rainfall, fire e.t.c. These disasters along with occurrences of riots, violent protests, civil commotion, revolt e.t.c .are beyond the control of the contractor and may lead to financial and time loss. If the contractor does not obtain an insurance policy for such risks, an extension of time is inevitable leading to de lay in delivery time.
3.2termination of contract:the owner can terminate the contract in the event of default or bankruptcy of the contractor and may impose penalty as per the contract agreement. The fault on the part of the contractor includes abandoning the work, failure to maintain required progress, non-observance of rules/instructions e.t.c. for which the owner may rescind the contract and impose penalty up to 10% of the estimated cost of the work. Due notice must be served on the contractor before termination of the contact.
3.3The Nigerian situation
Faults could occur at any of these stages in the Nigerian building industry but it is more prominent at the execution stage. Usually, it occurs such that:
The employer could invite tenders with no firm intention of proceeding with the procurement,employ contractors on biased and unfair treatment of tenders, give unfair treatment of tenderers and the employer may not ensure that legal requirements and principles are upheld in relation to safety, health, the environment and sustainable delivery management. All these are as a result of carelessness or ignorance on the part of the employer and the agents.
The contractor may attempt to influence the judgement, or actions, of agents, employees, or representatives by inducements of some sort and make spurious claims for additional payment or time. When he engages in unfair or unethical practices in dealings with subcontractors, in collusive practices that have direct or indirect adverse impacts on the cost of the project to the employer and he undermines the development objectives of the employer through tokenism or fronting, the contractor is heading in such a direction that would lead to defects in the progress of work.
The agent accepts gifts, favours or other considerations of anything more than token value from any other party to the procurement process. This is to aid him in influencing the judgement of the employer.
Sometimes the prime consultant is shelved out of settings on site when sharp practices are to be done.
All these scrupulous acts distinguish the building industry in Nigeria and the effect is seen in the resultant collapse of buildings in recent time which was not the norm until some few years ago. Until all these defects are looked into and handled properly, providing a sustainable living environment is still a lot of work for the professionals to achieve.
4.0effects of fault in building contracts
Fault, as it was defined earlier, could be an imperfection or a flaw in the design and construction process. A fault when unremedied, can only lead to another fault. When the proper steps are not taken in a construction process, its like a chain reaction effect, the final output from the process can not be as impressive as it was intended.
4.1relevance of absence of fault in building contracts
A well defined contract apart from giving the contractor the necessary information also achieves the following:
Unbiased decision in the selection process for award of contracts gives any interested tenderers confidence in the selection process.
Smooth running of site operations without delays and glitches
Promotion of healthy relationship between the building professionals from the most sophisticated echelon to the illiterate mason.
Confidence is built in the public concerning the building industry.
Most contracts entered into between building contractors and their employers are entire contracts, whereby the agreement is for a specific project to be undertaken by the contactor for an agreed sum which does not become due until the work is complete. In these circumstances, the contractor is not entitled to any payment if he abandons the work prior to completion and will be liable in damages for breach of contract.
Delay in completion of work not attributed to the contractor should be brought to the notice of the owner by the contractor in writing, within the time specified in the contract, for seeking extension of time. The owner will satisfy himself that the delay is not on account of a lapse on the part of the contractor before granting suitable extension of time.
Efforts should be made to resolve disputes amicably between warring individuals through mutual discussions and negotiations. Arbitration clause may be incorporated in the contract to settle disputes not resolved through mutual discussions and negotiations.
In the event of financial or time loss, the contractor can claim financial compensation from the owner for risks which are not insurable and an extension of time for all such risks.
An appropriate clause should be included in the contract agreement with the contractor having full knowledge and understanding about such matters.In cases of uncontrollable faults, preparations are made towards cushioning the effects of these factors.
Faults are a menace to the building industry which should be addressed by every individual involved in the building industry taking into consideration the salient points and should be conversant with all terms and terminologies that could occur in the process of carrying out project.
John Philip Bachner, Practice Management For Design Professionals-A Practical Guide To Avoidingliability And Enhancing Profitability.1991 John Wiley And Sons, Inc.
Catherine Elliot and Frances Quinn. Contract Law Second Edition. 1991 Pearson Education Limited
Philip H. P. Bennett CBE MA FRSA FRIBA1981.Design Strategies In Architecture Architectural Practice And Procedure.
FCDA Workshop and Technical Handbook
Ivor Seeley Quantity Surveying Practice 1997