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Transcript of Lec-4 upto 22.5.13
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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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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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Conventional Proposal
Dr. Tanvir Manzur, CE, BUET
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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Conventional Proposal
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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
Dr. Tanvir Manzur, CE, BUET
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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Think Twice Contract Clauses
Dr. Tanvir Manzur, CE, BUET
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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Think Twice Contract Clauses
Dr. Tanvir Manzur, CE, BUET
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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Think Twice Contract Clauses
Dr. Tanvir Manzur, CE, BUET
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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Think Twice Contract Clauses
Dr. Tanvir Manzur, CE, BUET
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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Think Twice Contract Clauses
Dr. Tanvir Manzur, CE, BUET
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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Think Twice Contract Clauses
Dr. Tanvir Manzur, CE, BUET
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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Think Twice Contract Clauses
Dr. Tanvir Manzur, CE, BUET
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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Think Twice Contract Clauses
Dr. Tanvir Manzur, CE, BUET
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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Think Twice Contract Clauses
Dr. Tanvir Manzur, CE, BUET
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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Think Twice Contract Clauses
Dr. Tanvir Manzur, CE, BUET
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