Construction Contracts: Basics of Contracts and Contract Administration

Gerald R. Genge, P.Eng., C.Eng., BDS, BSSO, C.Arb. Q.Med.

Principal – Arbitech ADR

Topics• Contracts

• What forms a Contract?• Forms of Contract

• CCDC Contract• Constituent Parts

GRG Building Consultants Inc. ArbiTECH

What is a Contract?• Five elements:

1. An offer capable of acceptance2. Communicated acceptance3. Consideration4. Capacity to “contract”5. Compliance with statutory requirements

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Offers• An offer must be able to be accepted• Must be defined in sufficient terms to result in

an agreement (contract)• The offeror must actually intend to enter into

a contract.

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Bid Requests• A Bid Call• A Request for quotations • A Request for Tender

……is a Bid Offer as soon as there is a compliant bid.

…..It forms a “Contract” (Contract A)

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Contract A

• A bid offer that can be accepted is a Contract.

• The importance is that if the person who made the bid offer fails to enter into a Contract with compliant bid, they are in breach of Contract “A”.

• Bidders can sue for losses if a compliant bid (that “should” be accepted) is not accepted.

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Acceptance• To form a contract there must be “acceptance”• Contract “A” is formed when the bidder accepts

the specifications, terms and conditions in the bid offer.

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Counter Offer• If the “bidder” receiving the bid offer does not

accept the specifications, terms and conditions but submits a variance to the bid offer. It is a Counter Offer.

• Contract “A” is formed only if the bidder accepts the terms and conditions in the bid offer.

• A “counter offer” [alternative, amended, bid proposal, etc. ] does not constitute Contract A.

• …..Remember….• [Other] bidders can sue for losses if a compliant

bid (that “should” be accepted) is not accepted.

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Capacity to Contract• Each “Person” who is a party to a Contract must

be legally able to enter into a Contract.• i.e. Legal age, sound mind, not forced

• Corporations are “Persons” in the eyes of the law.

• Corporations are able to contract within their individual articles of incorporation.

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Compliance with Statutory Requirements

• Whether oral or in writing, a Contract is not enforceable if to comply with the terms, etc. a law must be broke or circumvented.

• Basically, you can not contract out of the law.

…But the law that was allegedly broken is typically dealt with on a case-by-case basis…

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Forms of Contracts• Written• Oral• Purchase Orders• Sign back offers• Standard Construction Documents

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Required Provisions• Some Contracts must include certain

provisions to be legal. • Consumer Protect Act 2000, for example.

• Protects consumers against unscrupulous contractors and agreements.

• Includes “cooling off period”• Personal services agreements (dieting, fitness,

etc.)• Direct selling agreements• Internet agreements, etc.

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Construction and Repair Contracts

• Typically involve a written bid offer and acceptance with specific deliverables, terms, and conditions.

• Often standard forms of agreement are employed.• CCDC / CCA Documents• Corporate Agreements• Professional Association’s Agreements (PEO,

OAA).

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Written and Oral Contracts• Contracts (except transfer of real estate) need

not be in writing.• Contracts require a “meeting of the minds” to

be enforceable• Obviously oral contracts are much more difficult

to enforce.

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Contract Interpretation• Often if there is a dispute as to the fulfillment

of a Contract the courts will usually try to interpret the expressed intention of the terms.

• If the terms are vague, the court will likely look at the overall intent of the Contract to interpret the matter.

• If the Contract is too one-sided or unfair, the court may interpret against the party that drafted the Contract.

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Good Faith • Persons making bid offers, reviewing bid

submissions, and choosing must do so in good faith of the process.

• Tends to apply in terms of the bid process and selection of a bid.

• Not supposed to “rig” a bid offer or treat any bidder unfairly

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CCDC Contracts • CCDC 2 - 2008 Stipulated Price Contract• CCDC 3 – 1998 Cost Plus (Guaranteed Maximum

Price)• CCDC 4 - 2011 Unit Price Contract• CCDC 5A - Construction Management Contract

for Services• CCDC 5B - Construction Management Contract

for Services and Construction• CCDC 14 – 2000 Design Build Stipulated Price

Contract

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CCDC Other Documents• CCA 11 - 2006 Contractors Qualification

Statement• CCA 1 – Stipulated Price Subcontract• CCDC 20 - 2008 A Guide to the use of the CCDC

2 Contract• CCDC 9A -2001 Statutory Declaration of

Progress Payment Distribution by a Contractor • CCDC 9B - 2001 Statutory Declaration of

Progress Payment Distribution by a Subcontractor

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CCDC Contracts • CCDC 2 – Stipulated Price• Most common if the scope is well

defined• For unknown scope

• include unit prices• include cash allowances

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CCDC Contracts • CCDC 3 – Cost Plus• Not commonly used• Uses fixed mark-up on given rates• No real incentive / motivation

• To cut corners or• Accelerate the work.

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CCDC Contracts • CCDC 4 – Unit Price• (Was) very commonly used• Uses established rates based on

estimated quantities• Allows price adjustment for significant

increase or reduction in quantity• No real incentive / motivation

• To cut corners or• Accelerate the work.

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CCDC Contracts • CCDC 5A/B – Construction management• A - Makes the Owner the head contractor• B – Makes the Construction Manager the

head contractor• A - makes owner responsible for safety• B - makes the CM responsible for safety• Sometimes useful if the project has

multiple facets and OH/P costs for a GC would be too high.

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CCDC Contracts • CCDC 14 – Design-Build Stipulated Price• Sole source warranty• Usually includes large cash allowances

for undefined items and allows the D-B Contractor to be innovative.

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CCDC 2• CCDC Contract

Documents are Copyright protected.

• TCA Members can order pdf copies but the copies are only valid if they have a seal.

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CCDC 2

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CCDC 2

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CCDC 2 – Stipulate Price Contract

• Articles of the agreement ….A-1 to A-8• Definitions (important to assign responsibilities)• General Conditions …12 Parts • CGs typically amended or deleted by

Supplementary General Conditions (SGCs) to suit specific project or client requirements. (read carefully!)

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CCDC 2 – Articles • A-1 Defines the “Work”, its start and completion

(Substantial Performance). • A-2 States this agreement supersedes all

previous negotiations or agreements unless included in A-3

• A-3 Lists all contract documents, specifications, drawings, letters, conditions, etc. in the agreement.

• If it is not listed in A3… it is not part of the Contract

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CCDC 2 – Articles (Cont’)• A-4 Defines the Contract price both in words

and digits). • A-5 Sets out:

• Holdback percentage (superseded by Construction Lien Act in Ontario) and

• Interest on overdue accounts per annum • A-6 Lists the Owner, Contractor and Consultant

& the addresses for service.

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CCDC 2 – Articles (Cont’)• A-7 Language of the Contract (important for

legal interpretation)• A-8 States that all items in A-3 are in the

Contract.

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CCDC 2 – Definitions

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• 1. Change Directive• 2. Change Order• 3. Construction

Equipment• 4. Consultant• 5. Contract• 6. Contract Documents• 7. Contract Price

• 8. Contract Time• 9. Contractor• 10. Drawings• 11. Notice in Writing• 12. Owner• 13. Place of the Work• 14. Product• 15. Project• 16. Provide

CCDC 2 – General Conditions• Part 1 - General Provisions (1.1.9 deals

with order of priority of the documents in case of conflict)• Agreement• Definitions• SGC• GC• Division 1 (Usually the General

Requirements) • Divisions 2 to ? (Technical Specifications)• Material and Finish Schedules• Drawings ArbiTECH

CCDC 2 – GCs (Cont’d)• Part 2 - Administration

• Describes the Consultants Authority and Role to interpret documents and act on behalf of the Owner .

• Requires Consultant to review Work and the Contractor to remove/correct defective Work

• GC 2.2.6 and 2.2.7 deal with Consultants obligation to make a an interpretation and finding in respect to conflicts.

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CCDC 2 – GCs (Cont’d)• Part 3 - Execution of the Work

• States Contract has control over the Work and requires the Contractor to incorporate the Work as set out into the Contract documents.

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CCDC 2 – GCs (Cont’d)

• Part 4 - Allowances• States that the Owner directs use of Cash

allowances.• The Contractor can not add overhead and

profit to Cash Allowances.• Approved use of Allowances beyond the

stated allowance is to be by Change Order.

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CCDC 2 – GCs (Cont’d)• Part 5 - Payment

• …..often amended by SGCs to accommodate the owner’s and consultant’s payment process and schedule.

• Except, Holdback and Substantial Performance Provisions (which are governed by the CLA)

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CCDC 2 – GCs (Cont’d)• Part 6 – Changes in the Work

• Changes made by the Owner/Consultant do not invalidate the Contract

• Contractors are not to implement a change without a signed Change Order.

Exception is a Change Directive by the Owner• Contact must do the work promptly • Cost increase/decrease to be accounted for

in detail – often results in disputes

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CCDC 2 – GCs (Cont’d)• Part 7 – Default Notice

• Owner may stop Work, Terminate the Contract or Perform Work under certain circumstances – e.g. if the Contractor• Defaults, is bankrupt, or neglects the Contract.• Fails to correct defects• Provides unacceptable schedule amendments or

schedule to correct defects.• Contractor may stop work if delayed by

court or by Owner or is not paid.

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CCDC 2 – GCs (Cont’d)• Part 8 – Dispute Resolution

• Consultant to give “interpretation”• Provides Negotiation, Mediation and

Arbitration process.….More later

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CCDC 2 – GCs (Cont’d)• Part 9 – Protection of Persons and Property

• Contractor responsible unless damage is due to an error by another party not a Party bound by the Contract.

• Owner to identify and remove toxic substances (unless such is part of the Work)

…..frequent cause of delay claims … More on that later.

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CCDC 2 – GCs (Cont’d)• Part 10 – Governing Regulations

• Permit costs are to be paid for by the Owner.• The Contractor must comply with the

governing Regulations, by-laws, and codes but is not responsible to check the compliance of the Contract documents.

• If the Contactor knowingly violates a law – must pay for correction

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CCDC 2 – GCs (Cont’d)• Part 11 – Insurance & Bonds

• Often amended for individual project scope and cost.

• Bonds bind the full contract including warranty periods

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CCDC 2 – GCs (Cont’d)• Part 12 – Indemnification and Warranty

• Mutual Indemnification for / against claims by third parties arising form work of the other.

• Warranty is minimum one year – amended often for specific items of Work.

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CCDC Contract Summary• Currently the most widely adopted

form of Contract • Generally acknowledged as balanced

and reasonable • Included provisions that define

responsibilities and duties incumbent on all parties to the Contract and administering the Contract

• Provides (almost) all necessary resolution vehicles

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Construction Contracts – Basics of Contracts and Contract Administration

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