Construction Contract Law and Construction Work

ü Construction contracts

In recent years, the construction industry in Sri Lanka as well as all over the world has seen huge growth. Construction of both residential and commercial buildings has increased rapidly. With the rapid growth of the industry, construction related disputes are also increased. The construction contract is the essential document that set out the rights and responsibilities of each party to the agreement. The contract should tell exactly what the contractor, client, and other parties going to do. Most construction contracts are standardized forms. A typical construction contract will set out,

ü Construction disputes and resolving them

Disputes may arise during any construction project. Those disputes can cause delays that add to the expense of the project. Disputes that arise at any time are costly and consume a great deal of everyone’s time and energy. In many construction related problems, the parties use alternative dispute resolution methods, such as arbitration or mediation, rather than take a dispute to court, because they are generally faster than and less expensive than traditional litigation, but there are some construction related disputes that will only be resolved through litigation.

Many construction contracts related disputes can be resolved by arbitration. Many courts will order to submit a case to an arbitrator before take it to litigation. Arbitration is like a trial, except that it is usually much less formal. The dispute is heard by one or more arbitrators, who are selected from a panel of neutral arbitrators. The arbitrators may be attorneys or people with expertise in the construction industry. Arbitration is made binding on the parties. The courts will not overturn the order of an arbitrator unless the arbitrator made a decision that lacked any legal foundation.

Mediation is another method of dispute resolution that is often ordered by courts. It differs from arbitration in that it is not like a trial. Mediation is an effort to get the parties to reach a mutually agreeable settlement. A mediator does not make a decision as to who is right or who is wrong. His role is limited to listening to each party and presenting settlement options.

Construction disputes related to Sri Lanka

Disputes in the construction industry in Sri Lanka are normally arising for supply of suppliers, services and the installation of equipments. The main reasons for them are,

Early days in Sri Lanka most disputes were settled on the site at a relaxed meeting between the construction parties. But today those disputes are more lengthy and complicated. When projects increases in size and complexity as a result the risk of cost and time overrun is increase. Therefore nowadays they are resolving using alternative dispute resolution methods previously discussed.

The construction industry has dispute resolution clauses in their contract documents. Those rules and conditions explain the way that the dispute will be determined and those clauses are given by both ICTAD and FIDIC. Construction projects usually involve sub contractors. When consider about clauses which are regarding to sub – contractors, there are common problems with them. Sri Lankan courts have refused to incorporate the arbitration clause into a subcontract where the subcontract did not contain such a clause.

Arbitrators no need to write reasons for the final decision of them and that will be a valid award. This will be very useful for the conclusion of disputes related to the construction industry.

Basic Elements of a Valid Contract

Contracts are based on the determined acts of the parties engaged in the agreement. Both parties enter the agreement with good understanding about their benefits and obligations have assumed. With the time people understood the value of a valid contract which has more legal aspect. Because the law can ensure rights of the parties involved with the contract or the agreement.

There are essential six elements of a valid contract which make easy to understand the formation of a contract.

ü Offer

The first element of a valid contract is the Presence of an offer. An offer is a proposal by one party to another indicating the ability to enter a contract.

Offeror – The person or party who freely makes an offer is called an offeror.

Offeree – The person to whom the offer is made is called the offeree.

Requirements of an Offer

Requirement	Explanation
Serious intent	The offeror’s words must give the offeree assurance that the binding agreement is intended.
Clarity and definiteness of terms	The terms of an offer must be clear to remove any doubt about the contractual intention of the offeror.
Communication to the offeree	The proposed offer must be communicated to the offeree by whatever means are suitable and attractive. Public offers can be made by media. Invitations to the trade are not offers.

An offer is valid only if it has serious intent. That means the offer should have clear and reasonably definite terms, and has been communicated to the offeree. An offer is invalid if it is made as a joke, during anger, or any other situation that might express a lack of serious intent. An offer should include,

Communication to the Offeree

An offer must be freely communicated to the offeree. The offeror’s purposes may be communicated by whatever means are convenient. The offer may be communicated orally, by mail, by fax machine, or any other capable means. At times, an offer must be communicated to a party whose name, identity, or address is unknown. In such cases, a public offer is made. Normally it is made by a public media. An example is an advertisement of loss or found in a newspaper. But an invitation to trade is not an offer. Newspaper and magazine advertisements, radio and television commercials store window displays, price tags, price in catalogs are included in this definition.

ü Acceptance of an Offer

The second major element in a building contract is acceptance of the offer. Acceptance means that he offeree agrees to be bound by the terms set up by the offeror. Only the offeree has the right to accept the offer. To be effective an acceptance must not be change any of the terms stated in the offer.

Communication of Acceptance

Communication of acceptance of an offer may be either express or implied. In an express acceptance the offeree choose any method of acceptance except the offer states that an acceptance must be made in a particular manner. In implied acceptance there are main two sections. They are mailing of unordered merchandise and unordered goods not delivered by mail.

Method used	Legal effect
Face to face communication	Acceptance is completed and effective when offeror hears the words of acceptance.
Telephone communication	Acceptance is completed and effective when offeror hears the words of acceptance.
Communication by same method used by the offeror	Acceptance is completed and effective when delivered to the offeror by that same medium. (Mailed offer is accepted when acceptance is dropped in the mail.)
Communication by different method from that used by the offeror	Acceptance is completed and effective when it actually reaches offeror. (Acceptance by telegram if offer had been mailed is effective when the telegram reaches the offeror.)

Silence as Acceptance

As a general rule silence is not an acceptance. But both parties agreed that silence on the part of the offeree will signal acceptance, then it is valid.

Rejection of an Offer

A rejection comes about when an offeree express refusal to accept an offer. Rejections finish an offer and all negotiations linked with it. Further negotiations could begin with a new offer by either party or a renewal of the original offer by the offeror.

ü Mutual Assent

Mutual assent is the third element of a valid contract. If the offeree accepts the offer, then there is mutual assent between the parties. It means that the parties have had a meeting of the minds. Mutual assent may reach quickly; it may be at buying a CD from a shop or may result from weeks of negotiations related to multimillion dollars. After mutual assent has been reached, the law protects the parties in their contractual relationship. Both the parties have responsibility to avoid from mistakes and save the agreement. If the mutual assent has been destroyed, the contract is said to be a defective agreement.

Reasons for defective agreement

ü Contractual Capacity

Fourth element of a valid contract is Contractual Capacity. Legal ability to enter in to a contractual relationship is known as Capacity. Normally adult people have full capacity to enter into any type of contract. But minors can’t enter into a valid contract and they are generally excused from contractual liability due to their incapacity. Minority means that an individual has not yet attained the age of majority.

Approval of Minor’s Contracts

A contract made during the minority age may ratify only after reaching majority age. Ratification or approval may be implied by any one of the following ways.

Persons Mentally Impaired

A contract made by a person who is mentally infirm or who suffers from mentally illness may be valid, if the person’s illness is not enough to rob that person. So, mental retardation or mental illness does not necessarily reduce a person’s ability to enter in to a contract. But the mental problem is so serious and that person can’t understand the nature of the contract, he has no right to enter into a contract.

Persons Legally Insane

A person declared to be insane by appropriate legal authority is denied the right to enter into a contract. Any contractual relationship with others results in a void agreement.

Persons Drugged

A contract agreed to by someone under the influence of alcohol or drugs may be avoidable. But the alcohol or drugs must be of such a degree that a contracting party would have lost the ability to understand statements of the contract. A person who enters into a contract while in this condition may either affirm the agreement at a later time.

ü Consideration

The fifth element essential to any valid contract is the mutual promise to exchange benefits and sacrifices between the parties. This is called Consideration. This mutual promise is what binds the parties together. If an agreement has no consideration there is no binding contract.

The Nature of Consideration

In the exchange, what is benefit to the offeree is a sacrifice to the offeror. Likewise, the benefit for the offeror is result a sacrifice for the offeree. Consideration has main three characteristics.

Types of Consideration

Consideration usually takes the form of money, property, or services. In certain kinds of agreements and promises the benefits and sacrifices are in some manner unique. Significant among these agreements are promises sue and generous pledges.

Problems with Consideration

Problems sometimes arise when the consideration involved in a contract is money and the parties disagree as to the amount of money that the debtor owes the creditor. One way such disputes are settled is by an agreement known as an accord and satisfaction. Accord is the implied or expressed acceptance of less than what has been billed the debtor. Satisfaction is the agreed to settlement as contained in the accord.

Agreements without Consideration

As a general rule, a contract is not enforceable if it lacks consideration. However, some states eliminate the requirement of consideration in specific types of agreements.

Agreement	Legal status
Promises under seal	Enforceable in some states for contract not involving goods.
Promises after discharge in insolvency	Enforceable in most states.
Promises to pay debts barred by statute of limitations	Enforceable
Promises enforced by promissory estoppels	Enforceable only if offeror knew that offeree would rely on the promise and offeree places himself or herself in a different and difficult position as a result of that promise.
Illusory Promises	Unenforceable
Promise of a gift	Unenforceable
Past consideration	Unenforceable
Preexisting duties	Unenforceable as a consideration in a new contract.

ü Legality

The sixth and the final requirement of a complete contract is legality. An agreement may be include a valid offer, an effective acceptance, mutual assent, proper contractual capacity and valid consideration, but if it is illegal it will not be accept by the court. An illegal agreement is invalid. It has no legal effect. If an illegal agreement has been carried out, court will not give damages or assist in having the agreement canceled.

Three categories of illegal agreements

Agreements to commit illegal or wrongful acts	Agreements made illegal under statutory law	Agreements unfavorable to public policy
Agreements to commit a crime – Law can’t honor any agreement if the objective is to commit a crime.	Usurious agreements – The illegal practice of charging more than the amount of interest allowed by law is called usury.	Agreements to obstruct justice – Include agreements to protect someone from arrest, to suppress evidence, to encourage law suits and to give false testimony.
Agreements to commit a tort – law don’t uphold any contract that involves a promise to commit a tort.	Wagering agreements- Any agreement or promise concerning gambling or a wager is invalid and may not be enforced.	Agreements to interfere with public service – Agreements to interfere with public service are illegal and void.
	Unlicensed agreements – Certain businesses and professions must be licensed before they are allowed or operate legally.	Agreements to defraud creditors – Those that remove or weaken the rights of creditors.

	Unconscionable agreements – A court is not required to enforce a contract or any part of a contract that it feels is Unconscionable.	Agreements to escape liability – All the parties should be liable for their own wrongdoing.
		Agreements to restrain trade – The law, to be a constant protector of the rights of persons to make a living and to do business freely in a competitive market.

Effect of illegality

Contracts that involve illegal agreements are invalid. Promises to commit illegal acts may lead to indictment and prosecution. If an entire agreement is illegal, no binding contract results. Sometimes agreements are partly legal and partly illegal. If the legal part can be separated from the illegal part, the agreement is divisible. The court will enforce the legal part, but not the illegal part. When both parties to an illegal agreement are equally wrong and it will result on their contract. In such case court will not give aid to either party in an action against the other and will not award damages any one.