3016 EXQ

Contract Management
Subject Level: UG Stage 3 (NICAT Level 6)

COVENTRY UNIVERSITY
 Your subject tutor

Kamal Paranawithana BSc(Hons), LLM (Const. Law & Arbitration), MBA (PIM-USJ), FIQS-SL, FRICS, MCIArb, FAIQS, MCMI, ICIOB, FInstLM
 39 years working experience in Sri Lanka, mainly in the Middle East and also in Europe
 Contracts Specialist of the Ministry of Airport Aviation & Export Zone Development
 Managing Director of Bimarc Construction Consultants (Pvt.) Ltd.
 Director & Hon. Treasurer of the Chartered Institute of Arbitrators (UK) – Sri Lankan Branch
 Trained Chair/Assessor of the RICS APC Panel
 Ex. Advisory Committee Member for UNIVOTEC BTech (QS) Degree course
 Registered Mentor of the University College of Estate Management (UK) and also the founder and former Network Leader of its Study Network in the UAE and the State
of Qatar
 Cofounder, Former Chair of the LLL Committee and Hon. Treasurer of the RICS-UAE National Board
 Ex. Steering Committee Member of the CIOB-UAE and CIOB-Qatar
 One of the longer served Committee Member of the SLQS-UAE
 Former Executive Committee Member of the PIMA-UAE, the University of Sri Jayewardenepura
 Regular lecturer for continuing professional development (CPD)/life long learning (LLL) events in Sri Lanka, UAE and Qatar
 Editorial Committee Member of professional journals and a writer of professional articles
 Recipient of many professional awards including ”CEM-Best Outstanding Student-2005”, “SLQS-UAE Contribution Award-2008”, “RICS APC Counsellor Comitment-2010”,
“SLQS-UAE Achievement Award-2016”, and also a finalist for the “CEM Alumni of the Year – 2015”
Session 1 : 24th July 2021

 Aims of this module

 Learning Outcomes
 Syllabus
 Teaching and Learning
 How to study
 Assessment
 Reading Lists
 Recap with Contract Law
Aims and Summary

This module will develop the understanding of critical awareness of the

selection, use and interpretation of standard forms of contracts within the
construction industry in the UK. It will seek to provide the following:-
 An understanding of the legal framework within which construction firms
and projects are managed. An understanding of procurement methods,
tendering procedures, and contractual relationship among project
participants.
 An awareness of the main standard forms of contract available in the UK
construction industry
 Detailed understanding of contractual provisions and administration
mechanisms relating to the common forms of contract in the UK
construction industry
This module

 specifically useful to those intending to be involved in

contract practice and administration of construction projects.
Learning Outcomes

1. Evaluate the various forms of contract in use in the industry and select an
appropriate form of contract and/or subcontract for a chosen procurement
route
2. Assess general contractual provisions such as letter of intent, insurance,
retention, bonds, liquidated damages, early possession, practical
completion, and other contractual mechanisms
3. Apply the detailed provisions and requirements of JCT 2011 and NEC3 ECC
family of contracts to a particular scenario or case study.
4. Advise parties to a contract of their contractual rights, liabilities and
obligations
5. Appraise the basic contractual mechanisms and procedures applied at
both pre and post contract stages of construction.
 Syllabus

Indicative Content
• Overview of construction contracts • Determination/Termination of contracts

• Procurement routes • Alternative Dispute Resolution mechanisms

• Standard forms of contract

(JCT 2011, NEC3, FIDIC, etc)
• Types of contracts

• Construction contract execution

• Examination and implications clauses

 Teaching and Learning

 The teaching and learning philosophy is to develop the whole student i.e. to provide them
with challenging activities and assignments that require them to develop and improve skills
as well as increase knowledge and understanding of contract practice and administration
in context of construction contracts.
 This value-added approach means that students will be provided with the opportunity to
develop skills through the nature and design of the case study.
 The lecture programme is designed to bridge the gap between their current knowledge,
understanding and level of skills and those required by a manager in a construction
environment.
 In class activity will involve reviewing case laws, investigations, presentations, discussions
and / or exercises on set topics and may involve self and peer assessment.
 This approach will ensure that the learning needs as the focus of the learning activity with
the understanding that they will need to take on some responsibility for their own learning.
How to study

Activity hrs Component

Lecture 22 11%
Self Learning 124 62%
Tutorial 22 11%
Work Based Learning 32 16%
200 100%
 Assessment

Components Type Weight Pass

Coursework Case study
(2000 words) 50% > 39.5%
Exam 2 hour exam 50% > 39.5%
Total 100%
 Essential Reading List

 Carter, R, kirby, S, and Oxenbury, A. (2012) Practical Contract

Management; Published by Cambridge Academy; 1st Edition.
 Greenhalgh, B. (2017) Introduction to Construction Contract
Management. Published by Routledge, Talyor and Francis Group
London and New York.
 JCT (2016): Standard building contract with quantities (SBC/Q): United
Kingdom: Sweet & Maxwell
http://www.trentglobal.edu.sg/wp-content/uploads/2017/01/JCT-
2016-Standard-Form-of-Contract.pdf
 NEC, 2013. NEC 3 Engineering and Construction Contract. Westminster:
NEC.
Recommended Reading List

 Beckman, S. C. (2010). Legal Brief. Understanding the Pros and Cons of Standard Form
Construction Contracts, 1.
 Chappell, D. (2012). Understanding JCT standard building contracts. London: Routledge.
 Gould, N. (2004) Alternative Dispute Resolution in the UK Construction Industry, London:
University of Westminster.
 Morledge, R. and Smith, A. (2013). Building Procurement. 2nd ed. West sussex: WileyBlackwell.
 Murdoch, J. R., Hughes, W. and Champion, R. (2015) Construction contracts: Law and
management. 4th edn. New York: Taylor & Francis.
 Thomas, D. Q., 2009. Lessons from the Wembley Litigation. Construction Law International, 4(1),
pp. 28-30.
 Uher, T. E and Davenport, T (2009) Fundamentals of Building Contract Management. UNSW
Books; 2nd edition
Recommended Reading List (Contd.)

 NEC3 Engineering and Construction Contract; by NEC (Publication Date: 2005 or 2011);
 New Rules of Measurement (NRM 1) Detailed measurement of building works. Published by the
Royal Institution of Chartered Surveyor (RICS).
 New Rules of Measurement (NRM 2) Detailed measurement of building works. Published by the
Royal Institution of Chartered Surveyor (RICS).
 NRM1 Cost Management Handbook
(http://www.sponpress.com/books/details/9780415720779/) By David P Benge
(http://www.sponpress.com/books/search/author/david_p_benge/). Routledge publication,
2014.
 Powell, G (2012) Construction Contract Preparation and Management: From Concept to
Completion. Palgrave Macmillan publishing.
 Royce, D., (2016). Adjudication in Construction Law. Abingdin: Routledge
Suggested additional readings

 Weeramantry C.G (2012 2nd edn) The Law of Contracts, Stamford Lake
Publication, ISBN978-9556583212
 McKendrick E (2017, 12th edn) Contract Law, Palgrave Law Masters, ISBN-13:
978-1137606495.
 FIDIC (1999) – Construction Contracts -
http://site.iugaza.edu.ps/kshaath/files/2010/12/FIDIC-1999-RED-BOOK.pdf
 Deciding on appropriate JCT Contract –
https://www.jctltd.co.uk/docs/Deciding-on-the-appropriate-JCT-contract-
2016.pdf
 The JCT5 Standard Building Contract Law and Administration
https://hvtc.edu.vn/Portals/0/files/6358144445374289821.pdf
 Recap with Contract Law

 Essentials of a valid contract

 Privity of contract
 Collateral contracts
 Validity of a contract
 Terms of a contract
 Time for performance
 Breach & Remedies
Essentials of a valid contract

o Agreement
 Offer
 Acceptance
 Termination
 Termination – explained
 Non-binding agreement
o Intention to create legal relations
o Consideration
o Contractual capacity
‘A legally binding agreement between two or more parties’

 Legally binding : if any party to the agreement fails to honour one or more
of its provisions, they are liable to any of the other parties who are the
victims of the breach of contract.
 Consequence of a breach: the innocent party can obtain a legal remedy
damage).
 The scope of the law of contract
Requirements for the formation of
a legally binding contract

 an agreement between the parties; and

 the agreement must be certain and final; and
 the parties must intend their agreement to be legally binding; and
 the agreement must either be contained in a deed or be supported by
consideration.

o A contract is legally binding even though it is not in writing

Classification of contracts

 Simple/Parol and Specialty contracts;

o Simple/Parol: made by implication, orally or in writing
o Specialty: contained in a deed - writing and delivered with the intention
• Law of Property (Miscellaneous Provisions) Act 1989
 Bilateral and Unilateral contracts;
o Bilateral: ‘promise in return for a promise’
o Unilateral: ‘promise in return for an action’
 Requirements for written contracts

 Contracts that must be made by deed;

 Contracts that must be made in writing (but not by deed);
 Contracts that must be evidenced in writing
Agreement

 Offer: firm and definite promise (or several promises)made by the offeror to the offeree(s)
with an intention to create a legally binding contract
 Offeree can, at his discretion, to accept or reject (refuse) the offer
 When the offer is made to several persons - only a person to whom an offer is made is
entitled to accept it
Acceptance

 The offeree unconditionally agrees to the terms of the offer.

o express words (eg ‘I agree to your terms’),
o conduct which unambiguously shows that the offeree agrees to the terms proposed
by the offeror
 valid acceptance:
1. the response must be an unqualified assent to the terms of the offer; and
2. in general, the response must be communicated to the offeror; and
3. the offeree must know of the offer.
 Whether the parties have reached agreement? - apply the fact of offer and
acceptance
 The response must be communicated
to the offerer

 The general rule: acceptance is legally binding upon the parties only when it is
communicated to the offeror.
(Important: exceptions to the general rule will be discussed later.)
 Communication: oral acceptance, acceptance by telephone, telex and fax and
acceptance by letter.
o Entores v Miles Far East Corporation (1955) – disconnected line invalidate the acceptance
 When method of acceptance is not absolutely insisted - other methods are also valid.
o Tinn v Hoffman (1873)
 Non-binding agreements

 If an agreement contains terms which are vague and uncertain, or

 if it is an agreement to agree in the future, or
 it is subject to the operation of a condition,
then it is not a legally binding contract.
Intention to create legal relations

An agreement does not constitute a contract if the parties do not intend the
agreement to be legally binding. It is necessary to consider:
o business and commercial agreements; and
o social, domestic and family agreements.
 Consideration

The agreement must either

o be contained in a deed or
o be supported by consideration.

 Unless a promise is contained in a deed, it will not enforce gratuitous promises but only bargains,
that is agreements, to which both parties have contributed something of value.

Two main legal definitions of consideration:

o the notion of ‘benefit and detriment’ and
o the notion of ‘the price of the promise’.
Contractual capacity

 A contract which has been created correctly may not be enforceable by

or against a party to that contract because that party lacked the
capacity to enter into that contract.
 It is necessary to consider the circumstances in which a contract can be
enforced by and against the following persons:
o companies
o minors
o mentally disordered and intoxicated persons.
 Contractual capacity - Companies

 Under English law a properly formed company has a separate identity and is a distinct legal person from its
shareholders. It is a non-physical person and can only act through its directors.
 The contractual capacity of companies is governed by the doctrine of ultra vires. If a company enters into a
contract which is not authorised by the objects clause (expressly or implicitly) the contract is ultra vires. - Ashbury
Railway Carriage and Iron Co Ltd v Riche (1875). The company was not liable since the contract did not further,
directly or indirectly, the stated objects of the company and so it was ultra vires and void.
 s.35 Companies Act 1985 (as amended by the Companies Act 1989). This states that:
‘The validity of an act done by a company shall not be called into question on the ground of lack of
capacity by reason of the fact that it is beyond the objects of the company stated in the memorandum of
association.’
 The result is that the ultra vires rule is abolished as regards innocent third parties who deal with the company in
good faith; but it is retained for the purposes of the internal regulation of the company, that is, the relationship
between the company and its shareholders.
Privity of contract

 Only those persons who are parties to the formation of a contract can sue
or be sued on that contract.
 The doctrine of privity of contract has implications for contracts made in
any context, but one context in which the doctrine has great significance
is that of building contracts and subcontracts.
Collateral contracts

A person who is not a party to the formation of the main contract may be liable or be able to
sue on a collateral contract.
Where a collateral contract comes into existence, two totally distinct contracts arise: the main
contract, and the collateral contract which is ancillary to the main contract.
Since a collateral contract is a distinct contract from the main contract, it can be enforced
only if the party seeking to enforce it has furnished consideration.
o Shanklin Pier Ltd v Detel Products Ltd (1951)
Validity of a contract

A contract which consists of an agreement, which is intended to have legal

effect, which is supported by consideration and which is in the correct form,
may be of limited or no effect in law because of the existence of a vitiating
element (an inherent defect).
 The presence of a vitiating element can render a contract:
o void,
o voidable, or
o unenforceable.
Terms of a contract

 Promise to perform a particular action at a future date,

o E.g.: a promise by the seller of a car to deliver it to the buyer on an
agreed date.
 An assurance that a specified state of affairs exists,
o E.g.: a promise by a car dealer to the prospective purchaser of a car
that the car has a mileage of 10,000 miles.
Contractual terms

 Express,
o i.e. one which is formulated by the parties; or
 Implied,
o i.e. one which is not formulated by the parties but which the law, as it
were, reads into the contract by:
1. statute; or
2. virtue of rules evolved by the courts; or
3. virtue of custom.
Express terms

The express terms of a contract are ascertained by discovering what the parties
actually said or wrote:
1. The parol evidence rule.
2. Whether a pre-contractual statement is a contractual term or a representation.
Implied terms

An implied term is one which is not actually formulated by the parties, but which
the law imports into the contract.
 There are three bases upon which terms are implied into contracts:
Some terms are implied;
1. into particular categories of contract by statute
o e.g. a contract for sale of goods, a contract of hire purchase etc.
2. into contracts by virtue of rules evolved by the courts.
3. on the basis of rules of custom.
 Discharge of a contract:

 Performance
 Agreement
 Variation of contracts
 Waiver
 Frustration
 Breach
 Remedies for breach of contract
 Damages
 Liquidated damages and penalties
 Specific performance or injunction
 Quasi-contract
 Time for performance

 If a time for performance is not specified: performance must be within a reasonable time.
Time is of the essence or a condition of the contract:
 Where time is described as being ‘of the essence’, failure to comply with the time for
performance will amount to a breach of a condition of the contract and so the injured party
will be allowed to rescind the contract and to sue for damages. This is so even if the failure is
only trivial and causes little or no inconvenience to the other party.
 The same result will occur where the time for performance is described as being a condition of
the contract. Time can be made ‘of the essence’ if reasonable notice to make it so is given
during the contract (Rickards v Oppenheim (1950)).
Time is not of the essence, nor is it a condition of the contract:
Rescission will only be available where the failure to comply with the time clause results in a
substantial failure of performance which deprives the injured party of the benefit of the contract.
 Breach

 Failure to perform the contract completely and precisely, or defective performance – without a
lawful excuse,
 always entitles the injured party (the party not in breach) to sue for damages.
Breach of contract

 Occurs where a party fails to perform, or performs defectively, one or more

of his contractual obligations and this failure is without lawful excuse.
 How to decide whether a party is in breach of contract?
1. ascertain and construe the terms of the contract to see what his
contractual obligations were,
2. look at what has happened to see whether he has failed, without lawful
excuse.
 The party in breach is liable to pay damages but the contract does not
end automatically.
 A breach of contract may not be actionable due to an exemption clause.
 Repudiatory breach

 the injured party may claim damages but he also has the option to terminate the contract if he
wishes to do so.
 the contract comes to an end. Thus, contractual obligations not yet due for performance cease to
have effect but contractual obligations arising before termination continue to operate .
 E.g.: the injured party must pay for goods already delivered under the contract.
 The right to terminate for repudiatory breach is in addition to a right to damages for breach (whether
or not the option to terminate is exercised).
 Should the injured party affirm the contract following a repudiatory breach (expressly or by conduct)
the contract continues in force. Exercise of the option to affirm or terminate is irrevocable.
 E.g.: keeping defective goods
 In continuing breach, the injured party may have a series of options and may affirm at first but
subsequently choose to terminate.
 E.g.: missing several deliveries of goods
Remedies for breach of contract

 damages
 termination, if the breach is repudiatory
 specific performance or an injunction
 quasi-contractual
 an action for debt, if the breach consists of failure to pay a debt, eg the
agreed price. However, if the debt is the price of goods, the claimant can
sue for this sum only if ownership of the goods has passed to the buyer.
 Mitigation of loss

 The claimant who suffers a breach of contract cannot simply stand back and watch his losses
accumulate; nor can he add to these losses by unreasonably increasing his expenditure. These
requirements constitute his duty to mitigate his losses.
 Minimising losses.
o The injured party must act reasonably, but no more. This will often amount to entering a substitute
contract where a seller fails to deliver goods. It is not necessary to take steps which would involve
the injured party in complicated litigation or which would put his commercial reputation at risk. -
London & South of England Building Society v Stone (1983)
 Avoiding excessive expenditure:
o Again, the test is whether the claimant has acted reasonably. The mere fact that steps taken in
an effort to mitigate prove unsuccessful is not enough for them to be treated as unreasonable –
Melachrino v Nicholl & Knight (1920).
 Failure to mitigate means that the claimant’s damages are reduced and he can only recover the
loss which would have been suffered if the damage had been mitigated – Payzu Ltd v Saunders
(1919).
 Liquidated damages and penalties

 Damages are usually assessed by the courts (although the parties may suggest figures); this is in an action for
unliquidated damages.
 If the parties have provided in their contract that damages for breach shall be a fixed sum or be calculated in a
particular way, the claimant who sues for that sum etc is suing for liquidated damages.
 Liquidated damage clauses are common in building contracts which will frequently provide for a specified sum
to be paid in the event of delay in completing the work.
 If a contract contains a liquidated damage clause, the claimant who sues for breach of contract will receive
that sum, whether it is greater or less than his actual loss. - Cellulose Acetate Silk Co Ltd v Widnes Foundry (1925)
Ltd (1933)
 A clause specifying the sum payable in respect of breach of contract is not always a liquidated damage clause;
it may be a penalty clause. If a clause is a penalty clause rather than a liquidated damage clause, the
claimant’s damages are assessed by reference to his actual loss, be it greater or less than that specified in the
penalty clause.
 Liquidated damages and penalties

In determining the intention of the parties the courts have regard to the following factors:
 The size of the agreed sum.
o The less relation the sum bears to the consequences of breach, the more likely it is to be a
penalty.
 The nature of the breach.
o If the breach of contract is failure to pay a small sum, then a clause providing for payment of a
large sum whatever the breach is likely to be a penalty.
 The precision of the pre-estimate.
o A clause may be a liquidated damage clause, that is, a genuine pre-estimate of the loss likely to
be caused by the breach, even if it is extremely difficult to make such a pre-estimate accurately.
 Recap with Contract Law

 Essentials of a valid contract

 Privity of contract
 Collateral contracts
 Validity of a contract
 Terms of a contract
 Time for performance
 Breach & Remedies
Session 1 : 24th July 2021

 Aims of this module

 Learning Outcomes
 Syllabus
 Teaching and Learning
 How to study
 Assessment
 Reading Lists
 Recap with Contract Law
 SELF-ASSESSMENT QUESTIONS

1. What are Essential Reading List, Recommended Reading List and Suggested additional
readings for the subject?
2. Why do you need them?
3. How will you find them?
4. What are the assessment criteria of the course and the pass marks?
5. What is the legal difference between a commercial and a social agreement?
6. Why is it not strictly true that only a party to a contract can sue on that contract?