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3. CONTRACTS

DEFINITIONS
Tendering
This is the process where a client invites for bids for large projects that must be submitted within a
definite time.
It is generally the selection, by the client, of a contractor to construct the works.
It can also be defined as the act of giving, presenting or offering a formal offer/estimate for a job or
contract.

Contract basis – when a work is carried out by entering into an agreement with another party for its
execution, the work is said to be done on contract basis.

Contract
This is an undertaking that is written or verbal by a firm or private person for construction, maintenance/
repairs of a work for the supply of materials. This agreement is enforceable by the law.

Contractor – person who enters into an agreement with another person or department for execution of the
works or supplies to be made under certain stipulated conditions.
Qualifications of a Contractor
1. Be financially sound
2. Good reputation and experience
3. Have sufficient knowledge and read the drawings
4. Capable of arranging human resources and material as per the requirements
5. Able to handle labour and materials properly and efficiently
6. Well-versed with the procedure of the department to carry out the work, submit the bills
and other formalities
Quotation – is in response to the invitation to tender by the client. It is the rate quoted by a contractor in
response to invitation to tender to carry out the carry out the work or supply the material.

Estimate – preliminary assessment of the net cost of carrying out a specified amount of work.

Tender - an offer given by a contractor/ firm in writing to execute a specified work or a supply to be
made. It can also be defined as a submission made by a bidder, to the client, in response to an invitation to
tender.
Some specific articles are required by the client under certain conditions of contract
An agreement between the client and contractor is executed to carry out the works at competitive rates
Fixation of time for completion of the task is the main clause.

Earnest money – this is guarantee in terms of money, given by the contractor along with the tender
confirming their willingness to work for the client. It is generally 2% of the estimate. It is refunded if the
tender is not accepted otherwise it is adjusted at the time of the final payment of the successful contractor.

Security money – the contractor deposits to the client when the contract is allotted to him. It is generally
10% of the estimate. It is kept as a check so that conditions that are agreed upon are fulfilled and work is
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completed satisfactorily and within the said time. It can be forfeited by the client if the progress and
quality of work of the contractor is unsatisfactory.
PARTIES TO A CONTRACT
❖ Client
Duties and responsibilities of the client
Commencement
− Analyze and collect all relevant information that is available to him, in order to give the designer, the
clearest and broadest picture of his requirements considering space available, location, use of the new
building, cost and time limits
− Consider legal responsibilities regarding the land (freehold or leasehold), most likely call upon the
services of a surveyor and land valuer.
− Consider carefully financial aspects of the proposed project, consideration is made to drawing regular
sums from his account to meet the contractor’s payment.
− Engage a designer, usually an architect, to implement his vision
− Ensure the architect is in possession of all known facts
− Consider whether the project should proceed upon reception of the architect’s views on type, size and
cost of building.
− Sign contract after agreeing to tender figure.
− Arrange for insurances required

During contract
− Meet necessary contractual payments by honouring certificates presented by the contractor.

Completion
− Honour the necessary payments of the penultimate certificates, extra contractual payments and
professional fees.
− Make payment on final certificate

❖ Contractor
The contractor organizes their resources for a construction project. The building contractor obtains work
by any of the following means:
• Recommendations from past clients
• Successful inclusion on client’s tender list on application and after vetting.
Their object is success in a project – satisfactory work for repeat business, enhanced reputation and
satisfied shareholders. He is responsible for the entire project but can sub-contract sections of the task to
specialist contractors. Duties and responsibilities of a contractor from invitation to tender include:
a) Carry out a full site investigation prior to submission of tender to ensure that the bid includes all
the contractual risks and problems
b) Submit a priced bill of quantities for examination and correction of any errors when required by
the architect
c) Plan and program the works and reprogram whenever unforeseen events frustrate the programme.
d) Control directly employed operatives, sub-contractors, suppliers, materials and plant for
execution of the project within the quoted amount and said time for completion.
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e) Coordinate the effort of all operatives and ensure the completed works comply with the contract
specifications and to the satisfaction of the architect.
f) Notify the architect of information requirements, delays to the construction programme,
discrepancy between contract documents, direct loss and/ or expenses sustained etc.
g) Pay the wages of the directly employed operatives, sub-contractors and suppliers in time to avoid
conflict
h) Supply all the information needed by the client’s professional advisers for proper administration
of the works.
i) Rectify all defects on completion of the works
j) Provide post-occupancy repair and maintenance services if so required by the client.

❖ Architect
The design function is the responsibility of the architect, who interprets the client’s requirements into a
specific design. Design includes appearance, proportion, structure, function and economy of product. As a
project team leader, the architect performs various functions in all stages of the construction process,
which includes;
− Ascertain, interpret and formulate the client’s requirement into an understandable project brief.
− Design a building to meet the client’s requirement and constrains imposed by such factors as statutory
obligations, technical feasibility, environmental standards, site conditions and cost.
− Bringing together a team of construction professionals such as the quantity surveyor, structural
engineer and service engineers to give guidance on specific points of the client’s construction project.
− Assess client’s cost limit and time scale and specifying the type and grade of materials for use on the
construction project.
− preparing production information for pricing
− Supervise the production on site, constantly keeping the client informed of the project’s progress and
issuing production instructions as and when required.
− Keep the client informed on the status of the project’s cost and advice on when payments should be
made or withheld.
− Advising on the conduct of the project generally and resolve all contractual disputes between the
client and contractor.
− Issue certificate of completion, certificate of making good defects and the final certificate for
payment.
Generally, the architect acts as an agent for all purposes relating to design, tendering for and
superintending construction works for which he has been commissioned.
Some qualities of a good architect are:
• Attributes of foresight
• Understanding of construction materials
• Ability to design within a set budget
• Ability to communicate and coordinate essential design.

❖ Quantity Surveyor
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The quantity surveyor is responsible for the study of the economics and financial implications of a
construction project. He/ she advises the client and architect on matters relating to the economies and cost
of a proposed construction project. Their functions can be summarized into:
− Preparation of preliminary cost advice and approximate estimating
− Preparation of cost plan and carrying out cost studies (investment appraisal, life cycle cost etc.)
− Preparation of contract documentation for contractor selection and construction project administration
− Evaluations for contractor tenders received and give recommendation to accept or reject the tender.
− Preparation of cash flow forecasts and institution of post-contract cost monitoring / reporting
mechanisms.
− Valuation of variations that arise as the work proceeds and preparation of interim valuations at regular
intervals.
− Preparation of periodic cost report for architect or client
− Preparation of agreement of final account with the contractor.
− Evaluation and settlement of contractor’s claim for direct loss and/ or expenses.
− Settlement of contractual disputes.

❖ Engineer
Structural Engineer
Advise the architect on all structural problems such as stability, suitability of proposed materials,
structural feasibility etc.
Submit structural calculations to the local authority for approval
Perform structural design and supervise their specialist area during production stage of the project.
Service engineers
They contribute to the building design to ensure thermal and visual comfort is achieved effectively. They
analyze the requirements and advise the architect accordingly. They prepare diagrams of their proposals
and ensure they are correctly interpreted, installed and commissioned.

The duties and responsibilities of the structural and service engineers include:
• Provide specialist advice and assist in the design of the construction project within the scope of
their respective specialty.
• Produce calculations to assist in design, cost, planning and assessment of suitability of materials
• During the contract, be prepared to assist, modify or re-design work as may be necessary and
supervise their respective field of specialty.

❖ Local Authority
Application form and drawings must be submitted to the local authorities in order to obtain approval
before construction begins. Designers have to satisfy the planning authorities that the new building will fit
with its surroundings and meet other stipulations under planning control such as height, location, access
and density.
Their duties and responsibilities include:
• Book in plans when submitted and give register numbers
• Check for compliance with building regulations
• Make lists of any clarifications and/ or amendments relating to plans before they are passed.
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• May contact the architect to discuss amendments which are submitted within a given time,
otherwise the application will be rejected.
• Issue approval notices upon receipt of satisfactory plans and drawings for structures.
• Inspect construction projects as they progress to ensure that the design solution meets the required
standard of construction and performance.

❖ Building Inspector

❖ Clerk of works
This is the architect’s representative on site and the quality inspector during the production phase of a
construction project.
Duties and responsibilities include:
• Act solely as inspector on behalf of the employer under the directions of the architect
• He inspects quality of work in accordance with drawings and specifications
• Makes regular reports to the architect and keep a diary throughout the project which will be
invaluable in the event any dispute arises.
• Check setting out works and other tasks to ensure they conform to requirements.

❖ Subcontractors
They are employed to execute specific tasks in the construction works.
They can be subdivided into:
▪ Nominated subcontractors: they are nominated by the client/ architect to execute a specific
element of the project.
Nominated subcontractors are appointed when the client wants to maintain the cost and quality of
the works. Apart from that nominated subcontractors are used when full details are not designed
and state at the tender stage. It allows the client to start the project with immediate effect until
the design team finalises full details. So clients will be used provisional sum or prime cost sum at
the tender stage (for works which are not available at the tendering stage).
Some clients desire to appoint nominated subcontractors based on the previous relationship
between each other.

▪ Domestic subcontractors
Subcontractors who directly appointed by main contractors are called as domestic subcontractors.
An agreement will be formed between the main contractor and subcontractor at the appointing
process. The domestic subcontractor will not have any contract or communications with the client.
But all appointed domestic subcontractors have the responsibility to execute the works according to
the client’s requirements and expected quality.
Most of the selected domestic subcontractors will be paid measure and pay basis. But on rare
occasions, some specialised subcontractors will be paid lump sum basis. All payment terms will
negotiate between the main contractor and domestic subcontractor, and the subcontractor gives any
discount will be held by the main contractor (the main contractor is not liable to reduce discount
provided by the subcontractor from the main contract)
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▪ Named subcontractors
A named subcontractor is effectively the same as a domestic subcontractor and is a subcontractor
who contracts with the main contractor after being selected by him from a list of approved contractors
named by the client, to carry out elements of the works. A named sub-contractor is essentially
employed by the main contractor and not the client, even though they were initially referred into the
contract by the client.
Naming a subcontractor provides the client with more control to the selection of a subcontractor by
the main contractor, while still leaving them with the element of choice and the responsibility of
monitoring their performance. This is seen as a better alternative to nominating sub-contractors.

❖ Suppliers

▪ Upon being asked to quote for supplying material, be satisfied that they can complete all
obligations regarding any special conditions.

▪ Make sure that samples sent out are a fair reflection of the bulk goods

▪ Ensure that delivery dates are maintained, issue advice notes as required

▪ Submit accounts on time for payment.

TYPES OF CONTRACTS
Contractual arrangements set out the legal relationship that parties wish to establish and hence create
certain rights, obligations and procedures for resolving contractual disputes. They establish the basis for
payment of the contractor. Factors influencing choice of contractual arrangement include:
• Size, nature and complexity of the project
• Dates of commencement and completion
• Ability to define client’s requirements before contract
• Adequacy of construction information on which to establish client’s cost limit
• Availability of valid and adequate construction information on which to obtain tenders
• Scale of changes the client is likely to effect during construction phase
• State of the national and international economies and their effect on the construction market.

The types of contractual arrangements are:

▪ Lump sum
The contractor consents to execute the entire work specified for a stated total sum. The agreed sum is
normally based on the information derived from drawings, specifications, bills of quantities and site
inspection. To arrive at the pre-estimated price, the contractor takes into account the contractual risks
involved, condition of the construction market and the current workload of the contractor. the pre-
estimated price is paid to the contractor regardless of the actual cost incurred in execution of the
works, providing there are no variations
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They are procured on either fixed or fluctuating terms. Financial adjustments to the contract sum,
reflecting changes in labour and plant rates or material prices during the progress of the works, is
permissible in f
▪ Labour only
▪ Management
▪ Package deal
▪ Negotiated

CONTRACT DOCUMENTS
a) Working Drawings
b) Specifications
c) Bill of Quantities
d) Form of tender
e) Schedule of rates
f) Conditions of contract
g) Articles of agreement
Working Drawings
They include plans, elevations, sections and large-scale details of the proposed construction project of
which should be able to interpret the project at hand. Drawings of a building or a structure show the
arrangement of rooms and various dimensions i.e., breadth, length and height with very few
descriptions of parts.

Specifications
These are documents prepared by architect to supplement the drawings. A specification specifies or
describes the nature and class of work and materials to be used in the various parts of work from
foundations to superstructure in details as well as methods of work (workmanship). It is a short
description of different parts of work, specified materials, proportions, qualities etc. For example,
foundation shall be in brickwork with lime mortar or cement mortar 1:6.

Bill of Quantities
This is prepared for the client by professional quantity surveyor whose fee is paid by the client. Copies of
bill of quantities are sent to the contractors to enable them to estimate when tendering. BoQ specifies the
type of materials, quantity of materials to used, method of work and the quantities of work to be done.
When the contract is signed, the priced BoQ become part of the contract agreement and will be used for
preparation of the final account and settlement of any variations.

Form of tender
The form of tender is a pre-printed formal offer, usually in letter form, which ensures that all tenders are
received on the same basis and should be simple to compare. The tenderer fills in his name and address
and a sum of money (contract sum) as an offer to carry out and complete the works as described in the
conditions, drawings and bills of quantities.
May be sent with collusive tendering certificate and appendices used for declarations.

Schedule of rates;
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In appearance they are similar to a page of a bill of quantities without any quantities given. The
contractor simply inserts his rates upon which his tender is based against each description of work
included on the schedule. In practice only the major work items of significant cost and value are
included. Those rates can then be used to value any variations. Schedules of rates are also used to
obtain tenders for maintenance works.

Articles of agreement
Power of acceptance of a tender is held by the chief engineer or the superintending engineer.
Acceptance letter – contains the quoted amount in the BoQ and unconditional acceptance of the
contractor to taking on the task.
Form of agreement – This is a legal document signed by both parties agreeing to abide to the conditions
of contract. It states that the contractor accepts to put up the building in accordance with drawing and
specifications and the client agrees for his part to pay the contract sum.

Conditions of contract
They are clauses in the agreement of which is stated and observed by the construction team. It defines
the responsibilities of the employer, contractor, architect, engineer and other non-technical staff.
They specify;
• Rates of materials, transport, labour and all agreements necessary for completion of the work
• Amount of security money
• Completion time of the project
• Progress to be maintained
• Penalty for unsatisfactory work/ failure in maintaining progress/ delay in completion
• Mode of payment, running account payment, final payment, security money refund
• Extension of contract time
• Minimum wages to labour, compensation to labour
• Rues of employment and termination of contract
• Authorities determining the extra items and contractor’s claims

TENDERING
A. TENDER PREPARATION
Tender document – all relevant information about the proposed contract rules, conditions etc. which
allow the contractor price the work as accurately as possible.
The decision to tender is dependent on the following:
- Nature, size and complexity of work
- Principal parties involved
- Value of the main contractor’s own work
- Time allowed for tendering
- Firm/ fluctuating price required
- Contract details – start date, period, access to site
- Current workload
B. TENDERING METHODS
By Competition
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Competitive tendering refers to the tendering process where the final price is submitted by the main
contractor. The prices obtained from competing contractors will give the best value for money and
will be suitable for the project. The basis is to get the lowest possible price for the project. The
competition factor could be cost, time etc.
This can be done by either open tendering or selective tendering as explained below.

i) Open Tendering
Open tendering allows anyone to submit a tender to supply the goods or services that are required.
Generally, an advertisement will be placed giving notice that the contract is being tendered, offering an
equal opportunity to any organisation to submit a tender. This gives maximum competition for the job and
most certainly the lowest possible price from the bidders. Other factors are considered when selecting a
contractor by open tendering as the lowest bidder may not be well equipped for the task at hand. The
client will evaluate basing on the soundness of the bidders to take on the task as well as the amount
quoted for the project. Long lists of bidders are characteristic to open tendering and so to reduce this, the
clients ask for a deposit to be lodged which is refundable upon receipt of a valid tender document. This
deters contractors who are seriously interested in pricing the work from applying.

On larger projects, there may then be a pre-qualification process that produces a short-list of
suitable suppliers from the respondents expressing interest in the contract. This short list will then be
invited to prepare tenders. The selection of a short list can include pre-qualification questionnaires and
interviews. This sort of pre-qualification process is not the same as selective tendering. Selective
tendering only allows suppliers invited from a pre-selected list to take part in the tender process.

Open tendering has been criticised for being a slow and costly process, attracting tenders or expressions
of interest from large numbers of suppliers, some of whom may be entirely unsuitable for the contract and
as a result it can waste a great deal of time, effort and money. However, open tendering offers the
greatest competition and has the advantage of allowing new or emerging suppliers to try to
secure work and so can facilitate greater innovation. The number of firms tendering can be reduced
(ideally to a maximum of 6) by a pre-qualification process, and if this uses a standard pre-qualification
questionnaire, then the time wasted by unsuccessful applicants can be minimised.

Whilst often seen to be more efficient, selective tendering can exclude potential suppliers, it can be seen
to introduce bias into the process, and it can result in prospective suppliers continually
contacting clients and consultants to check that they are on the appropriate lists.

ii) Selective Tendering

Selective tendering only allows suppliers to submit tenders by invitation. A pre-selected list of
possible suppliers is prepared that are known by their track record to be suitable for a contract of the size,
nature and complexity required. They might then be asked if they would be interested in tendering for
the contract, and then based on the responses received, a number of them invited to tender (generally no
more than 6). From the tenders received, a preferred tenderer is selected based on criteria such as price,
quality and negotiations entered into.
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Consultants or experienced clients may maintain ‘approved’ lists of prospective suppliers appropriate for
particular types of contract and then regularly review performance to assess whether they should remain
on the list.

Selective tendering may be particularly appropriate for specialist or complex contracts, or contracts where
there are only a few suitable firms. Selective tendering will tend to be faster than open tendering, and can
be seen as less wasteful, as there is no pre-qualification process as part of the tender procedure itself, and
only suppliers that are known to be appropriate for the proposed contract are invited to prepare tenders. It
can also give clients greater confidence that their requirements will be satisfied.

However, it can exclude smaller suppliers or those trying to establish themselves in a new market, it can
reduce the potential for innovation, and it can be seen to introduce bias into tendering as firms may be
excluded from approved lists for unknown reasons, because of a lack of awareness, or because of personal
preferences. It can also result in prospective suppliers continually contacting clients and consultants to
check that they are on the appropriate lists.

iii) Negotiated Tendering

Negotiated tendering occurs when the client approaches a single supplier based on their track-record or a
previous relationship and the terms of the contract are then negotiated.

Negotiating with a single supplier may be appropriate for highly specialist contracts (where there may be
a limited number of potential suppliers), or for extending the scope of an existing contract. It can give
the client the confidence of working with a supplier they already know, can reduce
the duration and costs of tendering and can allow early supplier involvement. However, unless
the structure of the negotiation is clearly set out there is the potential for an adversarial atmosphere to
develop, even before the contract has been awarded. Carrying out negotiations in the absence
of competition so that both parties feel the outcome is fair can be complex and time consuming.

Negotiated tendering can be seen as anti-competitive and exclusive, with the potential for ‘cosy’
relationships to develop between the client and the supplier. Negotiated tendering may not be permitted
by some organisations due to the perceived lack of accountability.

Circumstances under which negotiated tendering is done include:

▪ A quick start is required.

- To save on time needed for competitive tendering.

- The contractor is selected and works begin immediately while the final designs and cost
are being formulated.
- If the contractor cannot complete the project for any reason, extra cost incurred will be
offset in saving time taken to complete the task.
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▪ Business relationship: A good standing between two companies of not necessarily the same field.
E.g., a contractor may buy his cars from one dealer on the understanding that he is contracted to
carry out any maintenance and repair work for the dealer.
▪ Continuation Contract: When a client envisages a project similar to one recently completed, in
design and size and if there was good standing between him and the contractor, he may invite the
contractor to negotiate a price for the new project. The contractor may be well able to effect
savings as he is familiar with design and construction. He will be well aware of challenges faced
and can efficiently improve.
▪ State of the Market: When the market is overstretched, the client chooses a contractor with whom
he can negotiate, rather than paying a heavy premium to persuade contractors that may not have
spare capacity to take on the job.
▪ Company with specialist plant or techniques: When a firm has developed and patented a special
technique, design or equipment considered as a market leader and can be used to good effect in
building process, a client may negotiate with him and take advantage of his expertise.

Techniques in negotiating:

• Use of nominated bill: a priced BoQ for a similar project carried out under similar
conditions is adopted as the foundation for determining the prices for the new project.
The BoQ adopted is the nominated bill.
• Assessment of costs: attempts to predict the final cost of construction and adding to those
costs an element for profits and overheads.

iv) Serial Tendering

Serial tendering generally involves the preparation of tenders based on a typical or notional bill of
quantities or schedule of works. The rates submitted can then be used to value works over a series of
similar projects, often for a fixed period of time following which the tender procedure may be repeated.
Rates contained in the original BoQ can be updated to account for inflation using a formular agreed upon
by both parties. The guaranteed workload by the successful bidder should ensure that the client gets keen
bids at the start of tendering process.

Serial tendering may be used where the client has a regular programme of works that they would like to
be undertaken by a single contractor, often minor works, repetitive works (such as housing)
or maintenance work. The tender documents will generally define the buildings that will be covered by
the works, the term over which works may be required (often between one and five years), an estimate of
the likely total value of the works that will be required over the term and an estimate of the likely size of
individual orders.

Appointment is based on an agreed schedule of rates related to the categories of work that are likely
to form part of the programme.

When individual works are required, the client issues an instruction (or order) to the contractor which
may include a written description of the works, drawings if appropriate and a valuation agreed by
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the client and contractor. Payments are then calculated based on an the agreed schedule of
rates (see Measured term contract).

Serial tendering can reduce tender costs, and may encourage suppliers to submit low rates to secure an
ongoing programme of work. However, it may be seen as anti-competitive and exclusive. It can be argued
that it both encourages innovation (by giving contractors the confidence to invest in continuous
improvement) and discourages investment (by preventing other contractors from submitting
alternative proposals).

Continuity tendering is a variation on serial tendering, where subsequent work is negotiated following
successful completion of a preliminary contract.

LAW OF CONTRACT
A contract is a legally binding agreement between two or more persons. This means it is enforceable in a
Court of Law. Breach of a contract entitles the injured party to legally enforceable remedy from the
breaching party.

Essentials of a Valid Contract

i. Offer
This is an offer by one party of its willingness to be legally bound by the proposal as soon as it is
accepted. It may be made in writing, in words or by conduct and may be terminated if;
- It is rejected by the party to whom the offer is made
- It is revoked by the offeror before acceptance
- Either party dies before acceptance
- A stipulated time elapses before acceptance
- Has not been accepted within a reasonable time i.e., where is no time limit for
acceptance.
ii. Acceptance
A full acceptance by the party to whom the offer was made. A valid acceptance requires
unconditional assent to all terms made. The acceptance must be communicated in writing, in
words or by conduct.
iii. Intention to be legally bound
The intention of parties to create a legal relationship is what makes the agreement they have
reached to be one that is legally enforceable.
iv. Capacity to contract
This refers to the legal status of parties to make a legally binding contract. Generally, all persons
have full and unqualified status to be bound and to bind others. Exceptions include:
- Minors – persons under the legal age of 18 years
- Persons of unsound mind
- Corporations i.e., artificial persons. Their capacity to be legally bound depends on how
the corporation was created.
v. Consideration
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It is something of legal value given, done or forborne by one party in return for an action or
inaction on the part of another party. Rules that validate a consideration are:
- Must be real and move from the party intending to enter into contract
- Must not be vague and must not be past
- Must be possible
- Must be legal and something beyond the promisee’s existing obligations to the promisor
vi. Genuine Consent
Parties must come to an agreement with genuine consent. Consent must not be induced or caused
by such circumstances as false statements, fundamental mistakes, misapprehension and undue
pressure exerted by either party.

vii. Legality
The agree must not involve an illegal purpose or activity.

Formation of a contract
In order for a contract to be valid all necessary essentials must exist. Among them, the following five are
most important because they determine the existence, rights and obligations and liabilities of the parties’:
1) Offer and acceptance

2) Consideration

3) Contractual capacity

4) Intention to create legal relation

5) Legality of the object

Classification of contracts
A. Express and Implied Contracts
Express: These are contracts which the parties specifically agree about the nature and terms of
the contract and their relationship in the contract is clearly defined.
Illustration: X states that he will sell his car at Ksh.1 million to Y & Y accepts to purchase it at
that price. This may be orally stated or in writing.
Implied: This is a contract where no specific agreement is made by the parties; where the
conduct of the parties and the surrounding circumstances must be taken into consideration to
ascertain whether a contract exists. Hence the contractual relationship between them is
determined by their behavior and surrounding circumstances.

B. Unilateral & Bilateral Contracts

1) Unilateral – this is contract that only one party is bound by the terms of the contract e.g., where
one offers a reward for the return of his lost car, he will be bound to reward whoever does that
which the offer stated.

2) Bilateral –this is a contract that is binding on both parties to the contract.

C. Valid, Void & Voidable Contracts

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1) Valid – this is a contract that contains all the requisites (essentials) of a valid contract hence they
are binding and enforceable at law.

2) Void – A void contract is one that is completely lacking of any legal effect and therefore is
neither binding nor enforceable.

3) Voidable – A voidable contract is an agreement that is binding and enforceable but because of
the lack of one or more of the essentials of a valid contract it may be set aside at the option of the
aggrieved party.

D. Specialty Contracts & Simple Contracts

1) Specialty contracts – these are contracts under seal, they are written sealed and delivered by the
party bound to the other.

2) Simple contracts – These are contracts whose formation is not subject to any legal formalities.
They may be oral, written or implied from the conduct of the parties.

E. Enforceable and Unenforceable Contracts

1) Enforceable contracts: These are contracts with all the elements of a contract and hence can be
adjudicated in a court of law.

2) Unenforceable contract: This is a valid contract but it cannot be enforced in the courts if one of
the parties refuses to carry out its terms. The parties cannot therefore refer the matter in a court in
case of a breach despite the contract being lawful.

F. Contracts Uberrimae Fidei (Utmost of Good faith)

In such contracts one person is possessed with knowledge which is very important to the contract and for
this reason he is under obligation to disclose his knowledge e.g., Insurance contracts, Sale of land,
Partnership contract, Agency
H. Executed or Executory Contract
1) Executed – this is a contract whereby both parties have fully discharged their obligation and no
one owes the other anything. Once a contract is executed it is deemed to have been discharged by
performance.

2) Executory – this is a contract whereby either one or both parties are still in the process of
fulfilling their specific obligations. This contract will therefore be discharged after each of the
parties has accomplished his part.

Terms of Contract
a. Express terms
Terms expressly agreed by the parties to contract and by which they intend to be bound. In most
construction contracts, they take the following forms;
* The agreement – written details of the project and agreed sum payable for its
completion
* Conditions of the contract – details provisions governing execution and
administration of the project.
* Drawings – a document delineating the plan shape of the project and its design
details
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* Bill of quantities – document describing the quality pf materials and workmanship

and quantities of works required.
b. Implied terms
These are contract terms that are not documented or openly expressed at the time the contract is
made, but which the law implies.
E.g., that the building contractor will execute the works in a workmanlike manner and complete
within a reasonable period of time
c. Statutory terms
These are contract terms that are imparted into contracts by legislation.
Limits of contractual Obligation
a. Minors/infants
The infants’ contracts in Kenya are governed by the Infant’s Relief Act, 1874 of England. Contacts
entered into by a minor are either, valid, void or voidable.
b. Persons of unsound mind and intoxicated persons
Infirmity of mind through disease, age, drug or alcohol can affect one’s better judgment. Contracts
entered into by insane or intoxicated persons other than for necessaries are voidable at the option of the
aggrieved person. Such a person is bound by a contract for necessaries and must pay a reasonable price
for them. An insane can make valid contracts during lucid intervals.
Before an insane/intoxicated person can escape liability on a contract, it must be proved that at the time of
the contract:
i) He was suffering from mental disability or was intoxicated

ii) The other contracting party was aware of the fact

c. Corporations

The contractual capacity of corporations depends on whether they are registered or statutory. A registered
company derives its power from the objects clause of the MOA and must not engage in activities beyond
the objects for which it was formed otherwise such transactions will be void.
Statutory corporations derive their powers from the Parent Act and every activity done by it must be
justifiable by reference to the Parent Act.
d. Insolvent/Bankrupt person
These are persons who have been declared broke by the court of law. Their property and interest rest in
the official receivers, or liquidator. They can’t contract unless and until they have been discharged from
their legal incapacity.

Performance and Discharge of a Contract

A contract is said to be discharged when the obligations created by it ceases to be binding and the parties
are no longer under any duty to perform their part on the contact. A contract may be discharged or
terminated in any of the below ways:
1. By performance

Is fulfillment of the party’s obligations as originally agreed. Is where both parties fulfill their obligations
under the contract and nothing remains to be completed. Contractual obligations have to be observed to
the letter. Performance must be exact or precise i.e., the parties to a contact are expected to undertake all
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their roles as outlined in the contractual agreement to the extent that they become liable if any obligation
is not fulfilled.
2. By frustration or impossibility
A contract is frustrated when performance of the obligation is rendered impossible by an unforeseen event
or circumstances for which neither party is to be blamed. In such a case the parties are discharged without
precise and exact performance.
The doctrine will apply in the below circumstances:
a) Non- occurrence of a stated event

When a contract is entered into on the basis of the happening of a certain stated event the contract is
discharged if such an event does not take place.

b) Destruction of the subject matter or impossibility

In a contract in which the performance depends on the continued existence of a given person or thing a
condition is implied that it shall be discharged by the death/ destruction of that personal thing.
c) Supervening illegality

A contract that was legal may subsequently become illegal due to alteration of the law or the act of some
person having statutory authority. In this case the contract will be discharged.
d) Death or permanent incapacity
Death or serious illness on a party whose personal services were contemplated by the contract discharges
a contract. The personal incapacity must be serious enough and not self-created to prevent the person
from performing his obligations. In a contract for personal services the death or illness of the person
whose action is vital to the performance of the contract discharges that contract. The personal incapacity
must be serious enough and not self-created.

Effects of frustration
i) All money paid before frustration is recoverable. This is only possible in circumstances
where there has been a total failure of consideration.

ii) Money which was payable before frustration ceases to be payable

iii) Where one party has received any benefits under the contract the other party can recover a
reasonable sum as compensation on a quantum merit basis.

iv) The court may allow the parties to recover some of the money paid out or expenses incurred
in connection with the contract or to retain such sums from the money already received in
the contract.

3. By Breach

A contract may be discharged by breach i.e., failure of one of the parties to perform his obligation under
the contract. Breach of contract may occur in the following ways:
a) Failure to perform: Where a person fails to perform a contract when the performance is due, the
other party can hold him liable provided the time of performance was made as the essence of the contract.
b) Renunciation/Anticipatory breach: Is where a party state in advance that he does not intend to carry
out his contract or put himself in a position that he will be unable to perform. The injured party may sue
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immediately for breach of contract or wait for the time of performance to arrive to see whether the other
party is prepared to carry out the contract.
c) Self disablement: A breach occur by self-disablement when the defendant disables himself from
performing his contractual obligations or does some act which makes the performance of the contract
impossible.

4. By agreement

A contract being a legally binding agreement can also be discharged through agreement so long as the
party reach a consensus and becomes satisfied with the extent of the fulfillment of contractual obligations
already undertaken. It is justified on the premise that whatever is created by agreement may be
extinguished by agreement

5. By operation of law
May be discharged by operation of law in the following circumstances
a) By merger: If the terms of an oral contract are incorporated in a subsequent written agreement
between the parties, the oral contract is terminated by operation of law as it has been allowed by the latter.
b) By bankruptcy: When a person becomes bankrupt, all his rights and obligations pass to his trustee n
bankruptcy but a trustee is not liable on contract of personal services to be rendered by the bankrupt
c) By death: The death of either party will discharge a contract for personal services but the other
contractual rights and obligations are not affected and survive for the benefit of the estate of the deceased
d) By unauthorized material alteration: Where a party to a contract is writing/under deed makes any
material alteration without the knowledge/consent of the other, the contract can be avoided at the
discretion of the other party
e) By lapse of time: A contract formed for a specified time is discharged when that period of time has
ended/elapsed. Where no time has been specified the lapse of a reasonable time may render the contract
unenforceable in a court of law. The limitation period for simple and under deed contract is 6 years.

Remedies for breach of contract

On breach of a contract, the innocent party is supposed to be remedied to the extent that he is presumed to
be taken back to his original position before the breach of the contract occurred. He is therefore entitled
to any of the below:
a) Action for damages: Damages refer to monetary compensation to an uninjured party in a contract
which puts him as far as possible in the position he would have been if the contract was not breached.
b) Quantum meruit (as much as earned): Under this remedy the plaintiff will be awarded as much as
earned the court will award what it thinks the work or services are worthy. It is used in contact for supply
of goods or services where no sum has been fixed by the contract. It is also used to recover money for
work done under;
i) A contract repudiated/violated by the defendant

ii) Where there has been partial or substantial performance/a good portion

iii) Where a benefit has been received which should be paid for

iv) Where the contract is frustrated

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c) Specific performance: Is an express order by the court to a contractual party who has breached. It
instructs the breaching party to carry out his part of the agreement. It is available in the below cases:
i) Where a contract for sale of land

ii) Where the contract is for taking debentures or shares in a company

iii) Where the contract is for the sale of rare goods which are not easily available in the market or the
value of such goods would not be measured in money.

Specific performance cannot be granted in the following cases

- Where damages will provide an adequate remedy
- Where the contract is to render personal services
- Where one party to the contract is an infant and such infant is the guilty party
- Where the contract is to lend money
- In the case of a contract where the court cannot supervise the actual execution of the
contract e.g., construction contract

d) Injunction: This is discretionary order of the court requiring a person to stop doing an action
complained of or ordering a person to do something. It can be used to prevent an act that would cause a
breach of contract.
e) Rescission: Rescinding a contract means that it is cancelled or rejected and the parties are restored to
their pre-contractual condition.
It entitles the innocent party to a voidable contract to treat it as if it had never been made and
consequently recover all money or assets that had previously been exchanged under the contract.
f) Refusal of further performance: A person suffering from breach of contract who wished to end his
obligations under it can refuse to carry them out and set up the other party’s breach as a defense of his
action. To strengthen this, he may decide to ring an action for rescission.
g) Appointment of a receiver
It’s a remedy available to a mortgagee against a mortgagor who has breached the terms of a mortgage
agreement. The receiver is entitled to take over the property of such a mortgagor and pay out of it all that
is due on the mortgage contract.