MODULE ONE:

ENGINEERING AND THE LAW

1.1 Why Engineers need law?

"Law" is a much-used and frequently abused term. It may refer to laws of nature (so called
"natural law" or Science), or to laws of society (hence "social science"). In either case when we
speak of "a law" we are thinking of an explicit rule or proposition which “governs” certain
conduct. Laws of nature govern natural phenomena e.g. Newton's laws govern the motion of
rigid bodies. A "law of Society" on the other hand, governs human behavior in a particular
society e.g. "the law" that forbids you to steal or kill or to pay taxes.
The engineers and the lawyer rarely recognize their close Kinship. The engineers function is to
apply natural sciences to the solution of practical problems, the lawyer's function is to apply
social science to the solution of practical problems. There's a great deal of similarity in their
outlook. Both are faced with problems which must be solved right now in a practical way,
despite inadequacies of data and of scientific knowledge. And they must frequently reconcile
conflicting or diverging tendencies, in order to achieve and optimum result.
Engineering is a practical "art" and as such is always closely related to business. But business
activities are regulated by social laws, such as laws of contract, sales and negotiable instruments.
Thus, the engineer who prides himself on being practical is being very impractical indeed if he
thinks ignorance of the law is one of the requisites of his profession.

1.1 Principles of the Law of Contract.

1.1.1 What is a Contract?
A contract is an agreement between two parties which the law recognizes as binding on the
parties.
The law of contract permits men to enter freely into voluntary transactions with other men for
their own benefit. However once a contract has been entered into the legal effect is thereafter
determined by thề law of contracts rather than by the wishes of one or all of the parties
Thus parties may contract to buy or sell property, they may enter into contracts of engineering
services, they may contract to erect buildings or manufacturing plants; they may enter to insure a
factor against fire damage, etc. Any kind of commercial transaction maybe the subject of a
contract.
The law of contract in Uganda is found in the contract Act, 1967 Cap. 75.
A contract is a promise by one person to another to do or not to do something. Only promises
that the law will enforce contracts. The three elements of a contract are;
Contract = offer + acceptance + consideration

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1.1.2 Classification of Contracts
a. Contracts of Record.
These are not true contracts, because the obligations of the parties arise independently of any
agreement and only because of entry upon the court records. The person obliged has no option
there is no voluntary agreement. Contracts of Record take two forms;
i) Judgment
This may be by a court of record or a magistrate and by the judgment a court or magistrate
imposes on some person a legal obligation e.g. to pay damages or costs. Once enrolled in the
court records, the judgment constitutes a contract of record between the parties to the action in
with the judgment was pronounced.
ii) Recognizances
This is a written acknowledgement of a debt, owing to the state which is made before a judge or
any authorized officer and enrolled in the court records. An example is that, where a person is
bound over to be of a good behavior and keep the peace or else surrender to bail when called.
b. Contracts under Seal or "Specialties".
Promises under seal i.e. contained in a DEED, are legally binding (even though gratuitous on the
form in which they are expressed). These are promises written on paper signed, sealed and
delivered by the promisor to the promise of his agent. All terms of such contracts under seal must
be reduced to writing and then the contract is signed, sealed and delivered. Delivery of the deed
is meant to indicate a party's intention, that it should become operative so far as it concerns him.
Actual handing over of the deed to the other party is the most obvious method of delivery. The
essentials of a deed (i.e. writing, seal, signature and delivery). It is said to have been executed
and become effectively immediately, unless it's expressly directly to be made condition.
c. Simple contract
These are all contracts that are not under seal. They are by far the most common and important
variety which are informal. They may be made orally in any way or writing or by implication
(implied) from conduct of parties. At common law, all simple contracts may be ("parol or verbal"
but as per section 4(1) and (2) of cap 75 requires written evidence in certain cases and the
absence of such evidence, the contracts are unenforceable. In other cases, the law requires
writing as a condition of validity of parol contract
There are six essential requisites of valid simple contract;
a) There must be an agreement composed of an offer by one person and an acceptance of
that offer by another person.
b) There must be an intention to create legal relations i.e. a binding agreement is usually in
the nature of a commercial bargain involving some exchange of goods or services for a
price (consideration).
 c) The contract must either be under seal, or there must be consideration on both sides to
support the agreement
d) The parties to the contract must have contractual (requirement to bind) ability or capacity
to bind themselves by contract.
e) There must be reality of consent by the parties to the terms of the contract and the
agreement of the parties maybe vitiated by proof of fraud, mistake or misrepresentation.
f) The contract must be legal. The subject matter of the contract must not be contrary to law
and the performance of it must not be impossible e.g. a contract to walk to the moon. The
importance of these essentials of a valid contract lies in the fact that, in the absence of
one or more of them the contract may be void, voidable or unenforceable.
Let's examine the meanings attached to the following terms applied to contract
i) Void contracts.
This is not a contract at all but it means that there was an attempt which was not achieved due to
some material defect e.g. the absence of consideration, existence of a fundamental mistake etc.
It's an agreement for the breach of which the law neither gives a remedy nor otherwise
recognizes as creating a duty of performance.
ii) Voidable contracts
Is one which can be made void by one party at his option. There is a subsisting contract with a
right of repudiation vested in one of the parties to it for example as a result of fraud
iii) Unenforceable contracts
These are contracts for the breach of which the law attaches a condition on the remedy or for
which the legal remedy has been lost.
In simple terms;
It an agreement produces no legal obligation it's sometimes said to be a "void contract". This is a
contradiction of terms, but what is meant is that what appears to be a contract is actually void
and therefore of no legal effect whatever. It's what they call "null and void" ("Null" meaning
"amounting to nothing”, adds nothing to "void" which means "containing nothing"). On
the other hand, a contract in which one of the parties has the power to avoid the legal relations
created by the contract is said to be a voidable contract. This may happen for a variety of
reasons, such as the fact that the party in question was induced into entering into the contract by
fraud. A voidable contract is not void if the party having the power to avoid it prefers to ratify it,
the contract becomes binding on both parties.
Example:
A owed B $500 on a contract which was unenforceable because it was not in writing as required
by the statute of frauds. A sent B a cheque for $ 500 to settle the account, not realizing that the
contract was unenforceable later when he discovered that the contract was unenforceable he
demanded his money back. B refused to return it. Was A entitled to a refund of his money?
Quasi-Contracts
The term quasi-contract implies a resemblance to contract. Sometimes called a "Contract implied
in law" or more commonly, a "quasi-contract". The first thing which must be said about a quasi-
contract is that it's not a contract but that it is treated as so for procedural purposes in court in a
manner somewhat similar to that used in contract cases. Professor Winfield defined a "genuine
quasi-contract as a liability, not exclusively referable to any other head of law, imposed on a
particular person to pay money to another particular person on the ground of un just benefit".
Example:
A and B entered into an agreement whereby A was to paint a building for B and was to receive
700,000/-payment for his work. Because of a misunderstanding, A painted the wrong building.
The building painted by A also needed painting and A's work was admittedly satisfactory. B tries
to take advantage of the fact that there was no contract to paint this building, in order to avoid
paying anything for A's work. Is A entitled to any recovery for his work?

Basic concepts.
i) Letter of Intent
Work starts and sometimes finishes before the contract is finalized. Statements like "it is our
intent to let this contract to you when it's finalized but in the meantime begin work...... ....." A
letter of intent means nothing, it doesn't create any legal situation. It's only the person's intention
at the time of writing. He/she could change their mind and there is no limitation to that. The
letter of intent is taken as an offer to pay for any work done in that period, but at what price?
Condition can change with wording but payment would be made using the principle of
restitution i.e. "if you confer a benefit to someone by his request then you're entitled to payment
in re-imbursement to that value"
ii) Estimates and Quotations.
A contractor is asked for a quotation which he makes, and the client says go ahead. But if there is
sufficient ground that the contractor has not finalized arrangements then the quotation becomes a
letter of intent
iii) Tenders
Many construction contracts are entered into by way of tender. The invitation to tender carries no
legal obligation. The contractors make an offer (tender) and the client chooses. After the choice
is made then the contract comes into effect. The client has no relationship with the unsuccessful
bidders. The costs of tender are to be met by themselves.
iv) Offer and Acceptance
The normal way by which parties arrive at a mutual manifestation of assent is by an offer by one
party and an acceptance by the other. It should be kept in mind that although both parties express
a willingness to make the same bargain, no contract unless there is an agreement between the
parties to enter the undertaking.
Example
If an outsider to the transaction C should privately meet A and ask him "would you be willing to
sell your factory to B for $1,000,000?" and A says "YES" ,and then C privately ask B, " would
you buy A's factory for $1,000,000 ?" and B says "yes", Is there a contract between A and B?

v) Promise
A promise in a contract may be positive or negative, i.e. it may be to do an act or to refrain from
doing an act (Thus A may promise to pay B $100 o, or he may promise to refrain from suing B
on an obligation of B). A promise may in terms also be to cause something to happen.
Example:
Mary was a tenant on a farm owned by Kizito, Mary agreed to buy 200 heads of cattle,
understanding that Kizito would provide water necessary for their maintenance. The extent of
Kizito's commitment to provide water was in his statement. "Never mind the water, Mary. There
will be plenty of water, because it never failed to rain in Mbale". Was this a promise which
bound Kizito to provide water?

vi) Express and implied contracts

An express contract is one whose terms have been expressed in words. A contract implied in fact
is one whose terms are implied from the conduct of the parties, rather than having been
expressed entirely in words. There is no difference in legal effect between an express contract
and a contract implied in fact.
Example:1
X, who has an account with Y walks into Y's store, picks up an article from the counter holds it
in view of the book keeper, who nods his head affirmatively Y then walks out of the store with the
article in his pocket without either having said a word. Is there a contract between X and Y
requiring X to pay Y for the article?

1.2 THE OFFER

1.2.1 An Offer is a Promise

An offer is a Promise to do something, to refrain from doing something or to cause a specific
event to occur, conditioned on a specific act or promise of the other party. It is the expression by
the offer or of his willingness to undertake a certain obligation if the conditions of his offer are
complied with.
Example:2
A asked B what was the lowest price at which he would sell his used car. B answered, "$300". A
said "sold". B refused to turn the car over to A. Was B's statement that his lowest price for the
car was $300 an offer which could become a contract upon acceptance bysA2
Termination of Offers.
The offer may be terminated when the following happens;
i) Rejection by Offeree
ii) Lapse of time of offer.
iii) Occurrence of certain conditions
iv) Death of one party
v) Intervening illegality
vi) Revocation by the offeror
vii) Loss of legal capacity to contract
1.2.2 Acceptance of the offer
An acceptance is needed in order to provide the required agreement among the parties. In
addition, it is normally the way by which the offeree gives the consideration required of him.
1.2.3 Communication of acceptance.
It's sometimes said that notice of acceptance is required for the creation of a contract, but this is
not true in the case of contracts which are to be accepted by act. The performance of the act is all
that is required for acceptance.
Example:
On July 15th, an order for certain farm machinery signed by Mukwano Company was delivered
to the Mashions Machinery company. On July 19th, Mashions Machinery shipped the order. On
July 22nd telegram from Mukwano cancelling the order. The machinery co claims it had accepted
on the 20h but Mukwano says he revoked his offer before he received notice of his they received
a notice of his acceptance.
Was there a contract, despite lack of communication of the acceptance?

1.3.5 What is Consideration?

The word "Consideration" is used to denote the legally sufficient requirement of a bargain or
exchange. Sometimes it is used with a qualifying adjective-such as "sufficient consideration"- the
word "consideration" alone in such cases indicate an exchange, but not being conclusive as to
whether it is one which is recognized by the law as making a bind contract. It must be something
the parties gave in exchange as an ingredient of a bargain, rather than a mere friendly gesture or
favor.
Example:
Mr. Mukasa promised to pay his nephew £8000 if he would refrain from drinking liquor, using
tobacco, playing cards for money until he was an adult of 20. The nephew complied with all
these conditions. The uncle is now dead, and his executor refuses to pay the £5000. Was there
sufficient consideration to support the promise?
Exercise; Look at
i) Promises as consideration
ii) Past Consideration
iii) Moral Consideration

1.3 CONTRACT RISK

Risk may be defined as a hazard, a chance of bad consequence, loss e.t.c.

1.3.1 Contractual Risk

Contractual Risk is about the unexpected (floods, fires, changes in design, strikes e.t.c.). These
are events which it's hoped will not happen at all. However, if they do then someone will have to
bear the cost.
The term contractual risk is used to indicate an interest different from that of the risk
management approach which concentrates on "economic risk". Perhaps the key difference
between economic and contractual risk is this: economic risk is about the determination and
management of costs such as the purchase of materials with which to build the replacement of
worn out parts of buildings; the risk lies in the uncertainty of the degree to which they will
involve someone in expenditure. On the other hand, contractual risk is about the events which it's
hoped will not happen at all: it's about the unexpected (floods, strikes, etc).

Murphy's Law
Contractual risk is to do with what happens when some mischance occurs. According to
Murphy's law, 'if a thing can go wrong, it will go wrong’
Under fixed price arrangements, the contractor undertakes to submit an estimate for the work and
agrees to be bound by the judgments made in that estimate. Any savings over and above the
original estimate will be to the contractor's benefit and over spending will be to the contractor's
loss.
Under Cost-imbursement arrangements, the employer takes the risk of the final price being
different from the estimate keeping any saving and paying for any increase.
Although this is usually said as a joke, it does have a serious place in any consideration of a
contractual risk. It's hoped that before the mischance occurs, someone has predicted that it might
in some way occur one day. The point about contractual risk is that if one is repeatedly involved
in construction, anything which can go wrong eventually will. This is murphy's law applied to
construction.

Risk and Price

It's important to note that wherever a transfer of risk is to occur from the contractor to the owner,
there should be a counter balancing advantage of price to balance the risk assumed by the owner.
This basic principle remains unpredictable by many who work in the industry. Its observance
would undoubtedly remove a lot of the ambiguity which surrounds construction contracts and
would probably therefore avoid many of the disputes which occur.

1.3.2 Types of Risks in MEP (Mechanical, Electrical & Plumbing) Contracts

These risks could constrain the ability of the contractor to achieve the anticipated margin on a
project. They are the main cause of rising cases of insolvency and liquidation/ bankruptcies of
many contracting firms.

1.3.3 Dealing with Risk

The life blood of any business is to make money by dealing with the risk which other people do
not want to bear. The risk management system should include the following components;
 i) Identify the risks.
The list given (types of risks) is useful as a preliminary checklist and for helping to provoke
thoughts about the risks which maybe important on the project. The identification of risk must be
linked to a clear statement of the client’s priorities for a project, so that e.g. if the timing of the
project is critical, the serenity of the time related risks is automatically increased.
ii) Analyze the risks
The second step in the process is to analyze each of the risks in terms of their likely frequency of
their occurrence their likely severity when they do occur and the range of possible values in
terms minima, maxima and medians for each of these aspects.
iii) Respond to the risk
The final step is to make decision about who is best placed to manage a risk. The choices lie
between the client, the consultants, and contractors or insures. It's important to consider the
extent to which the risk can be controlled by certain parties. Risks connected with the design of
the project are best controlled by the designers, hence it makes sense to transfer liability for
defective design to them.
Risks connected with the management of sub-contractors one best controlled by the contractors.
The choices of response lie between transfer, acceptance, avoidance or insurance of risk or even
perhaps doing nothing.

a) TRANSFER OF RISK
Risks are inevitable and cannot be eliminated. They can however be transferred. The transfer of
risk is achieved through appropriate wording in the clauses of a contract. It's absolutely
fundamental to any study of building contracts to understand that contractual clauses are
intended to transfer risks. For example the transfer of risk is provided by the way in which
building contracts deal with bad weather, makes provision for the contractor to be entitled to an
extension of time but however the contractor is not entitled to any financial compensation. To
client appreciate the extent to which they do this it's necessary to understand what legal situation
would be with and without the relevant clauses.
b) ACCEPTANCE OF RISK
Each of the risks identified has a certain probability attached to it. If property developers or other
construction clients are repeatedly engaged in the process of building them, they are wasting
money by attempting to lay off all the risks. Predictable risks become certainties and should
therefore be absorbed. This would apply to such things as defaults by nominated subcontractors
and inadequate design information.
Risks which are high unpredictable and poorly defined should be carried by the client. Examples
of such risks are those associated to wars, earthquakes, etc. which would be impossible to
quantify or predict.

c) AVOIDANCE OF RISK
Once the risks have been identified and considered, it may be decided that some risks are simply
unacceptable. Projects may be redefined in certain objectives, wholly redefined or even entirely
projects abandoned. Redefining the project is a method of avoiding a risk altogether.
Risk avoidance for architects is to "ensure that the commission is clear, the clarification of
responsibilities, remuneration and expenditure at the beginning of the consultant’s appointment
will help to avoid many traps encountered by consultants.

d) INSURING AGAINST RISK

Several risks can be insured against and more standard forms of contract insist on certain types
of insurance e.g
1. Professional indemnity
2. Third party
3. Fire
4. Contractors all risks
5. Loss of Liquidated damages e.t.c

e) DOING NOTHING TO RISK

There are three different situations of doing nothing or where nothing is seemingly done about
the risk:
1. None of the project team members consider the risk that they are about to take at the
outset of the project. Eventual occurrence of the disaster is a surprise to everyone.
2. Consultants carefully consider the balance of risks within a project and decide that they
already lie with those parties who best can control them and choose to do nothing
3. This may lie within standard forms of contract. Certain events may not be envisaged by
the contracts, which therefore make no mention of them. In such a case, it would be a
mistake to believe that the contract doesn't apportion the risk. By the very fact of
remaining silent, the contract allocates the risk to one or the other of the parties. This may
be ambiguous and misinterpreted and may lead to claims and disputes.
4. Feedback
1.3.4 RISK DISTRIBUTION; Through Methods of Payment
One of the most fundamental aspects of examining the way in which risk is apportioned in a
contract is to study the way in which prices are calculated. There are two ways, namely, fixed
price and cost re-imbursement.

Fixed price.
Fixed price items are those paid for on the basis of a pre-determined estimate of the on an
allowance for the risk involved as well as allowance for the cost of work adding market situation
in relation to the contractor's work load. The estimated price is paid by the clients irrespective of
the actual cost incurred by the contractor.

Cost Reimbursement.
Cost re-imbursement items are those paid for on the basis of the actual cost of the work.

HN