Construction Law

By Eng. Dr Dans Nshekanabo NATURINDA

COURSE OUTLINE:
1. Introduction - Fundamentals
2. Roles and Responsibilities in Construction
3. Formation of Construction Contracts
4. Claims and Disputes
5. Professional Practice
REFERENCES
1 . M a s o n J . C o n s t r u c t i o n L a w. R o u t l e d g e , L o n d o n
2. M u r d oc h J & H u g h e s W. C o n s t ruc t i on C o n t r ac t s – L a w a n d
Management, E & FN Spon, London
3 . S a m u e l s B . M C o n s t r u c t i o n l a w, P r e n t i c e H a l l , L o n d o n
4 . W h i t e N . J . P r i n c i p l e s a n d p r a c t i c e s o f c o n s t r u c t i o n l a w, P r e n t i c e
Hall, London
5 . Ya t e s J . K . ( 2 0 1 0 ) E n g i n e e r i n g a n d C o n s t r u c t i o n L a w a n d
Contracts, Prentice Hall, London
 LECTURE 1:
INTRODUCTION
(FUNDAMENTALS)
The Need for Laws
Definition
 A system of rules which a particular country or community recognizes as regulating the actions of its
members and which it may enforce by the imposition of penalties
Purpose (Murphy’s Law)
 Promote justice
 Social mediation
 Protection of people’s rights
 Public administration and order
 Regulation of social systems
Sources of Law
 Legislature and executive arms of government
 Judicial precedents – common law
 Judicial opinions (legal interpretations) - case law
Why Construction Law
Context
 Construction is a creative and risky undertaking
 Enable performance in the knowledge that actions are regulated
Aims
 Know the roles and responsibilities of participants
 Understand the contractual relations of participants (rights and obligations)
 Formation and administration of construction contracts
 Knowledge of laws governing the construction industry
 Understand the professional responsibilities and conduct
Key Concepts
 Applicable laws - jurisdiction
 Governing law - precedence
1. List laws applicable to
construction and their
locus of application
2. What are the common
ethical obligations of
construction professionals?
 ROLES AND
RESPONSIBILITIES OF
KEY PROFESSIONALS
Key Participants
By profession
 Architects, Engineers, Surveyors, Planners, Lawyers, Doctors etc
By Trade
• Employers, Consultants, Constructors
Challenges
 Professional pride - Mainstream
 Project phasing and need for information flow
 Transient human resource
 Other professionals and authorities
 Unannounced participants
Contract Administration Function
 Ensure the needs of the employer translated into documents that are then used to deliver the project
 Administrative role – Employer’s Agent
 Professional Role – Quasi - Adjudicator
Contract Administrator as an
Employer’s Agent
Key Principles of Agency
 Contracts and Variations
 Express authorization
 Personal liability
 Creation of contracts
 Variation of contracts

 Suspension of Work
 Legal right to suspend work
 Breach of contract
 Repudiatory breach

 Delegation of Authority
 Personal responsibility
 Implied delegation
 Sub-letting
Contract Administrator as an
Employer’s Agent
Duties of an Agent
 Advise the Client
 What is the liability for defective advice
 Instructions to the Contractor
 Binding instructions
 Information to the Contractor
 Implications of inadequate information
 Inspection and Supervision
 Frequency
 Role of Clerk of Works
 Contract Administrator’s reasonable satisfaction
 Opening up and testing, implications and obligations
 Safety on site and work methods
 Quantity Surveying Functions
 Delegated responsibilities
 Liability of QS and Contract Administrator
 A CONTRACT
ADMINISTRATOR AS AN
INDEPENDENT
ADJUDICATOR
Introduction
The Contract Administrator is expected to exercise judgement and reach
decisions of professional and other contractual matters. In which case he
acts, not as the Employer’s Agent but as an independent professional
The most important aspect of this function is certification –
expression/statement of professional judgement, opinion or skill
There are three main types of certificates:
 Interim Certificates
 Final Certificates
 Certificates Recording Events
 Types of Certificates
Interim Certificates
Issued at intervals as work progresses
Entitles the Contractor to be paid a proportion of the Contract Price – value of work done, materials on site,
offsite materials and works

Final Certificate
Signifies the Contract Administrator’s satisfaction with the work and/or amount finally due to the Contractor
Issued at the end of the defects liability period

Certificates Recording Events

 Certificate of Non-Compliance – Contractor’s failure to complete works by the completion date (triggers liquidated damages)
 Certificate of Practical Completion – practical completion achieved (fitness of purpose), liability to liquidated damages ceases,
half of retention is released, defects liability period begins.
 Certificate of Completion of Making Good, Defects – confirms CA’s opinion that defects appearing during the defects liability
period and notified to the contractor have been made duly good. Contractor entitled to the balance of retention money.
1. Distinguish between end of project and end of
contract
2. Why is it important to have a liquidated damages
clause in a construction contract?
3. Why is there a limit on the chargeable liquidated
damages?

4. What happens when the limit on liquidated damages

is exceeded?
 Is a Certificate binding upon the
parties as to what it certifies?
The Employer is open to show that despite a certificate, the Contractor is not entitled to payment

An Interim Certificate can be corrected by the Contract Administrator when the next interim certificate is
issued

Hence the certificate is not necessarily conclusive evidence that work or materials are in accordance with
the Contract. This is the Principle of Conclusiveness in relation to issuance of certificates.

The final certificate can be reviewed in a stipulated time, or else it serves as conclusive evidence that:
Where materials or workmanship have to be to the reasonable satisfaction of the Contract Administrator, they are so;
All appropriate additions and deductions have been made to the Contract sum;
All time extensions have been taken care of.
All Contractor’s claims have been properly accounted for.
“Where a Contract gives power to the Contract
Administrator or Adjudicator to open up, review
and revise a certificate, this means that court
has no such power. Hence if the strict time
limits for reviewing a certificate are not
complied with, the certificate becomes in effect,
unchallengeable” Ellis Mechanical Services Vs
Wats Construction Ltd, 1976
Challenging a Final Certificate
A certificate may be conclusive and challengeable on its merits. However, there are grounds on
which it can still be set aside. These include:

Where the certificate is not issued by the right person, in the right form and at the correct time;

If the Contract Administrator certified something he did not have authority to;

Where there is fraud or collusion;

Where the Employer has improperly influenced the certifier.

 What is the implication of absence of a
certificate to payment recovery? Is the
Contractor entitled to demand interim
payments in the absence of an interim
certificate? Can the employer deduct
liquidated damages without a certificate of
non-compliance?
Recovery without a Certificate
Where a certificate provides for any action following issuance of a certificate, this is indeed a
Condition Precedent

A Contractor who feels that work has been undervalued can either demand a further certificate or
seek arbitration, but such does not justify leaving the site;

The Contract Administrator’s failure or refusal to issue a certificate in no more conclusive and
binding upon the parties than the issue of one would be;

This is the Principle of Condition Precedence in relation to issuance of certificates.

Other Decision Making Functions
The Principles of conclusiveness and condition precedent in relation to issuance of certificates
also apply to similar functions where the Contract Administrator is required to make decisions or
give opinions

For instance if the Employer needs to take possession of part of the works before practical
completion is achieved, the Contract Administrator is required to issue a written statement
identifying the part taken into possession. This statement is treated as a Certificate of Practical
Completion for the relevant part.
 Should the Contract Administrator enjoy
immunity as an arbitrator since he is acting in
a quasi-judicial capacity? What is the liability
of a Contract Administrator for negligent
decision making?
Liability for Negligent Decision
Making
The Contract Administrator is bound by contract with the Employer and owes him a duty of skill and
care.

In case of professional negligence the Contract Administrator is liable to compensate the Employer
for any loss

The Contract Administrator owes no duty of care whatsoever, to the Contractor; WHY?

The Contract Administrator is therefore not liable to any tort claims from the Contractor as a matter
of principle WHY?
What is the remedy to the Contractor in case
of professional negligence by the Contract
Administrator?
 What are the key duties
of design consultants?
1. Design
2. Advise Employer
3. Supervision
Communication and Information Flow
Design involves processing of technically diverse information, much of which is innovative and being worked on by a
variety of different technical consultants
A construction process is split into various stages and there is variability between projects arising from changes in
intensity between the different stages and the different professionals involved at each stage
Systematic and timely sharing of information as the project progresses and amongst the diverse consultants is
paramount to maintain originality of the project concept
Communication can be formal or informal
Informal communication patterns do not acknowledge structural impositions, and people anywhere in the process
create communication routes wherever they feel they are necessary. It takes place at all levels and is very difficult to
coordinate, yet very essential for quick decision making
Formal communication is facilitated by organization structures which define the chain of authority
A decision reached through informal means ought to be formalised to facilitate coordination and create a trail for
responsibility and hence liability
What is the relationship
between designers and
constructors with regard
to design liability?
 Design Liability
Design is the responsibility of the design consultants
Construction is the responsibility of construction contractors whose obligation is to construct in strict
accordance with the design and contract documents provided
The Contract Administrator has to decide whether any defect in the finished work is a responsibility of
the designers or constructors
 Design defects are a responsibility of designers
 Workmanship defects are a responsibility of constructors
 Material defects are a responsibility of the Contractor if the materials deviate from design. Otherwise the designer is liable
In contracting methods where the same party designing is responsible for construction (design and build, EPC,
turn-key, package deal etc) the responsibility for both design and construction lies with the same party
The liability of the design consultants is to ensure their design is fit for purpose.
Designers not responsible for compliance with statutory requirements except if the design is defective
 What is the standard limitation of
the designers liability and why?
• Designers are expected to warrant fitness of purpose of their
designs
• This obligation remains until practical completion
• Issuance of the Certificate of Practical Completion confirms
fitness of purpose

• Read about limitation principles in contracting. Refer to the

Limitation Act 1959 (Section 3)
What are the key duties of
Construction Contractors?
1. Possession of Site
2. Progress with the work
regularly and diligently
3. Completion of work
4. Project management
 Possession of Site
Site possession date defined in the Contract

Marks commencement of project works

Employer who fails to give possession at the agreed date liable to pay damages for breach of contract

Employer not deemed to guarantee possession of site and would not be liable if it is hindered by 3rd party

Employer loses right to recover liquidated damages if he does not give site possession on prescribed date

Contractor not obliged to start on possession date

 Progress
Failure to proceed with works regularly and diligently constitutes breach of contract

It is a repudiatory breach if no work is ongoing for a given period (as per the Contract) and no such break
is reflected on the work program
 Completion
The obligation of the Contractor is to achieve practical completion

The Contractor’s delay in completion gives rise to liquidated damages

For sectional completion, each phase has its completion time and liquidated damages

After completion, the Contractor is given a Certificate of Practical Completion to confirm the completed
work is fit for purpose and occupation

Issuance of the Certificate of Practical Completion marks the start of the Defects Liability Period (DLP)

Any defects, shrinkages or faults arising during the DLP must be made good by the Contractor
 Site Management
The Contractor has a role to play in managing the site and people who work on it. This entails

Controlling access to site

Controlling all persons on site

Exclusion of people from site who are not required

Protection of antiquities discovered during construction

 Extension of Time
Contracts have provisions for extension of time for reasons that are beyond the control of the Contractor
that could not have been foreseen by an experienced Contractor. Examples include:
Failure to give site possession as per the Contract
Opening up and inspection of defective work that turns out otherwise
Delay to supply information
Delay on the part of Nominated Sub-Contractors
Variation orders that affect completion time
Delay of materials to be supplied by the Employer (why would the Employer supply materials?)
o If it’s a labour contract
o In case of long lead times
o Materials in stock
o Quality control
Late issuance of instructions
Force majeure
Delayed advance payment (why?)
 Implications of Extension of Time
The implications of losing the fixed date of completion is that a Contractor who may still be liable to pay
damages for delay which is their fault, can no longer be made liable for liquidated damages. Even if the
delay caused by the Employer is a small part of the overall delay, the Employer cannot discount it and claim
damages for the remainder (Dodd Vs Churton, 1897).
The liquidated damages provision fails altogether, but the Employer can claim the losses actually due to
the delay.
FORMATION OF
CONSTRUCTION
CONTRACTS
Definition
A Contract is a legally binding agreement between two parties, and by which rights and obligations are
created by the parties themselves
Contracts in Uganda are governed by the Contracts Act (2010)
A Contract is a result of agreement between two parties, enforceable in law, and confined to those parties
The basic notion is that there must be consensus between the parties absence of which renders the
Contract null and void.
An agreement can be made in either of the three different ways:
In writing (express)
Orally (verbal)
Deduced from the conduct of the parties (implied)
Ingredients of a Valid Contract
A valid Contract must have the following requisites:
1. An agreement composed of an offer by one party and acceptance of that offer by the other party
2. Intention to create a legal relation
3. Must either be under seal or there must be consideration on both sides to support the agreement
4. Parties must have contractual capacity to bind themselves
5. Reality of consent by both parties to the terms of contract
 Not procured fraudulently
 No misrepresentation of facts
 No mistake in a legal sense
 Not formulated under duress or undue influence
6. The Contract must be legal: the subject matter must not contravene any law and the performance of it must not
be impossible

 Absence of one or more of the above makes the contract void, voidable, or unenforceable.
Void Contracts
A void contract is an agreement, the breach of which, the law neither gives remedy nor otherwise
recognizes as creating a duty of performance.
Ingredients that may make a Contract void include:
Absence of consideration
Existence of a fundamental mistake
Lack of contractual capacity
Because of an illegality
Voidable Contracts
A voidable contract is one which can be made void by one party at its option (right of repudiation)
A voidable contract is not destitute of legal effect, because until the obligation created by the promise is
avoided, it is valid and enforceable, and on affirming it is binding.
Some ingredients that may make the contract voidable include:
 Misrepresentation of facts
 A mistake in a legal sense
 Undue influence
 Change in original terms of contract
 Collapse of some contract clauses
Unenforceable Contracts
An unenforceable contract is a contract, the breach of which, the law attaches no condition of remedy or
for which the legal remedy has been lost
The legal obligation created by the promise is recognised, but there is no remedy for its enforcement
This contract is not void, and if executed, courts cannot set it aside.
CLASSIFICATION OF
CONTRACTS
Contracts of Record
Obligations arise independent of any agreement.
Judgements – binding to pay costs or damages
Recognisances – acknowledgement to pay debt before judicial officer, bail, police bond
Contracts under Seal
Written promises signed, sealed and delivered, actually or constructively by the promisor to the promise or
his agent
A seal is a representation of a legal entity only applied by the authorized representative
The presence of the word @seal@ near the signature or printed form is, in some instances, enough to
create a contract under seal
Simple Contracts
All Contracts that are not under seal
They may be made orally, or in writing, or by implication from the conduct of the parties
In some cases the law requires writing as a condition for enforcement
Oral and implied contracts must be supported by consideration; else they are void.
Quasi Contracts
Liability not exclusively referable to any other head of law imposed on a particular party to compensate
another on the ground of unjust benefit (Prof. Winfield)
The law of quasi contracts provides remedy where it would be unfair to let a party retain benefit received
under circumstances that are not contractual
Examples include:
If an employer overpays an employee by mistake
Services provided under a Contract that is later discharged by the breach of one party
ONTRACT FORMATION
PROCESS
Formation of Contracts
An agreement is one of the essential ingredients of a valid contract. It denotes a meeting of minds of the
parties involved upon the subject matter.
An agreement is preceded by an offer/proposal made by one party directed to another, which when
agreed to unconditionally by the offeree, a contract has been concluded.
An offer may be verbal, written or implied from the conduct of the parties. It needs not be made to a
particular party, but con contract can arise unless the offer has ben accepted by a particular party
An offer remains valid until:
Its time has not elapsed, at which time it automatically terminates
The offerer terminates it before it is accepted (revocation)
it is accepted by the offeree, at which time it becomes part of the agreement
 It is rejected by the offeree; in this case it can only be revived by the act of the offerer.
 Formation of Contracts, contd
Inviting a party to make an offer is an invitation to treat and does not constitute an offer or a contract
A contract comprises an offer by one party and acceptance of that offer by the other party
An offer is turned into a contract on its acceptance by the party to whom it is addressed
A letter of intent (e.g. conditional acceptance) is an indication of a firm intention to award a contract to the Contractor
It has no legal binding effect, but on its basis, the Contractor can proceed with the works while a formal contract is being
worked out.
In case no contract materializes, the Contractor is entitled to claim on quantum meruit basis for the work he will have done
An estimate is considered an invitation treat, while a quotation is considered an offer in law. The estimate or quotation is
determined by its essence and not mere wording.
In order to create a contract, a party’s acceptance must unequivocally relate to the other party’s offer and must be
unconditional. Acceptance may be written, verbal or implied from the conduct of the parties
If an offer is made by one party but acceptance by the other does not correspond to the offer it is considered a mistake
A mistake does not invalidate the Contract, and if objectively there appears to be agreement between the parties, their
contract will be held binding and enforceable
Tendering
A tender is a form of offer which is usually submitted in response to a prior request for tenders.
It is an offer of performance, and where a tender is certain in its terms, it constitutes an offer which when
accepted results in an agreement.
There are two types of tenders:
1. Standing Offer
 A contractor tenders for works ‘as may be required’ by the employer over a specified period (framework contracts).
 Acceptance creates no binding contract
 The Employer is not bound to order any work
 The Contractor can withdraw before the period is over
 Any orders placed during the period must be carried out if the Contractor has not revoked his offer
2. Specific Offer – an offer by the Contractor to carry out specific work as per the invitation to tender, acceptance of
which forms a legally binding contract
Tendering Procedures
Sole Source
o Existing contract
o Emergency works
o Only one provider available
o Known to the employer
o Small value
Open Invitation
Single Stage Selective (restricted tendering – to a few ad hoc or pre-qualified)
Two Stage Selective
o Contractor selected based on minimum information sufficient to provide basis for competition and negotiation
o The selected Contractor works with the design team during the second stage to develop production drawings and priced BoQs
based on the first stage tender, to obtain an acceptable sum
o Used for highly specialized works where input of contractor is needed, or where scope is unknown, or completion time is
paramount. It is also applicable for design and build contracting arrangements
Tendering Problems
Cost of tendering
o An invitation to tender is merely an invitation to treat where the Employer is under no obligation to accept any of the tenders
o However, if the Employer invited tenders with no intention whatsoever, of accepting any of the tenders, he is liable for any
expenses incurred by the tenderers
Withdrawal of tendering
o A tender being an offer may be validly revoked before acceptance
o For any loss that the Employer may incur as a result, the Contractors are required to supply a bid bond
Estimating
o Estimating during tendering is not based on the actual way the Contractor will incur costs, but on historical information which may
not relate the location of the work to its cost
o Contractors are usually mindful of the state of the market which involves a high level of contractual risk that is transferred to the
Employer
o If a Contractor does not want the job, he will provide a ‘cover bid’ which is inflated
 Terms of Contract
An agreement, the basis of a contract, is made up of statements, promises, and undertakings of different
character and importance. These are the terms of contract
Terms of contract are the obligations a contract imposes on the parties. They may be expressly stated in the
Contract or implied.
Express terms are written in the contract document and other documents to which the contract refers. They
are either conditions (major terms) or warranties (minor terms)
• A breach or a warranty can be redressible by an action of damages only
• A breach of a condition gives the party not in breach either to treat the contract as repudiated by the other party and
sue for damages, or if it is to their benefit, treat the breach of a condition as a breach of warranty
Implied terms are either implied in law or in fact
• Terms implied in law are imposed by related legislation, but may be subject to the right of the parties to exclude them
by express words.
• Terms implied in fact are those considered reasonable to be incorporated in the agreement and are necessary to give it
efficacy and not to just make it more convenient, reasonable, or sensible
Frustration of Contract
A Contract is considered frustrated, and hence terminated, if an external event renders it impossible,
illegal, or radically different through a fault of neither party, and the contract makes no sufficient
provision for what has occurred
In such a case, both parties are freed from any further obligations under the contract
If a contract terminates this way, it interferes with the balance of risks between the parties