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Construction Contract Law

Thursday, November 27, 2014


Contract Validity, Breach of Contract and Termination



Definition of a contract

Construction Contracts: Law and Management - 3rd Edition


This volume aims to teach effective and practical techniques to improve the overall performance and outcome of design projects in various industries. It shows how to maximize budgets, reduce life cycle costs, improve project understanding and create better working relationships.

The term Contract used in the Construction management can be defined as:  "An agreement entered into by two parties under the terms of which one party agrees to perform a specific job for which the other party agrees to pay. Contract documents attached to and/or stated in the agreement form integral parts of the contract"



Essentials of Contract validity

  • The parties to the contract must be competent, and legally capable of playing their intended part. The law can not enforce the agreement on someone who has not the legal capacity to enter into an agreement. This could be due to infancy, lunacy, drunkenness, or being restricted from entering into such agreement by a prior in date agreement or scope of authority.
  • The subject matter of the contract must be lawful and definite in respect of requirements and duties of each party. For example a contract violating municipal regulation is not binding and is void in courts. Also uncertainty in respect of the what is wanted may result in the contract being not enforceable by law. 
  • Proposal and acceptance: There must be a proper proposal by one party and its absolute and unqualified acceptance by the other party. The proposal is not binding without a clear acceptance and is not binding beyond its date of validity.
  • Free consent of parties to the contract: Consent is said to be free when it is not caused by force, or undue influence or fraud or misrepresentation.


Breach of Contract

Breach of Contract is the failure to perform it. However, not every failure to perform an obligation amounts to a true breach, as there are a number of excuses for non performance. When a contract has been broken without sufficient excuse or justification, the party who suffers by such breach is entitled to receive from the party in default, a compensation for any loss or damage caused by such breach.



Termination Of Contract

A Contract may be terminated or brought to an end in either of the following ways:

  • Full and satisfactory performance by both parties to their obligations under the contract.
  • Breach of contract, when the default of one party releases the other party from the contractual obligations.
  • Mutual agreement of the parties to terminate the contract.
  • Unforeseen circumstances beyond the control of either party render it impossible to perform his duties or obligations stated in the contract.
  • Operation of law to terminate a void contract.


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Types of contracts commonly used in construction

  • Lump sum contract
  • Item rate or unit price contract
  • Percentage rate contract
  • Cost plus percentage rate contract
  • Cost plus fixed fee contract
  • Cost plus fluctuating fee contract
  • Target cost contract ( Read more about this Type of contract )




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