Competitive Tendering for Engineering Contracts

M. O'C. Horgan

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781135259297
• Edition: 1
• Topic: Architektur
• Subtopic: Architektur Methoden & Materialien

First published in 1984. This work is designed to provide for those who often face having to set up engineering contracts a comprehensive text-book and source of ready reference, by the aid of which they may handle the competitive tendering process without doubt or difficulty. Each step is described in chronological sequence, with comment on the common pitfalls. Comprehensive check-lists are included with a detailed alphabetical index to enable a subject to be readily located. As a text-book it aims to be equally of value to engineers and to others who have recently changed from pure technology to new responsibilities with a more commercial, contractual or managerial flavour.

1

Contracts, agreements and the Engineer

DOI: 10.1201/9780203867235-1

This book is devoted to the task of setting up lawful engineering contracts between a customer (whom we shall hereafter refer to as ‘the Employer’ – a title frequently adopted in contracts themselves) and a contractor, the latter selected because his tender has been judged the most attractive of the competitive offers made in response to an enquiry by the Employer. Before doing so, however, we need to establish certain facts about what is necessary to constitute a binding contract, and to say something about the duties of ‘the Engineer’ (an official usually nominated in engineering contracts) and some of the other officials who support him in his duties.

1.1 A CONTRACT

A contract is a bargain agreed between two (or more) parties, for example between an Employer and a Contractor regarding the execution of certain works. When properly set up, it is legally binding upon them, each to perform the various obligations he has undertaken, as expressed in a mutually agreed set of contract documents. To be legal, a contract must fulfil certain requirements.

• An intention, that is to say, both parties must wish and intend their bargain to be enforceable at law.
• A genuine consent. The bargain must not be procured by force, coercion or undue influence, nor must it rest on fraud or misrepresentation by one of the parties.
• Legality of the object, i.e. the parties must not agree to break the law, for example, to avoid the Restrictive Trade Practices Act, or the payment of Value Added Tax when it is due.
• Legal capacity of the parties to act. This rule deals with certain classes of persons (e.g. infants, lunatics, etc.) which do not usually affect engineering contracts. There is, however, a requirement to ensure that persons committing a corporate body (such as a contracting firm) are properly entitled by their constitution so to do.
• Valuable consideration must pass both ways between the parties (namely, a bargain as opposed to a gift). In engineering contracts this is usually money for goods or services, but is not necessarily so. The consideration can be a right or benefit, or equally a loss, forbearance or detriment of value accepted by the other party.

1.2 OFFER AND ACCEPTANCE

A contract is formed when an offer (such as a tender) by one party is unconditionally accepted by the second party to whom it has been made. Note that the acceptance must be full and complete: any ‘ifs’ or ‘provided thats’, or the introduction of new factors, will not form a contract. In the eyes of the law, such an ‘acceptance’ is in fact a counter-offer which in turn needs unconditional acceptance by the other party. The acceptance must be made within a reasonable time of the offer, and the limit is usually set by the tenderer specifying a ‘validity period’ on his offer. Acceptances must be communicated to the tenderer – silence cannot be assumed to mean consent. This does not mean that the offer and the acceptance have to be in writing necessarily – for most contracts, and certainly most of those in the engineering field, they can be verbal, and this must be borne in mind by any enthusiastic salesmen anxious to clinch a deal. They must beware promising anything or undertaking something which they cannot fulfil: they might find themselves ‘stuck with it’. In practice, of course, engineering contracts of the size we are considering are usually written, either in a formal document or in a letter with appropriate addenda. Otherwise it would be impossible to record the mass of technical and contractual detail. One cannot rely, over an extended period, on somebody’s early recollections.

There are, however, a few types of contracts which the law requires to be in writing, either completely or in summary. Without going into too much detail we should note those which may occur in engineering work.

1. Completely in writing: include bills of exchange, marine insurance, some hire-purchase contracts.
2. Evidenced in writing: that is, memoranda of all the material terms, signed. Includes contracts of guarantee, contracts regarding of money, and those which relate to land (purchase, leasing, – of-way, access, wayleaves, etc.)

A proper appreciation of the constituents of an acceptance and a counter-offer is most important, and often needs careful thinking through before reaching the true answer. It may help to look at one example before leaving the subject.

An engineer, glancing through a magazine, notices an advertisement for a machine he needs, at a reasonable price, so he writes to the advertiser: ‘Please supply one machine as offered in your advertisement, at the price stated.’ This appears to be an unconditional acceptance – has he established a contract? The answer is: ‘No’. An advertisement (like a display of goods in a shop window, even with prices on them) is legally not a valid offer made to our engineer, ‘party-to-party’. It is a general invitation to anyone interested to do business with the seller by opening negotiations. This our engineer has done; he has made an offer to purchase on specified terms.

Suppose the seller now replies by letter saying: ‘Thank you for your order, which we are pleased to accept, subject to our usual conditions of sale. Delivery will be 20 weeks.’ Is there now a contract? The answer is still: ‘No’. The acceptance letter is not unconditional: it has introduced two new factors which the engineer did not offer, (a) the seller’s conditions of sale, and (b) a specific delivery date. This acceptance is another counter-offer. The engineer now replies: ‘Your conditions of sale are fully acceptable to me, as is the delivery you promise. Payment will be made to you direct by our firm’s cheque within 30 days of receipt of the machine, as it is not our practice to hand so much cash to the van-driver, as mentioned in your conditions.’

No, we are still not there! Although professing to accept both new items unconditionally, the engineer immediately shows he has not agreed to the terms of payment, so we have yet another counter-offer. The seller now replies: ‘We appreciate your caution and agree to your suggestion to pay us by cheque.’ At last! But all the correspondence will have to be included in the contract documentation to establish exactly what has finally been agreed.

1.3 DEFINITIONS

An essential feature of a contract is, understandably, that the contract documents must set out the terms of the bargain in a legally unambiguous way, and to this end they usually start with a list of definitions. A word must mean the same thing to both parties. A typical set of defined words is given in Appendix 1. Frequently a word is given a special meaning, more restricted than – or different from – its recognized dictionary definition: to draw distinction in such cases, it is written with a capital initial letter whenever it is used in its special sense. Thus, the ‘Employer’ – the party to the contract – is distinguishable from an ‘employer’, some hirer of labour or user of something. We shall do the same in this volume when ever it is necessary to draw such a distinction, and a reference to Appendix 1 will then show the special meaning we wish to convey. Apart from ‘Employer’ the two most widely used terms are ‘Engineer’ and ‘Agreement’, both of which warrant a few words of explanation. One or two others will turn up as we go along.

1.3.1 An Agreement

All contracts, however made, require agreement between the parties in order to be valid, and as a result, a contract is often referred to as ‘an agreement’, whatever its actual form may be. However, a contract can, and frequently is, either drawn up or is confirmed in a formal document, couched in the terms and format of a legal Agreement, and concluded under hand or seal. Such a document is itself correctly called an agreement and so, to avoid confusion in this book with the general use of the word, we shall always describe such a document with a capital letter, i.e. ‘Agreement’. There is, however, a further complication as it is not uncommon in some overseas countries to draw up all contracts of any size in the form of an Agreement but to refer to them as ‘the Contract’! We discuss this subject further in Section 9.2.

1.3.2 The Engineer

As distinct from a specialist in technical engineering matters, the Engineer in a contract is an authority appointed by the Employer to supervise and control the execution of the contract by the contractor. The Engineer is not, himself, a party to the contract, and his appointment, authority, general powers and responsibilities are limited to those set out in the various clauses of the conditions of contract as accepted by the contractor. Within the limits set thereby, the Employer may specify his duties more precisely, but he cannot extend them without the written consent and agreement of the contractor.

The Engineer is frequently identified by name in the contract definitions, but when a firm of consultants is appointed to the role, they will be named as a firm, taking corporate responsibility. As soon as the contract has been let, they will name a senior member of their organization as Project Manager, personally empowered to act as the Engineer on their behalf.

Although primarily the Engineer ‘runs’ the contract on behalf of the Employer, it is now recognized by usage and established in case-law that the terms of the contract may require him to also act as mediator or quasi-arbitrator between the contracting parties, and this is frequently done. Many standard forms of conditions of contract spell out such responsibilities. In making such decisions the Engineer must, in spite of his primary obligations to the Employer, always be fair and impartial (and, moreover, be seen to be such) using the recognized practices and ethics of his profession in any case where the law itself is not an applicable guide.

In this dual capacity the independent status and reputation of a firm of consulting engineers have a lot to commend them even though the firm owes a simultaneous duty to their client, the Employer, to watch his best interests. A few moments consideration will show that, in such circum stances, the Engineer’s two interests are not nearly so conflicting as might at first sight appear. In practice, however, the Engineer is not always so independent. Some bodies, especially the larger government-controlled organizations, public authorities and departments, are apt to nominate as the Engineer one of their own staff, with themselves both his employer and Employer. Whilst this situation is usually accepted, faute de mieux, by contractors, there must always be some doubt (rightly or wrongly) as to how faithfully the Engineer can, in such circumstances, fulfil his role as arbitrator when the conflicting views involve his own employer.

We have already mentioned that the powers of the Engineer may not exceed those given to him by the terms of the contract. Occasionally the opposite occurs, and the Employer restricts the Engineer’s powers without the contractor (or the tenderer, at the tender stage) being made aware of it. Indeed the Engineer may be prevented from fulfilling completely his role of quasi-arbitrator as provided by the contract conditions, to the detriment of the contractor. Such a practice by an Employer is reprehensible and amounts almost to breach of contract, or fraud.

1.4 PROJECT MANAGEMENT

There has, in recent years, been a growing tendency world-wide for Employers to accept they do not have the staff resources themselves, and to place the complete handling of their engineering projects in the care of an independent professional Project Management team. To this end they enter into Project Management Contracts with organizations specializing in such work which can provide a unified service to protect the Employer’s interests contractually, legally, financially and operationally. Among numerous ‘definitions’ of Project Management, it has been quoted as being:

‘The overall planning, control and coordination of a Project from inception to completion, aimed at meeting an Employer’s requirements, and ensuring completion on time, within budget and to the desired standard of quality and performance.’

The concept is not basically new: with slightly modified titles it will be seen to fit exactly the traditional role we have allotted to the Engineer in this book (Section 1.3), namely an independent firm of consulting engineers who manage a project for the Employer, as well as fill the role of Engineer for the contract works. Alongside such an arrangement it has not been uncommon (especially with government-controlled or nationalized industries) for Employers, wanting to retain the day-to-day control of the works in their own hands, to appoint a senior member of their own staff as the Engineer, even though he does not have the ability or the back-up staff to ‘manage’ the project in all its aspects. They therefore enter a Management Contract with a firm of consulting engineers to do it for them.

However, it is in the building and construction fields that the need has been found most acutely. In many conditions of contract the appointment of an Engineer is not envisaged, and his role is allotted to the Architect who has been professionally involved in the design, to supervise its execution. Few architectural practices have been organized or staffed to control all aspects of a project, and the need for a separate project management becomes all too evident. It is a situation being experienced world-wide, and the solution is making headway in spite of some reluctance by existing authorities. It has been common practice on public building projects in the USA for many years (though usually under other names, such as ‘Construction Programme Management’ – CPM) and is now extending into the private sector. It is also common in those other countries which have accepted and practise US methods.

Although we shall not be referring to Management Contracts (in so many words) during what follows, their operation can be clearly seen from the activities of the Engineer and his staff which we shall be following in detail. Indeed, they are executing a Management Contract for their client, the Employer.

1.5 THE PROJECT MANAGEMENT TEAM

1.5.1 The Engineer’s representative

The Engineer is usually permitted by the conditions of a contract to delegate his powers (or some of them) and to appoint an Engineer’s representative and/or other assistants with more restricted powers and authority. The Engineer is usually required to nominate such persons and define their duties by a letter to the contractor after the contract is signed. The Engineer retains sole responsibility to the contractor and the Employer for their activities.

1.5.2 The Engineer’s staff

In a large project, such as we are assuming as the basis of the book, a firm of consulting engineers, acting as Engineer, will normally appoint the following key personnel, each of whom may in turn call on assistants or advisers in carrying out the duties for which he has been appointed. Naturally (depending on the nature and size of the Employer’s project) some o...