CHAPTER 1

Background to the Contract Forms:

General Law of Contract

The forms of tender, agreement, conditions and bond published by the Institution of Civil Engineers, etc., and the Association of Consulting Engineers’ Service Agreements are designed to standardise the duties of contractors, employers and engineers and to distribute fairly the risks inherent in civil engineering.

The contract system on which these forms are based has been in use for over a century, and the present practice is outlined in a report published by the Institution, so that it is not necessary to say anything about it here. 

The forms themselves—in general use since about 1950—have defects, but are not as defective as many of the forms concocted by individual engineers and contractors used before then. They have the great advantage that their contents become known and understood with constant use, so that they have reduced the number of disputes and misunderstandings. 

From a practical point of view the use of the forms is now so widespread that they are really a private code of legislation which is automatically accepted by individual employers and contractors, subject to adjustments for special cases, rather than an agreement on terms which are bargained for in detail between them. Nevertheless, it is normally the ordinary law of contract which applies—the branch of the law which regulates rights and duties not imposed by the law but created by the parties’ own agreement with each other. To be dealt with first, therefore, are four general topics relating to the law of contract. 

Essentials of a valid contract. The basic requirements of the courts before they will enforce a private agreement as a legal contract are, very briefly because they will not often be in question in relation to construction or service contracts—

(a) CERTAINTY. Since it is the agreement of the parties which gives binding force to a contract, the terms of their agreement must be sufficiently certain to have a practical meaning. To create a contract the parties must not have failed to agree on any term which 

“even though the parties did not realise it, was in fact essential to be agreed, as a term of the contract, if the contract was to be commercially workable”. The courts will help—if, for example, no price is fixed they may imply that a reasonable price is to be paid—but they cannot make the contract for the parties: 

Defendant sued on an agreement to buy a van. A deposit had been made but all that was said about the balance of the price was that it was to be paid “on hire-purchase terms”.

Held: “hire-purchase terms” vary so much that it was impossible to say what the parties intended to agree to, and there was no binding contract. 

Contractors submitted two tenders for construction of a freight terminal. One tender was at a fixed price, and the other had a price variation clause. There was a steep rise in costs after tender, and the contractors wrote to the employers asking for sympathetic consideration of revision of the prices quoted for the fixed price tender. The employers wrote to the contractors that they accepted “your tender”. No contract was signed, and it was held that as the employers had not made it clear which tender they were accepting, there was no concluded contract and the contractors were entitled to payment on a quantum meruit (see below) for the works, which they had completed. 

Agreement that a developer’s quantity surveyor would negotiate with a builder—“fair and reasonable contract sums in respect of each of the three projects as they arise. (These would incidentally be based upon agreed estimates of the net cost of work and the general overheads with a margin for profit of five per cent)…”. Negotiations on prices eventually broke down. Held that there was no concluded contract. There was no agreement on the price or any method by which the price was to be calculated, not dependent on agreement being reached by the parties in further negotiations. An agreement to negotiate a fundamental term of a contract such as price is too uncertain to be enforced by the courts. 

It is not often nowadays that the main contract is not tied up, because the procedure has become stereotyped. Lack of similar procedure in engineers’ offices (in the case of nominated sub-contractors) and on the part of contractors and sub-contractors for making sure that all sub-contracts are in order, is one of the reasons why a high proportion of the legal troubles in construction work now are about sub-contracting.

A common sequence is a quotation from a sub-contractor containing on the back, in small print, conditions of contract trying hard (but not always successfully in law) to shed legal responsibility. The main contractor replies with an “acceptance” of tender, which says that all conditions put forward by the sub-contractor are to be null and void and contain its own conditions, placing the sub-contractor at the mercy of the main contractor. There may also be discrepancies between the quotation and acceptance about attendances and coordination of programmes. These differences are either ignored or, while efforts are being made to sort them out, the work starts. As a result it may be extremely difficult to decide what are the terms of the contract between the parties, or because of the lack of agreement on all the points raised there may be no contract at all and either party may lose unfairly. The sub-contractor may have no remedy for breach of contract if he is put off the site. Because even an agreed price does not bind unless the contract as a whole is agreed, the sub-contractor may be entitled to payment on a quantum meruit for the work done (i.e. literally “as much as he has earned”, that is reasonable payment, which may be based on cost plus profit). 

For letters of intent refer to p. 18, and for incorporation of standard terms p. 26.

A word of warning is necessary: legislation intended to prevent abuse of the freedom to contract may now alter the effect of the agreed terms of a contract. Chapter 16 deals with the most important cases.