CE-332 CONSTRUCTION ENGINEERING AND MANAGEMENT

CHP 2 - PROJECT PARTICIPANTS

LECTURER : ASSOC. PROF. DR. AHMET ZTA
UNIVERSITY OF GAZANTEP DEPARTMENT OF CIVIL ENGINEERING
Lecture 2

CHP2-PROJECT PARTICIPANTS
Introduction Owners Design Professionals (Architects, Engineers) Construction Professionals (Contractors, Specialty contractors, Trades, Material and Equipment Suppliers) Other Participants Organization of Companies Conclusion

47

Learning Objectives
In this chapter you will learn the following: The roles and responsibilities of key construction participants. The division of labor within a designer and construction organizations. The common categories of construction labor. Professional registration and certification.48

1. 2.

3.
4.

INTRODUCTION-1
The product of a construction project can exist for hundreds of years. Idea - graphic form - finished product. Idea defined by owner, Developed by designer, (graphic form) Produced by contractor
(This process defines the construction project)

We will discuss the roles of owner, designer, and constructor as separate and distinct.
49

INTRODUCTION-2

a) Who fills the roles b) How they relate to each other? These are determined by many factors Time Money Project uniqueness Cultural environment
50

INTRODUCTION-3
At first glance, roles are simple to define; Owner is one with a deep pockets Designer is the expert Constructor is the guy with pickup truck and backhoe A closer look, reveals complex and interesting reality Owner: Large organizations, Designers: Depends on manufacturers, suppliers and builders Constructer: professionals with advanced technical 51 degrees

PARTIES TO A PROJECT:
What are the various obligations and privileges of the Parties? How do they relate to one another?

OWNER

DESIGNER

SOCIETY AT CONSTRUCTOR LARGE Wow! Thats pretty complex. Are all those links present? No. But thats our topic for next slayt . . .

OWNERS-1
Owners can be; a) Individuals .. Seeking a home for their growing family, b) Organizations.. Responding to change in technology, c) Municipality.. Seeking to improve its infrastructure, or d) Developer.. Working to make money by filling a perceived market need. Motivation to build is as varied like individuals & companies. Whatever the motivation, owner is where the project is born. His function: financially back the project, otherwise no project
Source of financing defines the type of owner a) Public owners b) Private owners c) Other representations

53

Public owners
Money can be from local or state, but owner is taxpayer. Some of these projects are done through public agencies that commission the construction. a) Department of transportation b) State public works c) DSI Because these agencies represent the public, they must follow specific methods of managing the projects. Public approval process have to be figured out into any schedule and budget. How designer and constructor are selected is spelled out. Some projects are managed by private organizations.
54

Private owners
This category includes
a) b) c) Homeowner .. who builds only one house in a lifetime Multinational company .. that owns numerous facilities Developer .. Special type of private owner who often owns the project only for the duration of project. His goal is to make money through quick sale or long-term rental.
55

Owner representation-1
Because owner can be any individual or organization, that takes on a construction project, t is difficult to find a common profile.
a) Facility managers: most common professional owner representative. They are found most often in large organizations and institutions. Like schools, universities, hospitals. Their job is to understand the goals and objectives of their organization and ensure that facilities are planned to support them. b) Outside Consultants: Organizations without large in-house departments often hire consultants. c) Building committee: Consists of users, financial backers, and sometimes community residents. In all cases, owners are primarily concerned about their needs and their money.
56

Owner representation-2
Owners represent a specific interest during the project's life. While designers focus on functionality, aesthetics and innovative use of materials, owners are additionally concerned about durability of design, storage and availability of materials, simplicity of operation, and ease of maintenance. While constructors concerned with maintaining schedule and budget through efficient methods of assembly and improved management techniques, owners are additionally concerned about a turnover process that ensures complete understanding of all systems in project and a smooth start-up transition. These diverging interests forge a creative tension that pushes all team members to incorporate the interest of others.
57

DESIGN PROFESSIONALS
Principle designers: Architects and Engineers. On Building and Residential sector projects - Architects are lead designer, laying out the concept on paper with owner. - Engineer brought in after basic concept is worked out but before details are developed. On Infrastructure and Industrial sector projects - Engineer is lead designer. - Architect is brought in to work on the aesthetics. Example: A refinery project. Engineer designs mechanical, electrical and structural systems. Architect handles office spaces and building color schemes.

58

DESIGN PROFESSIONALS
Each professional contributes to projects in different ways.
For architects: Physical context guiding feature Activities that will occur in building Creating a unique image Very good architecture responds to all 3 aspects. process is intuitive and subjective.

For Engineers: Tackle a challenge objectively, Break it down to identifiable components and a series of questions to be answered. Important issue for them is functional aspect of work. Example: Channel Tunnel project image was less important than safe, efficient boring of many miles of tunnel, removal of spoil, insertion of tunnel liner.
59

DESIGN PROFESSIONALS
Who will be lead designer? Depends on project nature.

An architect may be asked to capture a corporation's image within the form of a new headquarters building that provides convenient access for vehicles and a welcoming entrance for pedestrians. An engineer may be asked to replace and widen an existing five km interstate highway through a dense urban environment without adversely affecting the city's operations. Both designers must think mechanically, technically, and creatively, but the architect works in artistic realm while engineer works in the technical realm.
Architects Drafters Specification writers Interior designers Landscape architects Engineers Structural Engineers Mechanical Engineers Electrical Engineers Civil Engineers Surveyors

60

Architects
Architects are stars of building industry. First people to hear owners talk about their needs. Meet occupants Define budget and schedule Influence choice of contractor Influence choice of delivery method Responsibility: a) to translate and develop an owner's requirements and graphically represent them. b) To choose appropriate systems and materials (need skill & expertise) & formulate a design that is mathematically proportioned and aesthetically pleasing (talent).
Drafters, Specification writers, Interior designers & Landscape architects
61

Engineers
Engineers work within large A/E firms, but most often they are independent consultants. Responsibility: varied depending on their discipline, but in all cases they must understand an owner requirements: budget, operations, durability and Intended use of space. Tasks: a) Choose structural support b) Specifying large equipment (e.g. air-handler) c) Lay out necessary distribution (e.g. electrical conduit, piping system) d) Specify and locate the termination devices (e.g. radiation units, electrical outlet).
62

Engineers
Civil Engineers: Determine project location on a site by studying the subsurface soil conditions and the topography of the land. Design roads, bridges, tunnels, parking lots, storm water drainage, and sewage treatment plants. Structural Engineers: Calculate strengths and deflections, foundation sizes, beam thickness, and strength of floor slabs. Ensure that a building can withstand the forces of wind, gravity and seismic activity. Surveyors Mechanical Engineers Electrical Engineers
63

Construction Professionals
Constructors
Estimators Schedulers Purchasing agents

Specialty Constructors The Trades (pile-drivers, ironworkers, cement masons, sheetmetal workers, plasterers, plumbers, pipe-fitters, electricians, bricklayers, glaziers, roofers, carpenters)

Material Suppliers Equipment suppliers Others

64

Constructors
Constructor is a general term used to define the professional responsible for all construction activities whether he works as a general contractor, or a construction manager. Constructor has changed in terms of type and training of personnel. In past, company executives rose through industry`s ranks, often starting as a carpenter or laborer. Today, company heads are graduates from universities. This trend is also working its way into field management of jobs. Many project managers have been trained in construction management programs, and superintendents may be recruited directly from civil engineering programs.
65

Estimators
Estimators are pivotal to any construction company; jobs are won and lost by their efforts. Work with design drawings and prepare a complete list of job costs. Need to understand construction process. Be detail-oriented and well organized Have knowledge of costs for labor, materials, equipment. Estimating is a computerized activity. Estimators may come from variety of backgrounds and learn on the job, many start out as engineers, constructors, or designers.
66

Schedulers
Scheduler work between the home office and the field office. Need to understand construction process, Need to define distinct construction activities, Need to understand relationships among activities, Need a strong background in construction but they learn actual skill on the job. Successful schedulers monitor job progress, coordinate subcontractors, analyze changes and the impact of delays, and solve problems.
67

Purchasing agents
PA buy subcontracts once a job is won. Negotiates to get best price while ensuring that all contract requirements are met. To successfully negotiate with subs; PA must understand building materials, prices, and construction process, Have broad business sense, Be persuasive.

68

Speciality contractors
Generally known as subcontractors.
It includes mechanical, electrical, excavation, and demolition contractors. They are usually hired by and work for directly for a general contractor. Supply most of the material and labor on the job.
69

Trades
From the time first pencil is laid to paper in the design process to the completion of shop drawings and coordination drawings, the goal is instruct the people who actually perform the work in the field: the trades people Trades form the core of industry- a constant throughout its history.

Pile drivers, Cement masons, Plasterers, Pipe fitters, Bricklayers, Roofers,

Ironworkers, Sheet metal workers, Plumbers and Electricians, Glaziers, Carpenters

70

Material suppliers
A project may have talented designers, innovative constructors, and wealthy, sophisticated owners; but without materials to build with, the project would be only a dream. Materials and building components are manufactured, fabricated, and installed by suppliers. A user`s choice of materials is based in part on performance, durability, and aesthetic appeal. Without supplier`s help;
Architects and engineers can not specify which material to use, Constructors can not decide which method of material assembly.

71

Equipment suppliers
Depending on the project, equipment can play a very big role in construction. Highway jobs, large excavations, bridges, tunnels, and tall buildings all rely heavily on the use of equipment to carry out the work. Suppliers offer it for sale or rent. Rental arrangement can vary on points concerning
Who maintains the equipment Whether it comes with an operator.

What is the difference between material and equipment? Equipment does not become part of the project at the end.
72

Other participants
Financial institutions; sometimes government agencies. Public agencies zoning boards, planning boards, historical commissions, building code officials. Insurance companies
Property insurance to owners, Liability insurance to designers, Bonding insurance to constructors

Lawyers
73

Organization of Companies-1
The roles of design and construction firms are certainly different; but because both are project-based, they have similarities in their organization. Both are internally organized to support technical people such as marketing managers, accountants, information systems, technical supports, and human resource personnel. For example, marketing manager:
His principal job is to generate business, establishing the proper mix of work among the company`s different specialties.

At the project level, the profile of company roles varies to some degree. Both company hire outside help.
Designers: hire consultants Contractors: hire subcontractors or specialty contractors.
74

Organization of Companies-2
To manage in-house resources and outsourced specialties, each firm organizes its project teams a little differently.

Common staff positions in design companies: Project manager Clerk of works, Job captain Common staff positions in construction companies: Construction project manager Superintendent Field engineer 75

Design company organization

Project manager: Owner`s primary contact, responsible for scheduling in-house work, and identifying necessary staffing levels for both inhouse personnel and outside consultants. He also helps the owner get bids from contractors and negotiate the construction contract. Clerk of the works: Enforce the terms of contract; interpret the plans and specs. Job captain: organizes drawings, manages personnel, communicate with engineers and other consultants, and details schematic 76 designs.

Construction company organization

Construction Project manager: Configure project team, schedule the job, and set up a cost-control system. If there are changes, this person negotiate the cost with various parties. Superintendent: Interact with specialty subcontractors, coordinating the flow of workers, supplies, and equipment. He also prioritize work and negotiate disputes between trades. Field engineer: Handle various documents that flow through a field office, follow up an owner requests and communicate with tenants. 77

Conclusion

The people in construction cover a wide range of skills & experience. From apprentice carpenters to company executives, one thing that they share is their passion for built environment. The building industry is tough one; risks are high working conditions are often harsh, conflicts arise because of financial pressures, and safety is always a concern. Interactions can determine project success. Thus, it is important to understand who these people are and what their motivation will be. The industry is changing. No longer are the roles of individuals distinct and understood by all participants. Owners can have large in-house design and construction groups. Designers and constructors can come together to offer services under one company heading. Both can act as owner representative.
78

Homework-1
Write a short report for below questions and submit by 06 March 2009 to Res. Assist. Kasm Mermerda.

1. Identify a new project that has been constructed in your area. Who was the lead design firm? Identify the key subconsultants/designers hired by this firm. Identify the training and/or registration of the key designers that were used on the project 2. Visit a job site and identify the trades that are presently working there. Write up a description of work for each trade. Is the job union or nonunion?
79

Next Chapter

Chapter 3 - Project Delivery Methods

CE-332 CONSTRUCTION ENGINEERING AND MANAGEMENT

CHP 4 - PROJECT CHRONOLOGY

LECTURER : ASSOC. PROF. DR. AHMET ZTA

UNIVERSITY OF GAZANTEP DEPARTMENT OF CIVIL ENGINEERING

Lecture 4

CHP4-PROJECT CHRONOLOGY
Introduction Project initiation Feasibility analysis Financing Design of project Procurement Construction Turnover and startup Operation of facility Disposal of facility Conclusion
82 / 27

Learning Objectives
In this chapter you will learn the following: The principal tasks in life cycle of a project What information must be gathered and investigated to successfully initiate a project. The principal phases in project design. What must be done to move from construction to operation. 83 / 27

1. 2.

3. 4.

Introduction-1
Life of a facility goes through many phases. It starts with an idea. Idea combined with money --- project is born. Project is developed as drawings and specifications. Then, it is built. When completed, turned over to owner, and occupied, maintained, repaired and eventually dies. At some point in lifetime a facility is likely to be renovated, either to renew obsolete systems or change its use.
Figure 4.1 shows a design/build/use/dispose scenario for a shopping mall. 84 / 27

Introduction-2

Life cycle of a shopping mall: Feasibility analysis; investigate the economics of the mall Design; produce biddable contract documents Procurement; builder selection, material order Construction; mall physically constructed Turnover; transition from construction to operation Operation; business is conducted

85 / 27

Sequence of a Project:
CONCEPT APPRAISAL

option to abandon
CONCEPT DEVELOPMENT

Feasibility study. Concept estimate of cost and timing Progressive refinement of cost and timing in relation to the projects objectives.

option to abandon
DESIGN AND DOCUMENTATION

option to abandon
CONSTRUCTION

Progressive and continuous control of cost and timing

COMMISSIONING

Who are the main Parties to a project? . . .

Project initiation-1
All construction activity is the result of basic economic demand. Individuals needs homes, roads, stores, shelter, etc. Specific construction projects arise because corporations or government bodies recognize the need --- serve this demand and act to create them. Construction activity tends to foster further construction activity. Recognizing needs is first step, but there must be a way to move from recognition to reality. Answer lies in economic structure of the country. 87 / 27

Project initiation-2
Demographic and market analysis are used to forecast future growth areas in the country.
Opportunities, once identified, are financed and then projects initiated. As businesses increase, population grow to work in them. Because these people must travel to work, roads and other transportation modes become necessary.
88 / 27

Feasibility analysis-1
Before deciding to invest in a specific area, an investor wants to be sure on an adequate return. Therefore before any commitment, an analysis is performed to examine the proposed investment from several standpoints.
These are shown on figure; a) Market demand, b) Cost of construction, c) Cost of money, d) Timing of project,
89 / 27

Feasibility analysis-2

Project initiation

Cost of money

Schedule

Budget

Market demand

Revise program or cancel project

Proceed?

Design

90 / 27

Feasibility analysis-3
During the early analysis stage, owner consults
Architects who provide early design advice, and Construction professionals, who offer cost and constructability advice.

Example:

91 / 27

Financing
If project gets past the first hurdle of profitability for the investor, owner must arrange financial backing for some of the work. Some of it provide himself. Commonly, initial investor acquires outside funds to supplement his or her own. Barrow from banks Barrow from insurance company Invite outside investors to share in future profits. Example: A corporation wishing to build a factory could barrow from a bank or sell additional stocks or bonds. Whatever the source of additional funds, other individuals or firms decide to lend or invest funds based on their own 92 / 27 expectation of return on investment.

Design of project
If owner decide to proceed, hires a design professional. If he elects to proceed using a construction management mode, he chooses a construction professional, Who provides cost, schedule, and construction advice throughout the design process. Design is divided into 4 stages. Programming, Schematic design, Design development, Construction documents. 93 / 27

Programming-1
A program is a written statement of the requirements of the building. It is the basis of design. Program describes Spaces needed, Services required in those spaces, and Relationships of functions to be performed in the building. Written by owner or user of building, by architect, or by a professional hired.
94 / 27

Programming-2
The nature of the programming process depends on two things: The sophistication of the owner; Owners vary considerably in their degree of understanding about building process and it affects program. The complexity of the proposed facility;The complexity of the project itself can determine how the programming needs to be accomplished. Using these information owner proceed or cancel
95 / 27

Programming-3
When programming is complete, the owner has information about: The needed size of the project in relation to the requirements of the users The mechanical, electrical and plumbing systems Vertical and horizontal circulation Public areas
96 / 27

Schematic design-1
Once the program is complete and the owner has decided to proceed, the designer begins actual design of the project. The process begins with the schematic designthe stage in which the designer defines the buildings characteristics in a number of ways. Before schematic design begins; The owner selects a site for the building Site investigations done by the owner give the designer information about soil conditions and makeup that in large part determine the 97 / 27 type of foundation and structure possible for

Schematic design-2
The architect develops preliminary floor plans that reflect the relationships of the various functional areas to one other Sitting and location of the building are determined as well as its visual form. When the schematic design is complete, the owner is again faced with the decision to proceed further or to cancel the project. At this time, all information developed to date-market information, financing costs, construction costs and design-are factored into the decision.
98 / 27

Design development
When project team enters design development, it pursues a single design concept. The purpose of this stage is to refine the design and obtain detailed information from the users about their requirements. During this phase owner, designer and construction professional finalize the design of major building systems. For example structural, plumbing, elevator, roofing, mechanical, exterior faade, electrical. 99 / 27

Construction documents
Architect creates final working construction documents used to bid the job for construction and to build the job in the field. Documents including specifications and drawings, Should meet

program criteria, programming Reflect the design .. schematic design, and Refine all detailed work, design development 100 / 27

Procurement
Procurement: overall process of finding and purchasing the materials called for in the contract and hiring the best subcontractors to build the project. Construction documents must be accurate and must clearly communicate to the bidders. First task --- hire many subcontractors In traditional system owner (with help of architect) requests bids from a list of qualified contractors. In CM system project documents are divided into bid packages. owner (with help of architect and CM) evaluate requested bids. Sometimes owner purchase equipment or materials before a contractor hired. Such material is known long-lead items. 101 / 27

Construction
Once procurement process completed, construction can begin Main element: task of managing and coordinating the field operations. This means; Scheduling crews in proper sequence, Choosing most efficient and safe construction techniques and methods Directing the production process. To accomplish this task, construction professional must order correct material,
ensure adequate supply of necessary tools & equipment,

monitor schedule, cost, and quality. A parallel task is contract administration.

102 / 27

Turnover and start-up

After construction completed, project must be turned over to owner for use during the rest of its economic life. Turn over involves complicated technical issues and problems For example: testing of piping Turnover is also a legal process, involves various legal certification, such as certification of occupancy, and certificate of substantial completion. The process is long and tedious. Document includes insurance certificates, inspection reports, completed change orders.
103 / 27

Operation of facility
This phase is the responsibility of owner or tenant of building. In this, building is put to the use for which it was intended. The period can last for many years before a major renovation is necessary.
This phase is also the period of greatest expenditure on the project total operating cost are higher.

More money will be invested up front, but the payback can be realized in the operating costs of the facility Facility owners and managers usually need advice about the best model to use in making decisions during the planning stages of the project 104 / 27

Disposal of facility
At the end of its useful life, a project or a facility may meet any one of a number of fates.
It may be closed down or simply abandoned. It may be disassembled or removed.

It may also be renovated or overhauled

105 / 27

CONCLUSION
People are involved in the life cycle of a building. Who analyze the need for the facility and decide Project enters the design/build phase Architects are hired to design Construction professionals are hired to carry out the actual assembly All parties need to work in harmony
106 / 27

Next Chapter
Chapter 5 Construction Services during design

5/29/2013

Chapter 7: Basic Contract Law

David Baumer, Spring 2003

Contract Law
Contracts evolved from the common law
Each state has its own common law precedents Dissatisfaction with differences across state led to the Uniform Commercial Code (UCC)
UCC has been adopted by all 50 states and will be discussed next chapter

Currently we are dealing with another watershed event: E-commerce Lawyers and legislators are scrambling to provide a universally accepted contract law of E-commerce
5/29/2013

Contract Law
A contract is:
A promise or set of promises, the breach of which the courts will provide a remedy for When the two parties agree to a contract, it creates a legally recognized duty to perform Not all agreements are recognized as legally binding
A promise to make a gift is not binding

5/29/2013

Elements of a Contract
Valid contracts possess the following:
An agreement between the parties: an offer and acceptance Consideration--each party must do something that they were not previously obligated to do Both parties have capacity to contract Formation and performance of the contract are legal and not against public policy
5/29/2013

Contractual Nomenclature
Valid, void, voidable and unenforceable A valid contract is one recognized as binding in law A void contract is not recognized at all such as a gambling contract In a voidable contract one of the parties can not perform without liability--a victim of fraud A contract is unenforceable if there are no legally enforceable remedies--an oral real estate agreement In a bilateral contract, both parties exchange promises In a unilateral contract a promise is made for

performance--e.g., reward contracts

5/29/2013

Types of Contracts
Executory and executed
A executory promise is a promise for future performance
If the contract has been executed, both parties have performed

Express and Implied

An express contract can be written or oral
In an express contract the duties of the parties are clearly elucidated

An implied contract is implied by conduct

5/29/2013

After receiving treatment from a doctor, you will be asked to make arrangements for payment

Quasi Contracts
The plaintiff is suing for quantum meruit (the fair market value of her services) The plaintiff performed valuable services The defendant knowingly received these services The plaintiff expected to get paid if the services were used by the def. The def. was unjustly enriched Quasi contract has been used by writers who claim movies were made based on ideas they told directors-Coming to America Quasi contract is sometimes used by small firms to try to salvage an inadvertent or bungled knowledge transfer to a larger firm

5/29/2013

Elements of a Contract
Agreement
Offer and Acceptance
The offeror must have intent to make an offer
Intent is judged under an objective standard--What would a reasonable person believe under the circumstances? Most advertisements are an invitation to bargain as are items submitted for auction If the offer is very specific, then maybe it will be termed an offer Many advertisements made on the Internet are offers Customers can make an immediate contract

5/29/2013

Offer and Acceptance

The terms of the offer must be clear and definite
Under the common law of contracts, at a minimum the offer must contain Price, Quantity, the Parties and the Subject Matter of the contract. Must contain all material terms

The offer must be communicated to the offeree

and the offeree knows of the offer before performing If an offer is made to the offeree, a third party cannot accept the offer Offers can be directed to classes of offerees

5/29/2013

Acceptance
Just like an offer, the acceptance must have:
Intent to be bound by the offeree Again judged by objective standard In general, silence is not deemed an acceptance unless the parties had prior dealings Acceptance must be complete and unconditional An acceptance that contains conditions or additional terms is a counteroffer and thus a rejection of the offer Acceptance must be communicated to the offeror Offeree should use the same medium used by the offeror to make the offer if nothing is said in the offer
5/29/2013

Acceptance
An acceptance must be timely
If the offeror accepts in the manner invited by the offer or uses the same medium if there is no specified method
The acceptance is effective upon dispatch by the offeror

Mailbox rule has been made irrelevant generally

by faxes and E-commerce

5/29/2013

Termination of an offer
The offeror can revoke the offer at any time (with some limited exceptions) Thus an offeror can make an offer that is good for 10 days and then revoke it after 5 days Revocations must be communicated to the offeree Offers and revocations are effective when received

Among the exceptions to the common law rule that an offeror can revoke an offer at anytime are:
promissory estoppel and the UCC firm written offer by merchants rule (discussed in next

chapter).
5/29/2013

Promissory Estoppel
An offer is irrevocable if the conditions for promissory estoppel take place: (1) offeror knows or should know the offeree will rely on the offer made by the offeror (2) the offeree does rely and
(3) relies to his detriment and (4) injustice can only be avoided by enforcing the promise Damages under P.E. are based on costs of reliance
5/29/2013

Termination of the offer

If the offeree rejects the offer or makes a counteroffer, the offer is terminated Will occur when the offer is deemed lapsed after a reasonable period of time What is reasonable depends upon the industry An offer could expire by operation of law Death or incapacity of offeror or offeree Supervening illegality Destruction of the subject matter

5/29/2013

Consideration
Consideration
Is the exchange element in a contract In order to support a promise made by the promisor, the other party (the promisee) must do something that constitutes consideration
The promisee must incur a legal detriment Examples of consideration:
Make a promise in exchange for a promise Transfer something of value Give up something of value such as a legal claim
5/29/2013

Consideration
Generally the courts do not consider the adequacy of consideration
unless they decide the bargain is unconscionable Consideration does not exist if the other party has a preexisting duty to perform by law or contract
In general past consideration is not consideration

Consideration does not exist if the promise made by the promisee is illusory
If the promisee maintains an unlimited right to cancel at any time for any reason, the promise is illusory

5/29/2013

Consideration
There are some promises that are enforceable without consideration
A promisor is liable under the theory of promissory estoppel (PE) Note with PE it is not a contract and therefore the damages are based on reliance costs of the promisee and are generally less than if the negotiations had resulted in a contract

5/29/2013

Capacity
Both parties to a contract must have capacity to contract
There are three categories of people who do not have capacity
Minors--under 18 Intoxicated people--must not comprehend the transaction Mentally deficient either due to age or disease

5/29/2013

Capacity
Minors can enter into a contract but
The contract is voidable at the option of the minor
When a minor voids a contract it is called disaffirming a contract Upon turning 18 the minor has a limited right to disaffirm or else the contract is deemed ratified
If the minor makes a payment after turning 18 the contract is ratified A minor cannot ratify a contract while still a minor
5/29/2013

Capacity
If a minor disaffirms, the minor must return the consideration if he has it
There are an increasing number of contracts that are binding on minors, though these exceptions vary from state to state
Contracts with the army, insurance contracts, educational loans, bank account agreements are examples A minor is liable for the FMV of necessaries: food clothing and shelter and tools etc for an emancipated minor

5/29/2013

Capacity
A contract is voidable if at the time the contract was agreed to, a party was too intoxicated to understand the terms of the contract
If a person has been judged incompetent, then all contracts with the person are void If the person is, in fact, insane, the person can claim lack of capacity even though the courts have not ruled the person is incompetent by appointing a guardian
5/29/2013

Legality
Contracts can be illegal by statute or by public policy
In either event, the agreement is void There are a number of agreements that have been ruled illegal by statute in various states: Gambling, illegal drug sales, usurious loan agreements, contracts with unlicensed professionals Increasingly, illegal contracts are taking place in cyberspace-- e.g., prescriptions drugs sold online. Under public policy a number of bargains are void Exculpatory agreements such as agreements not to sue employers under workmens compensation Contracts to excuse intentional actions
5/29/2013

Legality
Public policy constraints
The contract is unconscionable
Look at superior education and legal representation one side and relative ignorance on the other side A contract by a third party to pay a governmental employee is illegal Contracts in restraint of trade
Covenants not to compete agreed to in employment contracts must be reasonable Must be reasonably limited in time and space Cyberspace may make spatial obsolete

5/29/2013

Taints on an Agreement: Mistake

An agreement is voidable if there is a mutual mistake of a material fact
A fact is material if knowledge of the true fact would have changed the decision of the parties to contract If one party knows or should have known the other party was mistaken, then the agreement is voidable Often occurs when bids are submitted and there is a typo
5/29/2013

Taints on an Agreement: Fraud

If a contract is fraudulent, it is voidable at the option of the victim Fraud in contract has the same elements as fraud in tort:
Misrepresentation of an important fact Scienter Intent to defraud Justifiable reliance by the victim Damages are caused by the fraud

An innocent misrepresentation of a material fact makes the contract rescindable

5/29/2013

Genuineness of Assent
A contract is voidable if
It is the product of duress
A party signed a contract because of threat of force, criminal prosecution, or blackmail

It is the product of undue influence

The victim is either in a weakened mental state or the other party has a confidential relationship The bargain is objectively unfair There was no consultation with outside counsel
5/29/2013

Writing requirements
Oral contracts in general are enforceable
For certain contracts, the contract must be in writing
Contracts involving real estate Contracts that cannot be performed within one year Surety contracts Marriage contracts Contracts for the sale of goods where the value exceeds $500 Contracts where an executor is personally liable for the debts of the deceased

5/29/2013

Writing Requirements
There are some exceptions to the exceptions
Oral promises of sureties to obligors are enforceable by obligees In some states there are part performance exceptions for oral real estate agreements,
where the buyer takes possession, makes improvements, and pays some or all of the purchase price Promissory estoppel UCC exceptions--discussed in next chapter

5/29/2013

Writing Contracts
Sufficiency of the writing
The agreement must have all material terms Must be signed by the defendant Names of the parties, consideration, and the subject matter of the contract are required terms

5/29/2013

Parol Evidence Rule

Excludes prior or contemporaneous evidence that conflicts with a written agreement If the written agreement is incomplete, oral evidence may be introduced
The corporate party often tries to negate an inference that the agreement is incomplete by putting in an integration clause A party can always introduce evidence of fraud or misrepresentation or mistake

5/29/2013

Performance, Discharge and Breach of Contracts

Most contractual obligations are discharged by performance If performance fails in its essential purpose, it is material breach
A material breach relieves the non-breaching party from the obligation to pay the breaching party By inserting a time is of the essence clause, late performance becomes a breach

5/29/2013

Delegations of Duties
If the promisor is a company, it may delegate responsibility for performance to employees
If the contract performance is inadequate, the business, not the employee, is liable for breach of contract Most contracts can be delegated except if the personality or talents of the promisor are unique In some cases there are statutory or public policy constraints on delegations Delegations are a very common event

5/29/2013

Assignments
Many contracts can be assigned
Once the assignment takes place the assignee can enforce the contract against the obligee
The assignee takes the benefits of the contract subject to the defenses the obligor has against the assignor Assignments are common in car loans. The car dealer is the assignor, the customer is the obligor and the bank is the assignee

In general, contracts can be assigned unless the assignment or delegation would make performance by the third party more difficult or disagreeable
5/29/2013

Third Party Beneficiaries

If your parents pay a soccer camp to provide soccer training for you
You are the 3rd party beneficiary
The purpose of the contract is to benefit you

If the soccer camp did not perform, you or your parents could sue If you are an incidental beneficiary, you have no right to sue if the promisor breaches
A garden store has no right to sue if a supplier of a beekeeper fails to deliver

5/29/2013

Material Breach and Obligation to Perform

If a promisor materially breaches a contract, the promisee is absolved of her obligation to perform
Same is true if there is an anticipatory breach- contractual obligations of the non-breaching party are eliminated, but If a party announces it will not be able to perform, the other contracting partner need not pursue legal action immediately, but instead could continue performing in hopes that the anticipatory breacher will in fact perform

5/29/2013

Discharge by Agreement
The parties can decide to rescind the contract
Each party agrees not to perform and neither party is liable A novation occurs when a new party is substituted
If A and B have a contract, and A agrees that C can fulfill Bs obligations under the contract, a novation takes place

Satisfaction and Accord

The same parties change the agreement The accord is the new agreement and the satisfaction occurs when the new consideration is received

5/29/2013

Discharge Due to Impossibility

Impossibility
If performance is objectively impossible due to war or embargoes, the promisor is discharged without liability If there is a subjective impossibility due to events that are foreseeable, the obligation to perform is not discharged
If the promisor made a bad bid, he cannot claim he cannot perform because he is not making any money
5/29/2013

Discharge Due to Operation of Law and Conditions

By Operation of Law
Bankruptcy, death of a party, destruction of the subject matter Discharge by condition
Condition precedent--if the condition does not take place the promisor does not have to perform Condition subsequent--if the condition takes place the obligation to perform ceases Most executory bilateral contracts have concurrent conditions If one party does not perform, the other partys obligation to perform ceases
5/29/2013

Impracticability and Compensatory Damages

The UCC equivalent of impossibility
It is more liberal and allows for more excuses for nonperformance
Strikes and bad weather may qualify

Remedies
Generally the remedy in contract law is money damages The theory of compensatory damages is to put the nonbreaching party in the position he would have occupied if the contract had been performed
5/29/2013

Remedies
Damages: Compensatory
In sale of goods contracts, damages are often calculated as the difference between the market price and the contract price time quantity: Damages = (Pm - Pk)Qk in this case, the seller is likely to be the defaulting party

In addition reliance and restitution costs are sometimes recoverable

Reliance: Costs associated with relying on promises of the promisor Restitution: Recovering consideration

5/29/2013

Consequential Damages
Consequential damages
Damages that are the result of the contract breach but are unusual in some way
Lost profits are an example of consequential damages The non-breaching party must apprise the breaching party of the consequential damages in order to recover In some cases there is an obligation to notify the breaching party before the breach of the possibility of consequential or unusual damages

5/29/2013

Liquidated Damages
Liquidated Damages
In many contracts damages are difficult to calculate so the parties agree in advance what damages are If the parties provide a reasonable estimate of damages, liquidated damages clauses are enforceable If the liquidated damages clause is judged excessive it will not be enforced as a penalty

5/29/2013

Remedies
Punitive damages in contracts are very rare The nonbreaching party is expected to mitigate damages
Landlords whose lease has been breached cannot refuse to lease to another tenant Wrongfully discharged employees cannot turn down comparable job offers from 3rd parties
5/29/2013

Equitable Remedies
Specific Performance
The remedy is appropriate if the promisee attaches great value to the consideration
The consideration must be unique Jewelry, works of art, real estate, family heirlooms

Injunctions
The courts will freeze the action if irreversible damage may occur with a continued breach The plaintiff generally has to demonstrate that he will likely prevail in trial that the defendant is breaching the contract

5/29/2013