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• Discharge by Frustration - problems arise that could not have been anticipated before the contract was signed. These can allow the contract to be voided. For example a contract to provide phone service to a new facility could be discharged if war caused the city to be destroyed. [Metropolitan Water Board v. Dick Kerr and Company Limited] [Davis Construction Ltd. v. Fareham Urban District Council] [Swanson Construction Company Ltd. v. Government of Manitoba; Dominion Structural Steel Ltd., Third Party]

3.7.1.1 - Engineering Contracts

•Engineers are often employed as agents, empowered to specific duties.

•Engineers that fail to specify payments in contracts will be awarded quantum meruit in court.

•When estimating costs in contracts the court may hold an engineer to a poor estimate. [Kidd v. Mississauga Hydro-Electric Commission et. al.]

•There are a number of forms available that are a suitable basis for engineering contracts. These can be found in many engineering associations.

•liability is normally limited in engineering contracts, this should be less than the liability insurance.

•Engineers are expected to understand common law principles, as well as applicable laws for the industry of practice.

•One example is the Hazardous Products Act.

•Engineers are also expected to follow codes, standards and other applicable guides.

3.7.1.2 - Tort Liability and Contract Liability - Concurrently

•We can consider the benefits of being sued for a contract, consider the case of a damage arising from a contract that is covered by a limitation period.

•Normally a contractual obligation negates a tort [Schewebel v. Telekes] but it is possible for an engineer to be held liable for damages in both contract and tort law [Halvarson Inc. v. Robert McLellan & Co. et. al.] [Dominion Chain Co. Ltd. v. Eastern Construction Co. Ltd. et. al.] [City of Kamloops vs. Nielsen et. al.] Other cases go against this trend. [Sealand of the Pacific Ltd. v. R.C. McHaffie Ltd. et. al.]

•A tort can generally be brought when it is outside of the duties described in the contract. [J.

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Nunes Diamonds Ltd. v. Electric Protection Co.]

3.7.1.3 - Construction Contracts

•It is typical for an engineer and a contractor to have separate contracts with the owner. These duties expected of an engineer may be,

-preparation of payment certificates

-certificates of work completion

-reschedule when delays occur

-advising the owner when the contractors performance affects the contract terms

-sets values for changes in the contract (i.e., the extras)

-act in cases of emergency

-inspecting soil conditions

-inspecting work (and rejecting it if inadequate)

•When hired as an agent/representative, an engineer must remain impartial and independent (there is a small conflict here) from the owner. [Brennan Paving Co. Ltd. v. Oshawa] [Kamlee Construction Ltd. v. Town of Oakville] [Croft Construction Co. v. Terminal Construction Company] [Sutcliffe v. Thackerah et. al.]. If this is not done, actions may not hold up in court. [Grant Smith & Co. v. The King]

•Engineers (unless specifically excluded) are expected to inspect all major portions of construction. [Dabrous v. Zuliani et. al.]

•An engineer should not direct (supervise) work methods of contractors unless specifically contracted to do so, or obvious problems exist. [Demers et. al. v. Dufresne Engineering et. al.]

•An engineer working on a construction project should try to adhere to the contract, and keep a detailed journal of events, meetings, decisions, etc. These can be used later in court.

•Detailed drawings and specifications are needed to minimize misunderstanding. Improperly prepared drawings and specifications could lead to liability. [Trident Construction Ltd. v. W.L. Wardrop and Accoc. et. al.]

•The tendering process often involves “irrevocable offers” that are submitted. When one of these offers is accepted a contract typically exists between the successful bidder and the owner. Bid bonds are another way to ensure that a binding contract exists for the tendered bid. Note: this process should be directed by a lawyer.

•Typical categories of construction contracts are,

-Stipulated-Price/Lump-Sum Contract - the basic bid amount will be paid on completion of the basic work. Additional work may be done, but this is at additional cost. This type of contract can be risky for the contractor (financial) and the owner (quality)

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if problems arise.

-Unit-Price Contract - in cases where the nature of work may change after starting the bids can be per unit of work (e.g., per cubic meter of soil).

-Cost Plus Percentage - When it is not possible to estimate the cost of construction before (e.g., rushing to start a high-rise) the contractor can be paid the expenditures plus some percentage. This contract does not encourage cost reduction.

-Cost Plus Lump-Sum Fee - The same as Cost Plus Percentage except there is no incentive to spend more.

-Cost Plus Lump-Sum Fee Plus Bonus - Like the Cost Plus Lump-Sum Fee except that a bonus is offered for savings below an estimated price. This encourages reduced spending.

-Guaranteed Maximum Price Plus Bonus - This is like a Cost Plus Lump-Sum Fee Plus Bonus Contract, except a guaranteed maximum cost is used instead of an estimated price.

-Design Build - a contractor will likely work on a cost plus bonus, and will supply the engineering services. This allows projects to proceed quickly, as there are no delays waiting for plans and specifications. In this contract the engineer typically has a contract with the contractor, not the owner. Project managers are often hired by the owner to manage the projects on their behalf for a fee.

•It should be kept in mind that the contract between the owner and contractor should be consistent with the contracts between the contractor and subcontractor.

•Delay and interference can cause suits and should be handled carefully.

•Bonds are commonly used to ensure/secure bids, performance and labor and material payments. Here a third party bond agency indemnifies payment. If some contractual obligation is missed, the bond agency will pay, and pursue the party it has indemnified.

•A letter of credit is often used in place of a bond. It is effectively a “blank cheque” for the holder.

3.7.1.4 - Liens

•A construction lien directs an owner to hold back a percentage of the total cost for a period after completion (in Ontario it is 10% for 45 days). In this time anybody that is owed money for work, or materials on a property can place a lien on the property and prevent its sale. The holdback is used to pay them (even no there is no privity of contract between them).

•If an owner does not follow the lien act, for example not keeping a holdback, the owner may then become liable for the subcontractors losses.

•Before any holdback is released, or property is sold the local registry office must be checked for