Contract Duration Unreasonable

Larry,



JCT did just that if the contractor became insolvent and was subject of a recent court case.



Look at the wording of the Termination clauses:



If it says the Employer/Contractor MAY terminate the contract on some event then this is discretionary and the party terminating can choose whether too or not. (might be "shall be entitled to" as in FIDIC)



If it says the Employer/Contractor SHALL terminate the contract on some event then this is mandatory - the termination becomes automatic and may lead to problems as it did in the JCT.



It might be a mixture, ’shall’ for some events and ’may’ for others.



In every case, just be very careful.



FIDIC as regards Termination clauses generally advises:



Before inviting tenders, the Employer should verify that the wording of this Sub-Clause is consistent

with the law governing the Contract. The Contractor should verify that each anticipated ground for

termination is consistent with such law.

Andrew,

In the Forms of Contract that I come across, clauses relating to "Termination by Employer" usually does protect them to recover any such losses & damages costs (by means of withholding moneys, bank guarantee and the like), in case of CONTRACTOR’s failure to carry-out his obligation, such as Clause 15 of EPC-FIDIC.

Can you please share a standard Form of Contract reference (eg.ICE), where "... you may end up terminating the employment and the contract - which means the contract no longer exists to recover damages ...", that you cite may apply. Cheers.

Larry

Andrew, we have departed from Uri’s original query about "reasonableness" but we have an interesting topic anyway, and generally in agreement.

As you say, anything to do with termination or voiding a contract, or finding it void or voidable, is a big play in construction poker. All of the benefits of being a party to the contract, such as consideration, damages and remedies, all evaporate with the obligations.

Larry,



What effect of termination and a void contract MAY for PRACTICAL purposes be the same - but be careful:



A contract that is void - never existed in the first place, arguments as to formation of a contract come into play here.



A contract that is voidable - the innocent party can elect to continue the contract or bring it to an end.



A contract that is terminated - lots of options here! Generally the future obligations of both parties under the contract will come to an end but the contract itself does not. You terminate the employment of a party but keep the contract alive so that damages can still be recovered under it.



There are only two situations on site when I would seriously recommend that your first telephone call should be to a lawyer!!!!



1. The other party goes insolvent in one form or another

2. The other party seeks to terminate the contract



In either case, even if the contract is followed to the letter, you may end up terminating the employment and the contract - which means the contract no longer exists to recover damages under which is the last thing you want to happen. In the case of insolvency, this is when contract law and insolvency law clash head on and which takes precedence needs very careful consideration.



If either of these happens, say nothing, do nothing and get legal advice asap or you could very innocently end up in a big mess.

Trevor,



My opinion re:"Contracts can become void for impossibility of performance."



Yes I conform to this statement, but please note that in Building Contract, "Contract voidance" will not end just like that.



In Building Contract ’void of Contract’ will equate to ’termination of Contract’. If termination is due to Contractor failure to do his obligation, termination is the not end of story. Owner will recover to Contractor, all cost losses/damages, through retention money, performance guarantee, parent company guarantee, and the like.



Therefore, yes, its not impossible to build theme park in Mars, but, Contractor will be held liable due to his poor performance (in case), and not because of unreasonable Contract duration.



Larry

Trevor,



I choose my words carefully in my answer. "may" be held to it.



Impossibility or frustration can excuse a party from performance of a contract - but in very very narrow circumstances.



If a party agrees to build a project on Mars, just because it is or becomes extremely difficult to do and might cost alot more or take a lot longer than the party building it originally thought it would, non of these are not valid reasons to excuse that’s parties performance.



For a defence of frustration to come into play, something must happen that is not either of the parties fault and that event makes it virtually impossible for the contract to be carried out.



In some civil law systems there is economic frustration which acts when something becomes unreasonably expensive to carry out but that doesn’t exist in the common law world.



Generally, the key to a defence of frustration is "something must happen that is NOT EITHER of the parties fault". Otherwise the defence will normally fail and the defaulting party will be held liable for damages for non performance.

From:

http://www.lectlaw.com/def2/u041.htm



"When the thing to be performed is impossible; as, if a man were to covenant to go from the United States to Europe in one day. But in these cases, the impossibility must exist at the time of making the contract; for although subsequent events may excuse the performance, the contract is not absolutely void;"



This would seem to be a good argument why the parties to a construction contract must agree that the scope and time specified are possible, or feasible, at the start. The only way to do this is with a detailed plan which shows, to the satisafction of both parties, that the thing can be done, and this implies showing how it can be done (not just demanding and giving promises).

Andrew,

Please provide your basis for this opinion.

Contracts can become void for impossibility of performance.

See:http:

www.blurtit.com/q520191.html



and many others.



Building a theme park on Mars is not impossible, but doing it by a certain date may be.



It is probably safer to rely on "impossible" rather than "unreasonable" and it would be important to discover impossibility early rather than late, ie after non-performance.

Larry has got it about right.



As for building a project on Mars - the law does not protect you from contracting to do the impossible - you can and you may well be held to it.

Larry,

I apologise for introducing the "theme park on Mars", if you think that is just a too wildly exagerated example.

However, we can substitute a more realistic example and the conclusions are the same.

You say (I paraphrase) you don’t believe the client will accept the bid without a fully detailed plan, program etc etc that shows that the project and the contract duration are feasible.

Yet Uri has already told us that is exactly what happened.

And this would not be a unique case. I have other true stories just the same.

You seem to suggest the the duration was reasonable/feasible just because that is what the client wanted.

Even if the contractor shows, after the project was finished way late and during the dispute and litigation, that the duration was unreasonable or infeasible or just plain impossible, how will he explain why he didn’t take steps to discover this before he signed the contract, or at least very soon after?

The contractor will probably lose but I think that saying the client is 100% right and contractor is 100% wrong is just too simple an interpretation. The best the contractor can hope for is that only half the claim will be awarded. Perhaps the parties should just reach that position by negotiation straight away and save the time and expense of the analysis and litigation.

Trevor,



Your "theme park on Mars" example is misleading the forum’s Subject.



I do not beleive that Client will accept Contractor’s tender/offer without any guarantees. Guarantees will come in various forms whether execution plans & schedules, methodologies & sequence of work, source of Contractor’s resources (e.g. finance, management staff, labour, eqpt., material, etc.), performance bonds, parent gurantees, work experiences, etc. These ensures Contractor capability, if he properly comply to Clients requirements.



So I disagree for mentioning "The client accepts the promise based on nothing at all". And Contract Duration from Client is Reasonable. Hope I share my understanding.

Uri,

I’m no expert and I don’t have a position, just an opinion.

I think that whether it was reasonable or not is not the issue. It takes two to tango. Both parties didn’t bother to work out if or how it was feasible, and they should both cop the consequences. One party shouldn’t be able to hold itself blameless but that is exactly the protection that the client gets from the transfer of risk via the contract. Perhaps the client will argue that he is entitled to rely on the contractor’s promise, which no one forced him to make, without doing any investigation. It’s wrong, but it is a strong argument. The contractor will need a good lawyer to say "OK, I make promises I can’t keep but that guy hired me".

Larry,

This is just my opinion, but here goes.

Say the client’s project is to build a theme park on Mars by the middle of next week and some fool puts in a bid to do it without figuring out if it can be done or how it can be done. The client accepts the bid. The contractor fails. The client sues the contractor. In our system, which we are stuck with, the client would probably win this case. He could say that the contractor failed because he didn’t meet his contractual promise, didn’t muster the necessary resources, and can’t squeal that the job was impossible from the start.

But obviously there are two parties to such a farce.

The client puts out an arbitrary requirement.

The contractor makes a promise based on nothing at all.

The client accepts the promise based on nothing at all.

Uri,



In my opinion the duration of the project given by Client is a requirement to be followed by the Bidder, regardless if its unreasonable or unrealistic, it is responsibility of Bidder to price the project as per given duration.



If its necessary that Bidder will price doublelling his resources, allowing 2 work shifts, anticipating holidays, climate factors, etc., then so be it.



If the required duration is really unreasonable then Bidder can propose a feasible project duration and get Client approval.



Finally, Bidder will later become a Contractor and there will be no excuse to such unreasonable or unrealistic schedule.



If Contractor has delayed the project completion (except for reasons of delay out of control by Contractor), therefore, the problem is with Contractor, his project mis-management.



Regards,

Uri,

It is interesting that you have used both words "unreasonable" and "unrealistic". They are not quite the same thing. You might also consider the words "feasible" and "infeasible".

You are helping with the explanation but I am still trying to read between the lines.

If the project is nearing completion then why now bother to write the project plan that the contractor should have written before he signed the contract and agreed to the contract finish date?

Perhaps (I guess)that this whole thing is connected with claims and perhaps the contractor is asking you to help to show that the time actually taken is reasonable/feasible and that the original agreed time was unreasonable, and this might help to fend off claims by the client for the LDs.

This is a big ask. The client’s very strong argument will be that whether reasonable or not with the benefit of 20/20 hindsight, it was agreed to after ample opportunity to ascertain whether it was feasible, and with full knowledge of the risks and possible consequences.



It happens all the time that contractors end up in deep trouble due largely to very bad choices that they themselves have made. Perhaps they deserve some mercy from the client but are unlikely to get any.

it is always unreasonable until the contractor developed the reasons (i.e. program)

Uri,



Still not clear. Do u wanna say that, because it has taken lot of time to complete the project, the contract dates are unrealistic.



If this is what u wanna say, then u might b wrong. Consider the example of famous greenfield project of CONSTRUCTION OF WORLDS SECOND LARGEST OIL REFINARY FACTORY at Jamnagar, India.



Renowned consultants BECHTEL initially submitted a time frame of SEVEN Years to complete the construction phase of project. The Client RELIANCE Petroleum, asked to complete the construction phase of project in mere 18 months and they eventually completed the project in just 22 months.



The example I gave was out of way, but dates can be achieved, if its planned in a proper way.



In ur case, it might b the flaw of contractor since he has not studied the contract properly.



Cheers,



Ravi

You will have to help out here with a bit more information.

In what way is the contract timeframe "unreasonable"?

Has the contractor agreed to a project duration and a contract finish date, which has been arrived just by being plucked out of the sky, without any consideration or analysis of what is required to achieve it?

Has it only now been discovered, after the contract is signed, that the job cannot be done in the time agreed to?