Ch. 11 - Specific Contracts & Clauses Flashcards
Fixed-Price contract
(aka stipulated sum contract or lump sum contract) a contract in which the goods are provided and services are performed for a lump sum amount, including overhead and profit. Owner has no right to direct the contractor on construction and no right to inquire about actual cost of the work. Costs rarely stay fixed throughout the project, should use fixed-price as starting point with the intention of it changing by the end of project. CCDC 2 is most common and best known starting point.
Cost-Plus contract
(aka cost reimbursable contract) provides the contractor with payment for the labor, equipment, and material expenses incurred on the project plus a percentage for profit and overhead, sometimes to a guaranteed maximum. Often used when the scope of work is uncertain but the owner wants to proceed with the project - puts costing risks on owner. Owners should be aware of contractors using transfer pricing. Drawbacks include lack of built-in price control and properly labeling responsibility for correction of deficiencies or replacement of defective equipment. CCDC 3 most popular.
Unit Price contract
contract that requires the owner to pay a stipulated amount for each unit or quantity of work performed (e.g. $100 per cubic meter of concrete in place). popular for road building, earthmoving, and pipeline projects. Beneficial for project with uncertain requirements. CCDC 4 most popular. Owner can reduce risk in paying premiums by requiring unit pricing for unanticipated or extra work. Contractors should be careful not to inflate unit pricing too much as it may force owner to cut work rather than add work.
Alliance Agreement
creates a close relationship between all parties on a construction project. The level of compensation for each party depends on the success of the entire project, and there is often a specific provision prohibiting litigation. Owner pays contractor on cost-plus basis with a loss/profit available at the end based on performance. Trust and loyalty between the owner/contractors/subcontractors
Design-build contract
owner generally contracts out the design, construction,and inspection, often to a single party with little or no input from the owner, who may hire consultant to help ensure quality. CCDC 14 most popular - doesnt directly deal with owner control.
Public-Private Partnership (3Ps)
used for public projects, like highways, hospitals, water & waste water treatment plants. The public agency contracts private companies to design, construct, finance, and operate these projects on a long-term basis. Public and private sectors share risk, responsibility, and reward and the end product is a net benefit to the public.
Licensing Agreement
provides a grant of rights to a licensee to use a right held or owned by a licensor. Licenses can be exclusive or non-exclusive. Particularly important on the software industry - many licensors want licensees to use their product which dictates their compensation from percentage of sales. Licenses can be granted for both intellectual and real property. Most important clause is the grant provision that defines the scope of the rights given to the licensee.
professional service agreements
Used to engage the service of a professional or firm of professionals in a project. Can be made on a cost-plus, fixed-price, or percentage basis. Similar to employer-employee agreements. work & outcomes defined. prices may vary. Liability clauses included to protect professional. Field review clauses require great clarity or risk being problematic down the road.
Transfer pricing
a way contractors increase their profits by transferring costs to the owner. E.g. if a trailer is needed on a job site for 12 months, rather than renting from an outside source, the contractor could purchase the trailer, rent it to the project as part of cost-plus agreement. After 12 months, the OWNER has effectively paid for most of the trailer but the contractor owns it.
Target Price contract
one incentive formula to deal with cost-plus contract price control, which ensures that the cost is fixed if the cost of construction exceeds a certain amount (the target); but the contractor and owner share any savings below the target, according to a predetermined formula, such as 50/50 or 60/40.
Guaranteed maximum price (GMP) contracts
type of target price contract which is a hybrid of fixed-price and cost-plus agreements that require the contractor to absorb all costs of construction above the target. Guarantees the the total price wont exceed the agreed amount and allows owner to audit contractor’s costs if contractor appears to be claiming any portion of the cost savings.
Limitation of liability clause
important clause in professional service agreements. Defines the limits of available claims against the professional, usually to the limits of the professional’s insurance. Critical element is the limitation on time in which parties can commence legal action.
Exclusive license
grants the licensee (the party gaining the rights) the exclusive right to use the rights held by the licensor (the party granting the rights).
License
A grant of rights to use
Penalty Clauses
are UNenforceable in Canadian courts
liquidated damages clause
Are enforceable by the way in which the amount is determined. Accurate pre-estimate of the damages suffered as a result of the late performance.
Warranty
contractual promise to repair defects in the goods and services provided for a specific period of time after the goods and services were provided. Often limited on location of service, obligation of the purchaser to provide notice, and certain costs that must be carried by the purchaser. Manufacturer’s warranties may be longer than contract warranties. Protects purchaser from defects during warranty period and seller against liability after warranty period.
Exclusion clause
clause that purports to completely exclude the damages or remedies available to the innocent party upon the occurrence of specified events. Must clearly define the exact event to be exempted or limited to be enforceable. Construe these clauses strictly against those who drafted them and resolve ambiguities in favor of the other party.
Limitation clause
purports to contain or limit the damages or remedies available to the innocent party upon the occurrence of specified events. Can be used to reallocate any type of risk including limiting the right to claim certain types of damages. Subcategory of exclusion clauses but interpreted the same in court.
Consequential damages
refer to lost profit and other damages that are unrelated or only indirectly related to the claim being made. limitation clauses limit claims for consequential damages to control prices from including unreasonable costs.
Dispute resolution provision (DRP)
a clause that defines the process to be followed in resolving disputes between the parties to a contract in advance. Steps include:
1) Notice of the claim
2) opportunity to remedy the breach
3) negotiation under some time constraints
4) refereed process (sometimes) that may/may not be binding.
5) If the claim is still not solved, may require binding arbitration, which is not a popular option to get to.
Notice of claim provision
a clause that defines the process to be followed for giving notice of and info in respect of a claim under a contract. Notice must generally be given within reasonable time because many contracts contain strict time limits for bringing claims because the breaching party wants the opportunity to remedy or mitigate the breach at an early stage, rather than being told after the remedy is complete that a claim is being bought.
Bankable contract
a contract with terms acceptable to the lender financing one of the project participants.
Bankability
an issue when the borrower doesnt have sufficient assets or assured cash flow to secure a loan from the lender. Applies to ALL other contracts on the project. Achieved when the lender is satisfied that the project will be successful such that the borrower will profit from the project and be able to repay the loan plus interest.
