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Chapter 4
Construction Contracts
Web-based Contracts
The Need
Web-based contracting provides an environment supporting scheduling, controlling, regulating, analyzing, and auditing the procurement and delivery of materials and services for construction in an electronic format.
By enabling online competitive bidding and improving the record-keeping associated with the purchasing process, buyers will be able to quickly and easily compare product offerings from different manufacturers, as well as solicit pricing and availability. This will put buyers in a position to make optimal price- and time-of-delivery decisions.
The Technology
A number of companies are developing network-based contracting services. These networks are adopting such solutions to improve their subcontract bidding process. With this system, construction companies can easily submit bid documents and specifications to solicit competitive bids for subcontracted work. They will be able to route RFQs/RFPs to approved contractors, or search for matching contractors according to attributes such as
CSI (Construction Specifications Institute) classification, geographic location, specialty, minority status, licensing, and bonding. Eligible contractors and suppliers are notified of pending project bids and may then respond electronically. Their responses are automatically organized into bid summary spreadsheets for review and award. Buyers can anticipate an immediate return on investment from reduced costs associated with the processing of purchase orders, more competitive prices, and overall supply-chain efficiencies. Sellers will find new opportunities to increase sales by expanding their customer base and effectively communicating their product line and pricing. These online services help construction companies manage their complex supply chains, while enabling the project owner to make trade-off decisions about construction costs versus lifetime operational costs.
4.1 CONTRACT ENVIRONMENT
Construction is a product oriented activity that has many dimensions. One of these dimensions is the business side of construction. The business world is structured by contractual relationships, and the business aspects of construction require the establishment of legally binding relationships with a wide range of parties. The central role played by contracts is reflected by the fact that construction firms are referred to as Òcontractors.Ó In addition to the contractual relationship with the owner/client, construction managers supervise contracts with subcontractors, specialty firms such as scheduling services, labor unions, as well as
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62 Chapter 4 Construction Contracts equipment and materials vendors. Insurance and bonds as well as the documents establishing the legal structure of a company have the elements of contractual requirements. In this chapter, we investigate the major contractual forms used to establish contracts for the construction of projects.
An agreement between two or more parties to do something for a consideration establishes the basis for a contract. ÒA contract is a promise or a set of promises for the breach of which the law recognizes duty. This amounts to saying that a contract is a legally enforceable promiseÓ (Jackson, 1973). The courts are often called upon to determine:
1. Who are the parties to a contract?
2. What are their promises?
3. Other aspects of the contractual agreement.
A whole body of law has grown up around the many facets of contractual relationships.
Because these issues remain constant for most construction situations, contract language in the construction industry has been normalized over many years and a variety of standard contract forms have developed.
4.2 PROCESS OF PURCHASING CONSTRUCTION
Construction contracts structure the way in which construction is