DISCHARGE of a CONTRACT

Post 322 – by Gautam Shah 

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‘Discharge of a contract is termination of contractual obligations, so that they become inoperative’.

At a very elementary level a contract could be matter of intensely felt mutual faith, which is not necessarily expressed orally or spelt in writing. A contract is, yet a very formal document, that must be credible and legal. It is often mandatory to be registered with an appropriate authority, in terms of its date of signing, and in few instances even the contents. All contracts once signed, and registered or not, cannot be cancelled.

Joséphine, first wife of Napoleon, obtained the civil dissolution of her marriage under the Napoleonic Code of 1804.

Advantages of legal contracts are many. A legal contract makes it easier for the parties to register the document, enforce the terms and conditions as specified within the contract document, add, delete or modify the terms of contract, continue the contract beyond the lifespan or terms of the signatories (after death of a party), solve the disputes and discharge the relationship.

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Contracts are promises that the law will enforce. The law provides remedies if a promise is breached or recognizes the performance of a promise as a duty.

Contracts arise when a duty is due, because of a promise was made by one of the parties. To be legally binding as a contract, a promise must be exchanged for adequate consideration. Adequate consideration is a benefit or detriment that a party receives. For example, promises that are purely gifts are not considered enforceable because for the personal satisfaction the grantor of the promise, ‘may receive’ is normally not a consideration.

Contracts are very formal and binding documents, which if once signed cannot be easily dissolved. Some contracts become void, after particular time set, others become useless once required actions are carried out, or considerations are given. Some contracts like marriage, and understandings like partnership, require execution of another contract or understanding to dissolve the original.

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A contract may be discharged (done away, dissolved) in any of the following ways:

  • Performance: Contracting parties fully discharge their obligations.
  • Agreement: Contracting parties with mutual consent, and as per the terms laid down in a contract, agree to cancel, reduce, or alter, the effects of a contract. Such agreements take into consideration consequences of such actions.
  • Law: On judgement over a dispute, or bankruptcy (insolvency) of either of the parties.
  • Circumstances: Due to change in legislation (of higher order), and declared war like conditions.
  • Lapse of time: Most contracts have arrangement for automatic time closure specifications.
  • Breach of a contract: Intentionally or unintentionally either of the party fail to fulfill the obligations as per the contract and takes recourse to law for enforcement of a contract or redress.

Samuel_D._Ehrhart_-_An_International_High_Noon_Divorce_(1906).

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ORGANIZATION of CONTRACT as a DOCUMENT

Post 265 – by Gautam Shah

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A contract document consists of certain components placed in a hierarchy. The document consists of following parts:

1 Name and identity of parties signing the contract. Name, address, age, sex, nationality, residency, eligibility and capacity (individual, a power-of-attorney holder, authorized representative of a group, authorized signatory, government official), a licensee or a permit holder, group’s identification (formation, constitution, registration, recognition, taxation status), medical declaration (sound mind and body), solvency status.

2 Intentions of the first party to cause the contract (generally the first party is the person who provides the consideration and the person who provide the service is called the second party – but not as a rule). Eligibility of the first party (rights to property, ownership, easement rights, tenancy rights, permits, licenses, quotas, grant, sanctions). Duties of first party (providing data, permissions, items, services, etc.)

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3 Competence and readiness of second party to serve the cause of the contract. Extent and nature of rights, duties etc. of the second party for the cause of the contracted job. Qualifications, experience, Man and Machine resources.

4 Joint declaration by both parties that according to their knowledge and understanding, the contract is enforceable and legal.

John Garfield and Dorothy McGuire in Movie Gentleman’s Agreement

5 Relationship of consideration to the tasks, in parts, groups of parts, and as a whole (schedule of rates, time and quantum schedules, guarantees and liabilities, risk coverage). Fines, Late delivery charges, Rewards.

6 Conditions, situations, acts, and omissions, that can debilitate the contract, remedial measures to correct them, rights to raise and settle such issues, unilateral acts, effects of such an exercise and acceptability of the result.

7 Corrections and attestation modes.

8 Time schedules: Date of signing the contract (dates of various signatures), Date and conditions (if any) for the enactment of the contract, Date schedules for things to be provided by the first party and second party, Schedules of start, continuance and completion or termination of the contract.

Certificate Document Proof Parchment Contract

Certificate Document Proof Parchment Contract

9 List and details of other related documents that form part of the contract, and support or corroborate the contract. Details of any action to be caused, being caused, or already caused by the contract.

10 List, details and certified copies of other contracts, MoUs, that form the basis of this contract, or must be implemented as a follow-up action.

11 Mode of registration of the contract (where required by law and other bodies)

12 Signatories of the contract, involved parties, witnesses, government officials, dates, place, time, jurisdiction, etc.

Sale of a male slave and a building in Shuruppak, Sumerian tablet, circa 2600 BC

It should be remembered that a Contract is a document of initiation of relationship between two people, as individuals, or as authorized-recognized representatives of their groups or organizations. A contract once drawn, spoken out, communicated in presence of witnesses, even if not registered with an authority, is a binding document to both parties. Most countries have Laws of Arbitration to deal with issues arising out of the contractual relationship. Such laws usually have a provision that supercedes, any contradicting provisions of the contract. No contractual relationship can be beyond the state laws.

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CONTRACTS versus MEMORANDUM OF UNDERSTANDINGS (MoUs)

 

Post 260 – by Gautam Shah

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A contract is an understanding that can emerge between any two parties, desiring to conduct a relationship. A contract can occur between: husband-wife, client-professional, client-contractor, buyer-supplier, teacher-student, and so on. When two such parties come together to bridge their relationship, a clear notion must emerge as to:

  1. Why do they seek each other?
  2. Are they qualified to play the part they are in?
  3. Have they been disabled (by law or other circumstances) in any manner, to play the part they intend to take-up?
  4. Do they require any external assistance to enact the part they are to play?
  5. Do they have the resources to carry on their duties?
  6. Do they have the competence to enter / alter / terminate their understandings?

George Sheridan Knowles Signing the marriage contract 1905

An understanding about these issues ultimately results into a contract. A contract is a covenant (Latin: come together / an agreement held to be the basis of a relationship of commitment with God), where each one has a distinct role to play.

Marriage a covenant -Roman vows

A contract is an understanding of exchanges between two persons. If, more than Two parties are involved the agreement is called Memorandum of Understanding or MoU. In contractual relationships the involved two parties play distinctly different but definite roles.

The essence of a Contract is: One party requires goods, services, favours, etc. whereas the Other party has means to pay or compensate for it. One party must express the requirements, and the Other party must show personal qualities, requisite means and willingness to provide for the requirements.

Contracts are between Two parties, and there is no space for anyone else to play any other role. Understandings that do not involve or specify an exchange and without a consideration, are not contracts. A contract still can occur between a person and group or between two groups, if a person is designated to represent the group.

MEMORANDUM OF UNDERSTANDINGS (MoUs)

MoUs are less formal then contract. MoUs however, are recognized documents that morally bind the signatories. MoUs are authenticated statements of intents, but penalizing anyone for inadequate performance is difficult.

MoUs override many of the restrictive aspects of a contract. Such as: Parties are not very clear about their roles, Two or more people are involved, Actions, compensations etc. are not perfectly lawful, Parties are of different nationality and face a dilemma which country’s laws must be followed.

Memorandum of Understanding

Many complex jobs / ventures fail to take off, unless some exercises are undertaken by the concerned parties to define their respective roles and involvement. Such situations arise, where:

  • Many clients come together to let a professional or agency to solve their problem. (Understanding between clients).
  • Many professionals (contractors or suppliers) come together (form consortium) to solve a client’s problems. (Understanding between professionals, contractors or suppliers).
  • Clients and professionals together need services of an agency or a group of vendors, contractors to execute a system.
  • Consortium, multinational companies handle Jobs / ventures that are conceived / contracted / executed / paid / delivered or become operative in different or many countries.
  • Multi lateral agencies like Governmental departments, semi government organizations, NGOs, come together to undertake works.

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Often such exercises occur as part of a job definition or planning process. An umbrella MoU often creates a cohesive structure to tie-up several bilateral or one-to-one contracts or MoUs. Budding or initiating MoUs become a source document out of which a series of bilateral contracts are generated. MoUs become a point of origin or culmination for many other MoUs or contracts.

Jan_Josef_Horemans_(II)_-_The_Marriage_Contract_-_1768

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CONTRACT and ENFORCEMENT

Post 232 – by Gautam Shah

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A neat contract is one where things are delivered for consideration, and strictly in a one-way transaction. Contracts, however, are very complex documents, and the relationship sought in it even more complicated.

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For a contract to be clean, it must have one-way transfer of compensation and another way of object deliverance. Yet certain jobs require clients to provide information, materials, equipments, facilities or services to the contractor (as per the terms of a contract or job specifications). Even if such things are offered with or without a consideration and, the contracting parties get tied up in a Reverse Transaction. A client, failing to deliver as promised, takes the blame for missed schedules and cost overruns. Specifications causing such Reverse Transactions are prone to enforcement difficulties.

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ACCURACY AND COMPLETENESS OF CONTRACT SPECIFICATIONS

A Contract is in force the moment it is signed, or dated to be effective. Once a contract comes into force, any thing that has been left-out, or not properly defined, can be only corrected through a Negotiated Supplementary Agreement. A Contract and Specifications must not leave out any aspect, as something to be agreed or determined later on (e.g. a clause like: paint of x quality, but colour shade to be approved later).

Specification Writing is a last moment compilation, and as a result it is common to see specifications of items that no longer exist, or have been eliminated from the project. Specifications of only intended items and required quantities of work should be provided to the contractor. Otherwise, the bids will reflect the necessity of being prepared to handle Intended items and Quantified work.

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SPECIFICATIONS AND FAIR TRADE PRACTICES

Avoid specifying a particular product, agency, tool, equipment, or a patent process. Favouring one, to the exclusion of others would mean Unfair Trade Practice. It is a good business sense to encourage competition to achieve better prices and quality. Competition also provides optional and reliable sources of supply. Mentioning a particular product, provides an unintentional warranty of its suitability for the purpose. It is better to confine Specifications to Requirement Statements.

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PROPERTY DISPOSAL

When Writing Statements of Work, the Contractor must be told How to dispose of residual materials, garbage, sewage, emissions, etc. Such Disposal Procedures have to follow the local regulations, often at cost. The liabilities arising out of compliance and the cost operations need to be specified. If the residual materials are to be handed back to the client, then handling and storage must be specified. If disposal of such items is likely generate an income, who takes the money must be mentioned. The Tax liabilities of expenditure, income generated, or sales done for disposal, also requires clarification.FAA_O'Hare_Diagram.svg

VALID CLAIMS

A Designer and Client realize shortcomings of the work being executed, and request alterations or corrections. Such changes are not executed unless formally requested. The cost of such constructive changes is to be paid by the client and is considered a Valid Claim. Contractors also make mistakes. A contract specifies modalities for notifying mistakes and what is considered to be improper communication of information or reportage by the contractor. Contracts also list modalities for corrective action and settlement of costs.

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WRITING SPECIFICATIONS in DESIGN PRACTICE

Post 187 –by Gautam Shah

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Types of Specifications in a Design Practice

A Design Office generates a variety of Documents that contain some or the other forms of Specifications. Such Specification related documents are of following categories:

  1. Drawings, Graphical representations
  2. Literary explanations
  3. References to other Graphical Representations and Literary explanations, Legends, Indexes, Lists.

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Quality of Expression in Specification Writing

Writing Specifications is the most important way of facilitating a product or service. Specifications writing is an extended activity of contracting, so here too all the contract fundamentals are strictly followed. Such as a contract has to be enforceable, and whatever is specified must be doable. Specifications cover all valid and essential requirements of the job. A major danger in writing specifications is to include unnecessary information, choosing what to exclude is as important, as choosing what to include. Specifiers (Designers) must eliminate any requirement that adds no value to the Product or Service being acquired. The Specifier (Designer) must state clear conditions in a complete language, and yet remain brief.

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Defects in Specifications and Liabilities

Very few specifications are totally free from defects. As a fundamental principle of law, a specifier (Designer) is responsible for the consequences of the specifications. Designers usually put in a disclaimer (in the contract with their client) for errors found in their work. The Insurance companies that cover the designers for Professional Liability (Professional Indemnity Insurance) insist upon it.

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Most of the specification writers (Designers) incorrectly presume that their text of specifications is read and interpreted by comrade technocrats only, with whom they share similar experience and mind-set. Specifications, however, are more attended by non technocrats like the administrators, lawyers, jurors and judges. A contractor or vendor interprets the specifications, as long as the interpretation is commercially reasonable (read as an earning proposition).

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Accuracy and completeness of Contract Specifications

A Contract is in force the moment it is signed, or dated to be effective. Once a contract comes into force, any thing that has been left-out, or not properly defined, can be only corrected through a Negotiated Supplementary Agreement. A Contract and Specifications must not leave out any aspect, as something to be agreed or determined later on (e.g. a clause like: plastic paint of x quality, but colour shade to be approved later).

Specification Writing is a last moment compilation, and as a result it is common to see specifications of items that do not exist, or have been eliminated from the project. Specifications of only intended items and required quantities of work should be provided to the contractor. Otherwise, the bids will reflect the necessity of being prepared to handle Intended items and Quantified work.

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JOB AWARD PROCESS

 Post –by Gautam Shah

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Shasta Dam -multi vendor job

Shasta Dam -multi vendor job

In a Design Practice, one of the important segments of work is, Job award process. Job award process results into a contractual award for the execution of a project. Contractual assignment of a job is nominally a privilege of the client. Designers, however, have a selfish interest in proper execution of their projects, and so may not let a client act independently. Designers, more often than not, make their participation mandatory in the contractual award for the execution of a project. This is done by the Designer through the Contract or Memorandum of Understanding (MoU) with the Client.

JOB awards 膝にPC_右手にガラケー_2011_(5861970938)

Small clients realize their limitations, so do not bother to execute their jobs through a formal contract with a vendor or contractor, and allow the Designer to manage the execution.

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● On the other hand, clients representing public organizations, have to operate in a transparent (responsible) and a democratic manner, so prefer the participation of the Designer in conduction of contract procedures.

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Large projects require setting of exact terms and conditions to avoid later litigation, so contractual assignment for execution is a must.

Government departments and Public organizations conduct the execution assignment procedures by themselves, as they have the requisite experience, and have to follow many routines and regulations.

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Jobs are awarded for: not just executions of projects but also for supply of goods and components, turn key installations, services, labour, installation and erection facilities, transportation, material handling, repairs, maintenance, housekeeping, security, management, estimating, billing, accounting, supervision, purchase, sale, disposal, performance evaluation, etc.

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Jobs can be awarded to any competent person, or a group of persons formally organized as partnerships concern, joint stock company, corporation, cooperative, or a consortium. Depending on the nature of client and size of work, a job contract may be awarded by personal favour, through restricted bids, open invitations, or direct assignment or mandate. Complex job contracts are awarded by evaluation of bids leading to elimination, by mutual negotiations, and by open bidding, or auction.

A job-award could be a single quotation for the total work, or several rates related to components or tasks (item-wise). The single quotation work contract could be fully or partially based, on conditions set by the client, or as improvised offers devised by the contractor.

A job award could be very specific, serving only one project, or item-wise rates applicable to several projects, limited in time or locality, usually both.

Multi Vendor Work

Job awards are always time bound, automatically becoming dysfunctional on expiry of a period or getting updated per some formulae. A job award could be a contingency contract, for remaining prepared to handle tasks or provide materials, components, systems for a situation that may or may not occur.

Job award could be a build-operate-transfer contract (BOT), where the contractor is not paid any thing, but operates the project and recovers the investments.

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Job awards generally present a scheme of putting together a project through specifications of materials, methods and means. This traditional method fails to register the individual deficiencies, in projects involving many contractors or vendors. The customary method operates well for known technologies, but is not suitable for incorporating emergent technologies.

Jobs, however, if specified through only their performance requirements of the project, allow the contractor and vendors to offer newer and often economic options. Greater technical thought is required in planning a scheme of through performance specifications.

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