Liabilities of Contractor and Employer - Essay Example

Liabilities of Contractor, Employer Introduction: This paper discusses the liabilities of contractor and employer in case of termination of work. The different reasons for the termination of the work and contracts by contractor and employer will play critical role in deciding the liability. The repudiation of sub contracts, the non complying with the work nature described in the contract, the payment details also can play a decisive role in deciding the liability. In this case the repudiation of sub contract, the stopping of work by the contractor and termination of the contract by the employer were mentioned. Having a overall view of the situation, it seems that M is liable to E. Various laws regarding the contract and termination must be discussed before deciding the liability. The reason for the strong position of the employer E is he terminated after the contractor stopped delivering. The contractor can be considered as an employer for his sub contractor. The repudiation of the sub contract by his sub contractor will make his sub contractor liable to him. This does not entitle him the right to stop the delivery of work to his employer. By stopping his delivery of work to his employer E, he not only made himself liable to employer but also gave a chance to the employer to terminate the contract. In the other cases, if the employer terminates the contract, he is not permitted according to law to award the work for another till 6 years. But that is not in the case of contractor's liability to the employer. Literature Review: According to L. Jaynes in the seminar about global conditions on contract, the liabilities of employer and contractor were listed out according to various clauses that impart liability on the party, who breaks the contract or who does an action that imparts liability. The concept of liability will be thought upon when the contract was terminated. This termination according to conditions of global contract depends on four clauses of the conditions of the contract. They are clause 15, 16, 17, 19.1 Clause 15 deals with termination by employer, clause 16 deals with suspension and termination by contractor, clause 17 deals with risks and responsibilities, clause 19 deals with force majeure. According to clause 15 the termination by the employer is due to the failing to proceed or prosecute with works, subcontracting the whole work, assigning the contract to the third party without permission, not complying with the instructions of the engineer of the employer, becoming insolvent. In the prescribed case of M and E in this paper, subcontracting the works, failing to proceed with the works, failure to comply with the instructions of the architect forced the employer to terminate the contract. In sub clause 15.2 (b), it was described that if the contractor abandons the works or demonstrates the intention of discontinuing the performance, it will provide the ground for the termination of the contract by the employer. In the case of contractor and employer the contractor cannot stop delivery of the work for his employer due to the repudiation of the contract by a sub contractor. In this clause the contractor is employer for that sub contractor and he can terminate or take action on that sub contractor. Methodology of analysing the legal problems: In this case the methodology followed is to compare the situation with the principles and the provisions of the law and thus analysing the situation about liability of M and E. In the above case of M and E, instead of taking action on the sub contractor N, M stopped delivering to his employer, which provided ground for the employer to terminate the work. This clause demonstrates the conditions for the employer finding a ground for the termination of the contract. The prescribed case for this paper is suitable for the termination of the contract by the employer. This makes contractor liable to the employer and if employer takes any legal action he must bear the consequences. There is no chance for the contractor to compensate the loss he incurred due to the repudiation by N from the employer. The employer is entitled to compensate the loss from M (contractor) and in turn M is entitled to compensate his loss from N. But instead of doing it he stopped deliver of the work to the employer which is against the principles of the contract. Clause 16 deals with the termination by the contractor and the actions by the employer which provide ground for the contractor to terminate the contract. Generally the performance from the employer that provide ground for the contractor to terminate the contract is timely payment. If the engineer fails to comply with submission of payment certificates, which delays payment for the contractor, it will give a chance for the contractor for termination of the contract and proceeding legally. But it was not the case with M and E that was given as a case for this paper. The contractor do not have any such ground towards his employer E and the mention of architect A's new program that should be agreed by A is not relevant to the conditions of the contract. The program of the A must be agreed by the E and not by the contractor. Without delivering the old program the contractor cannot demand the deliver of new program from his employer. Here in this case the contractor has no evidence against his employer that makes him (E) responsible for the fiasco of N. In this manner it provides no ground for the contractor (M) to terminate or stop working for the employer without proper breach of contract by employer (E). There is no evidence that the financial arrangements made by the employer did not satisfy the clauses of the contract. The financial clauses which will enable employer to pay the contract price were not mentioned and are not said that they were breached. Identification of each party's respective legal right and their application, including case law in support of arguments put forward: Before confirming the liability of the contractor or employer finally the risks of contractor and the employer can be perused for the purpose of argument. The contractor's and employer's risks were decided according to the allocation of responsibility for damage to the works under sub clauses 17.2 and 17.4 of 'standard forms of the contact'. The old books regarding the standards of the contract were termed as red and orange books. The principles in new book were slightly change and new clauses were added to that of the orange book. According to the new clauses introduced other than the orange book the contractor is required to take full responsibility for the care of the works, materials and plant from the commencement date to the date of completion of the works. The loss and damage is the contractor's risk but not that of the employer. 1 Employer's risks were defined as the loss of work or material due to war, hostilities and natural calamities. In the prescribed case there is no ground to prove the employer's risk according to the circumstances given. Either the repudiation of the contract by N or the demand of the contractor M for the new program from A is not in the contract conditions or in the list of employers' risk according to the orange book or the new book which modifies 17.4 and 17.2 clauses differentiating the employer's and contractor's risks more elaborately than before. Moreover the contractor's responsibility will extends to goods, materials, plant. Previously the contractor's responsibility used to be regarding the work only. But according to the clauses introduced in the new books the contractor's responsibility extends to goods, documents, software, technical elements. The loss of the above things provided by the employer to the contractor will come under contractor's risk and he (M) will be responsible for the loss of them. Here in the case of M and E prescribed for this paper there is loss of work caused by contractor (M) to the employer (E). This amounts to contractor's risk and he will be made liable to the employer irrespective of the fiasco of N. Even the fiasco of N will not come under the employer's risk, that one will not support the argument for stopping of delivery of work by M to E. The list of employer's risk in the EPC contract was very less in number. Even the design of the works by the employer's personnel and unforeseeable operations of the forces of nature will not come under employer's risks as it was mentioned previously. So in the case of M and E prescribed for this paper, the contractor (M) mentioned about the program that must be submitted by the architect A of the employer to him. This argument is not valid under new books, as it is not the employer's risk and will not provide ground for the termination of the work by the ontractor. This clause and argument again provide a ground for the liability of the contractor M to the employer E in the case prescribed in this paper.1 If it was proved that the contractor suffered loss or damage due to the delay done by the employer or his staff, he should prove that he incurred additional cost for that delay. The case prescribed for this paper did not provide any such delay or no such loss or damage for the contractor was reported under sub clause 17.4. The only reprieve for the contractor in this case is that he must rectify the loss or damage occurred due to him for the work of the employer. This is also not possible immediately as employer has terminated the contract. The first thing to be done by the contractor is that he must arbitrate with the contractor for the revoking of the termination and then he must agree to the rectification of the loss or damage done to employer by his actions. This enables him to save his contract and releases him from paying the penalty or the compensation for the employer. If he performs the above responsibilities the contractor will not only entitle himself to recover his cost but also can get reasonable profit according to new books, but that is in the case of completing the contract. As there was no case of breach of contract by the employer the contractor cannot recover even his costs (forget about the profit), in case of stopping of delivery of works. Employer can give a share in profit to the contractor in the context of fulfilling the contract agreements by the contractor. Now in new books of standards of the contracts a new sub clause 17.6 was introduce to limit the liability of the contractor for the things that cause loss of use of the works, loss of profit loss of any contract and for indirect or consequential damage. Though above mentioned contexts cause loss and damage to the employer, the contractor's liability was limited. Even this clause cannot limit the liability of the contractor in the case prescribed for this paper. The case prescribed for this paper comes under general conditions such as repudiation of sub contract and the negligence of the contractor. These conditions will not limit the liability of the contractor and the contractor must be liable for whatever loss caused to the employer. The exception that place a monetary limit on the liability of the contractor do not exist in the case prescribed for this paper. The contractor's liability can be limited if there is any ground to prove the deliberate default or reckless misconduct by the employer. This did not happen in the prescribed case and liability of the contractor cannot be overruled or limited. There is one chance for the contractor (M) in the prescribed case. It is that if the contractor did not give him 14 days notice before terminating the contract he can appeal for the limiting or cancellation of the liability. The notice that was given by the employer was not mentioned in the brief given for the case, the argument here cannot decide the case precisely. If the employer gave 14 days notice before terminating the notice the contractor has no way other than taking liability. If the employer terminated the contract without giving 14 days notice the new clauses will give a chance for the contractor to limit his liability or nullify his liability. Even in this case there is a chance of limiting the liability, and the chances of nullifying the liability are very less. The Principles involved in the above arguments and analysis: In the above analysis and arguments it was considered that the contractor was liable to the employer. The reason behind that is the employer was not informed prior to the stoppage of the delivery of the work and the employer cannot be responsible for the repudiation of the contract by the sub contractor. The action taken or that to be taken by the E on M will also makes ground for M to take on N. But that was not the case in the context of the paper and stopped the work which amounts to gross irresponsibility in completing the terms of contract. It was known to the contractor that he did not comply to the conditions of the contract regarding the completion of the work. In spite of that the stopped the delivery of the work and instead of making liable the sub contractor N he tried to recover the loss and damage caused to him by the N from the employer E. This is due to the intention that amounts to black mail. Any employer will try to get his work done by agreeing to the terms of the contractor in case of stopping of the work. Instead of going to legal process many employers try to settle the matter outside the court. Knowing this thing, the contractor M intentionally caused the loss and damage to the employer regarding the work and created a ground that is sufficient for making him liable for the loss and damage caused. The employer's decision of terminating the contract exhibits his intention to explore legal ways to make contractor comply to the norms of the contract. This compels the contractor compromise with the employer because if the approaches the court there is no other way than paying compensation for the stopping of work and even there will be no chance for suing the sub contractor as he transferred that loss to the employer. Conclusion: The acts of sub contractor and contractor caused the loss to the employer. This enables him to terminate the contract and approach court for the compensation for the losses caused by the contractor and sub contractor. As the sub contractor was not under purview of the employer and he was not responsible for the actions of him, he can make liable the contractor for the losses caused to him by his untimely stoppage of the work. The reprieve for the contractor is that he can limit his liability if the employer did not serve 14 days notice. If the notice was served before terminating he has no other way to make sub contractor N liable for the losses and damages incurred and must pay for the employer. If he is not in a position to collect from the N or to pay for E, he must have a compromise deal with E regarding his termination and must rectify the loss and damage done by the termination of the contract. References: The references were given in the following format. Author, year, title, publisher/sponsor, edition, type of media, date retrieved, website address 1. Gordon L. Jaynes, 2006, Termination, Risk and Force Majeure, FIDIC, ,electronic, 4-11-06, http://www1.fidic.org/resources/contracts/jaynes_A.asp 2. Christopher R. Seppala, 1999, FIDIC'S FOUR NEW STANDARD FORMS OF CONTRACT, FIDIC, ,electronic, 4-11-06, http://www1.fidic.org/resources/contracts/launch/seppala_hague99_risks.html 3. author not found, 2006, general terms and conditions, University of Pittsburgh, ,electronic, 4-12-06, http://www.bc.pitt.edu/purchasing/documents/tc.pdf 4.Author not found, 2006, The legal contexts of construction, Wiley.com, ,electronic, 4-12-06, http://media.wiley.com/product_data/excerpt/97/04716620/0471662097-1.pdf 5. legal brief, 1998, contractual issues relevant to 2000, AGS Publications, ,electronic, 4-12-06, http://www.ags.gov.au/publications/agspubs/legalpubs/legalbriefings/br41.htm Read More