EA104 Estimating

Electrical, Electronics and
Computer Engineering
Department

Electrical Quoting,
Estimating
and
Tendering

Module Code EA104

Version No 1 2 3 4 5
Date 05/2006
Refer to: DMcR

Chisholm Institute of TAFE
Frankston Campus
Fletcher Road
FRANKSTON 3199
Tel: +61 3 9238 8226
Fax: +61 3 9238 8116

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EA104 ESTIMATING, TENDERING AND CONTRACTING
Copyright Chisholm Institute 3
Table of Contents
Introduction..................................................................................................................7
Tender Documents.......................................................................................................8
Drawing types...........................................................................................................8
Specifications .........................................................................................................11
Other tender documents.........................................................................................12
Tender evaluation...................................................................................................13
Practical examples .................................................................................................15
Specification Writing Techniques ...........................................................................17
Be Clear..............................................................................................................17
Be Brief ...............................................................................................................20
Be Fair ................................................................................................................22
Be Logical ...........................................................................................................24
Conclusion..........................................................................................................27
Summary................................................................................................................28
Review questions and assignment.........................................................................29
An Overview of Australian Law..................................................................................30
Why Study Law?.....................................................................................................30
Sources of Law.......................................................................................................30
Distinction between Common Law and Statute Law..............................................31
The Structure of Our Court System........................................................................32
The State Court System......................................................................................32
The Federal Court System..................................................................................34
The Law of Torts.....................................................................................................34
Trespass .............................................................................................................35
Acts of Nuisance.................................................................................................36
Negligence..........................................................................................................36
In Summary of Torts. ..........................................................................................37
Contract Law..........................................................................................................38
Types of Contracts..............................................................................................38
Elements of a Contract .......................................................................................39
Discharge of Contract and Dealing with Breaches.................................................48
Other Contractual Matters ......................................................................................49
Summary of Contract Law......................................................................................51
Review Questions...................................................................................................52
Review Answers.....................................................................................................53
Estimating and Project Management.........................................................................55
Estimating...............................................................................................................56
The cost of labour (the hourly rate).....................................................................56
The cost of materials...........................................................................................56
Tools and equipment ..........................................................................................57
Serial and concurrent activities...........................................................................57
Imponderables ....................................................................................................57
Sub-contractors...................................................................................................58
Estimating software.............................................................................................58
Summary.............................................................................................................58
Project Management ..............................................................................................59
General ...............................................................................................................59
Planning..............................................................................................................60
Scheduling..........................................................................................................60
Controlling...........................................................................................................61
Project management software............................................................................61
Summary.............................................................................................................61


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MODULE TITLE Electrical Quoting, Estimating and
Tendering
Nominal Duration One module 40 hours
Module Code or Number EA104
Module Purpose The aim of this module is to provide the learner with
the knowledge and practical experience for
estimating, project control, and preparation of
contract documentation.

Learning Outcome 1 Interpret project drawings, symbols specifications
and other associated documentation.

1.1 Identify and describe the purpose of a selected range of Project Drawings
1.2 Explain the purpose and application of scales for a given selection of project
drawings.
1.3 Identify and outline the function of selected symbols commonly used in a
diverse range of project drawings relevant to onsite contracting industries
1.4 Explain elements of specifications
1.5 Extract and analyse information gained from project drawings and
specifications.
1.6 Compare information gained from project drawings and specifications for the
purpose of identifying irregularities and differences
1.7 Identify and interpret discrete sections of supplied documentation including
tender proposals, addenda, manuals, and manufacturers equipment
specifications

Learning Outcome 2 Prepare estimates, tender submissions and
quotations.

2.1 Identify the necessary tools used in estimating and explain their use.
2.2 Differentiate between the terms tender, estimate and quotation
2.3 Compare basic differences between historical, schedule of rates, unit rate, bill
of quantity, and quantity estimating methods
2.4 Explain the terms labour unit, task factor and job factor
2.5 Record and tabulate all material quantities from given project drawings and
specifications including, where necessary, appropriate task and job factors
2.6 Analyse commercial considerations affecting the difference between cost
price and submitted price
2.7 Complete and amend standard tender and quotation forms to suit selected
projects

Learning Outcome 3 Prepare a project plan for a diverse range of given
projects.

3.1 Determine the sequence and time allocations of site activities from
information supplied
3.2 Prepare progress schedules and charts and other forms of documentation for
building projects to control both human and physical resources
3.3 Prepare estimates of labour numbers and match labour requirements to
prescribed job descriptions and competency levels for given projects
3.4 Prepare progressive material schedules

Learning Outcome 4 Evaluate the labour costs and profit margins
associated with a small electrical contracting
operation.

4.1 Determine the direct cost of labour for given award conditions
4.2 Identify the particular overheads associated with the employment labour
and/or self-employment
4.3 Discuss the factors influencing the realistic utilisation of labour
4.4 Determine hourly charge-out rates for different given business styles and
structures
4.5 Discuss the commercial considerations involved in determining the profit
margins as applied to the final hourly charge-out rate

Delivery Strategy
This module provides for delivery by off-the-job training in a variety of modes.
Strategies should be selected to reflect the nature of the learning outcomes and the
needs of the learner.

SUGGESTED MODES with Adult Learning Focus
Distance education
Self pacing
Open learning
Full or part-time
Off-the-job training supported by project work

SUGGESTED STRATAGIES
Individual research
Individual activities
Open discussion
Group discussion
Group activities
Demonstration
Guest speaker
Relevant Computer Software
CAL and CML
Analysis of case studies
Application to own business situation

Some areas of content may be common to more than one learning outcome and
therefore integration may be appropriate. It is expected that learners will undertake
private research to assist in the achievement of competency.

Occupational Health and Safety requirements
A safe and healthy environment should be provided for learners. Instruction and
constant reinforcement of the use of safe working practices should be provided in
classroom and all laboratory sessions.

Introduction
During the acquisition of major plant items, replacement of plant, extension to the
system or at other times of major capital expenditure, there is a substantial risk of the
loss or wastage of significant amounts of money.

This can occur through misunderstanding, mismanagement, misrepresentation,
misadventure, deception and/or other forms of accidental and/or deliberate wastage.
The result then can be that the desired outcomes are not achieved and this can lead
to both direct and consequential financial losses to the business.

To prevent this, a carefully structured process must be instituted to ensure the
satisfactory performance of all the people and/or organisations who are involved in
the provision of the activity.

In this module we will look at the important sections of this process so that, following
successful completion, participants, with mentored experience, will be in a position to
carry out the tasks of estimating, preparation of contract documents and the control
of a project.

The module descriptor is based around a general approach to contracting in the
electrical industry. This course has been tailored to the Distribution Industry in
general.

Tender Documents
The types of documents in use (and classed as tender documents) are many and
varied. They must be viewed in the context of the desired outcome - what is(are) the
document(s) for?

From an engineering perspective, the tender documents must give a complete
technical description of the project and how it is expected to function. The range and
type of documents to achieve this desired result vary considerably.

Do we want a new sub-station on a green-fields site? This will involve a range of
activities such earth-works, roads, buildings, services, building permits, an EPA
1

licence, easements, rights-of-way etc. Or do we want to replace the lamps in switch-
yard light fittings or need a power point installed in a sub-station building?

Even something as simple as changing a lamp will involve some sort of access
process; this will involve a permit; this involves training and testing of people and
equipment; this restricts the people who can carry out the task; this changes the
supervision requirements etc.

The execution of any of the above should involve the submission of an estimate or
quotation based on accurate information. It may involve a set of tender documents,
hand-drawn sketches or other information.

For larger projects, they will generally takes the form of 3 distinct types of documents:
Drawings, specifications and other information.

In the real commercial world, all of the documentation provided must be exact and in
writing. The tender documents must include information on all of the issues which will
have an impact on the cost of the project.

If not, this will form the basis of legal action - only the lawyers will make lots of
money!

The range and types of documents required will be considered in detail in the notes
which follow.

Drawing types.
In the electrical industry, we are familiar with a range of drawings peculiar to the
industry. These will include:

1. Physical (and physical wiring) diagrams to show the actual physical layout of
equipment (and wiring);

2. Schematic diagrams to show how things work or to use for fault finding and

3. Single line diagrams for understanding how big systems work and for
switching programs etc.

An important characteristic of all of these diagrams is that they use standard
symbols. While organisations may modify the standard symbols, usually to be more

1
EPA Environmental Protection Agency
informative, the basis of the symbols is a group of Australian Standards with the
basic no. AS 1102.xx.

Examples of symbols in use are shown below and a typical single line diagram is
shown on the next page.

Figure 1 Electrical symbols

Figure 2 Typical single line diagram
In addition, there will be a range of civil, architectural and/or mechanical services
drawings to give the complete picture. Mechanical services will include areas such as
water supply, sullage, sewage, drainage, compressed air, heating, cooling,
ventilating etc.

There may also be a range of mechanically orientated drawings showing the physical
properties of circuit breakers, transformers etc. There may be footings and earthing
mat diagrams. Again, these must be adequate for their purpose.

The electrical work associated with some of the project elements will probably involve
a separate set of electrical drawings and may involve a number of individual tenders
and perhaps a separate electrical contractor.

The non-electrical drawings will generally involve the use of scales. These scale
drawings are used to show sections of the project on a single sheet.

A number of these sheets are produced showing increasingly fine detail.

They are then linked to show where they fit in the overall scheme.

The drawings covered above will all have these attributes.

Specifications
While drawings are used to give the physical location and other associated
information, the specification is a written document which describes, in detail, the
technical requirements of the various items.

It is generally accepted practice that the absolute minimum of technical detail is given
on the drawing - drawings are a means of identifying items, structure, position etc.
only. In this way the drawing is less cluttered and there is a reduced risk of conflict
and misunderstanding.

The specification may include:
The scope of the tender - a description of the function/purpose of the project.
The location of the project - country/state/region etc.
The units of measurement, quantity, currency etc.
The materials and methods of construction for buildings, structures, fences,
surface treatments, paving, drainage etc.
Where access to services can be made (water, sewage, drainage, phones
etc.).
The operating parameters such as ambient temperature, altitude, humidity,
environment (an IP rating),
The required electrical parameters such as:
- voltage,
- frequency,
- expected system over-voltage,
- power frequency over-voltage test values,
- impulse voltage withstand values,
- rated current,
- maximum withstand current,
- (for CBs) - making and breaking currents,
- required opening and closing cycles etc.
- auxiliary supplies (closing, tripping, heating)
Every applicable Australian Standard for equipment, testing or installation and
any relevant codes of practice.
Any mechanical and related considerations such as compressed air, gas
supplies, fire fighting etc. (Linked to the appropriate drawings)

In general, pre-empt any possible question or query!

It should be kept in mind that the drawings and specifications define the outcome of
the process;
the things that have been omitted from the tender documents are the things
which will come back and haunt you.

Other tender documents
Apart from identifying the pure technical requirements, there will be a range of other
details involved with a particular job. These will/may include:
Who the tenderer is and what is their experience?
An explanation of the type of tender - lump sum, schedule of rates, design
and construct, turnkey, BOOT (Build, Own, Operate and Transfer), outcome
based, parallel/integrated tenders etc.
All of the financial details - bankers statement of viability, insurances
required, milestones and progress payments, penalty payments, liquidated
damages, sub-contractor payments, warrantee and maintenance amounts
etc.
Proof of the tenderers ability and qualifications to execute the contract.
A tender form to ensure that all tenderers present their material etc. in
exactly the same way. There may be a series of schedules, ordinary
conditions of tender, special conditions of tender and appendices.
House-keeping details such as:
- provision of contractors services (water, sewage, power, phone, fax
etc.),
- shower, toilet and messing facilities,
- required first-aid facilities,
- car-parking and/or public transport,
- required formal and informal qualifications and experience,
- any special training requirements (Blue Book etc.)
- working restrictions and emergency procedures,
- noise and other activity based limitations,
- access to adjoining properties or easements etc,
- emergency procedures - nearest hospital, helipad, ambulance etc
The treatment and use of sub-contractors; will include such things as
experience and qualifications, payment processes, responsibilities etc.

Remembering that this project might be valued at $100.00 or $100,000,000.00, how
is one supposed to remember all of these different aspects? What of the above are
applicable to any one tender?

The other important point about the tender documents is that they form the basis of
the final contract - in effect, the tender documents form part of the contract
conditions.

The prospective contractor is basing all of their estimates on the information being
supplied in the tender documents. They tell the contractor what they will be required
to do, as their part of the contract.

While the technical detail must stand alone for any particular project, there is a range
of Australian Standards and other industry-based documents which, in effect, are
check lists (pro-formas, even) and include all possible information.

Particular aspects can be selected, amended or rejected as necessary.

Tender evaluation
Tenders are evaluated on a number of bases. These must be specified in the tender
documents.

While the price is a major consideration, the ability to perform the project on time and
to price is probably more important.

There are a number of other factors to be considered, again depending on the type of
project. The sample on the following page has been taken from a NATSPEC
2
tender
template document and covers some of the important principles.

2
NATSPEC National Specification System of Australia
RECEIPT & EVALUATION of TENDERS

Public acknowledgement of tenders recei ved

A list of tenderers may be posted by the close of business on the day following the close of tenders. Do not consider
this listing to be advice of which tender, if any, will be accepted.

Location of notice board: .

Evaluation of tenders

In evaluating the tenders, the principal may take into consideration

- conformity with tender documents;
- capital cost compared with estimated cost;
- construction period;
- proposed use of local subcontractors and suppliers;
- proposed alternatives;
- alternative working times proposed by the tenderer, and the cost to the principal of providing contract
administration for the work under the contract at those times;
- maintenance and running costs;
- design proposals;
- quality of prototypes
- construction program;
- proposed methods
- quality assurance;
- conflicts of interest;
- life of proposed equipment;
- tenderers CADD format;
- value for money;
- tenderers resources;
- tenderers current commitments;
- tenderers previous performance; and
- industrial relations and safety records.

Qualifications: tenders containing unauthorised alterations, additions or qualifications may be rejected.

Unpriced items: costs relating to items not priced will be assumed to have been included elsewhere in the tender.

Correction of errors in tenders

Additional information

If required, submit additional information, by the stipulated date and time, to allow further consideration of the tender
before any tender is accepted. Failure to meet this requirement may result in the tender being rejected.

Confidentiality

Treat as confidential any information provided after the tender period.

Acceptance of tender

Non-acceptance: The principal is not bound to accept the lowest or any tender, nor to give reasons.

Acceptance: A tender is not accepted until notice in writing of acceptance is

- handed to the tenderer;
- sent by prepaid post to, or left at, the address for service of notices stated in the Tender form; or
- transmitted by facsimile to the tenderers facsimile number.

Partial acceptance: Tenders may be accepted for the whole of the work or for the following specific work sections:

Formal instrument of agreement: Required.

Arrangement for return of tender documents ..

Terms of refund of tender document deposit .

Period between acceptance of tender and possession of site

Anticipated maximum period .

Practical examples
Attached are some extracts taken from a document called NATSPEC BASIC. While it
is based on civil engineering types of projects, the outlines provided are readily
applicable to engineering projects in general and give an understanding of the
processes involved.


Writing a good tender document requires a range of skills, not just language skills.
The following guidelines, taken from the same NATSPEC document, give some good
basic advice on specification writing.

Note: The list of references HAS NOT been included.

Specification Writing Techniques
The following compilation of advice from various sources has been prepared to give
guidance on techniques for writing clear, coordinated, correct and concise, and fair
and logical, building specifications.

The specification provides the textual description of the project (drawings are the
graphical description) and the definition of quality and processes (drawings define
quantity and position). It is the link between drawings and general conditions of
contract, and to standards, It is not the function of the specification to duplicate other
contract information. It should supplement or complement the drawings and general
conditions. Specification information typically includes workmanship, finishes,
standards, quality, material grades and thicknesses, tolerances, performance
requirements, and methods of fabrication and installation.

The point is that specifications are not produced as a joke. Many users have an
interest in them. But, for specifications to be used, they must be useable. On the
technical front, specifiers must be sure that items specified are capable of satisfying
project requirements, and that the latest information is sought out. This Appendix,
however, concentrates largely on editorial/contractual skills: clarity, brevity, fairness
and logic.

Be Clear
Avoid legal phraseology or highly stilted formal terms and sentences. The tendency,
even in legal drafting, is to use plain English - NATSPEC has advocated this for
years. The specification is a set of instructions from designers to constructors. If it is
to be used on site it must be understandable to non-legal users such as trades
persons and fore-persons - for many of whom English is not a first language.

The courts often interpret terms in line with common usage (i.e. normal literal
meaning), not the usage peculiar to the industry. See Dorter and Sharkey (page 11
8).

So, use ordinary words in the ordinary way - e.g. do not use dig (by hand) if you
mean excavate (by whatever method the excavator considers appropriate). Do not
use jargon. Use technical terms only if there are no equivalent everyday terms.
Several glossaries of Australian terminology are available (e.g. Milton, Standen).

Use a simple imperative (mandatory) mood wherever possible: Do this, do that. If
you consider that there may be doubt regarding to whom the imperative applies, a
clause on the following lines can be included at the beginning of the specification (not
used in NATSPEC):

Imperative mood: Verbs in the imperative mood are addressed to the contractor.
Avoid the use of redundant reference paragraphs at the start of each section. In
particular, The general conditions and preliminaries form part of this section of the
specification need not be used. The contractor is responsible for all work and must
read all documents together (as should the subcontractors).
Ambiguity
Avoid ambiguity - all users of the specification must interpret it in the same way. This
applies particularly to tenderers and parties to the contract. The best check for
grammatical ambiguity is a devils advocate review by an independent colleague.
Double or hidden meanings must be eliminated. Ambiguity accounts for around one
in eight disputes involving specifications (Nielsen and Nielsen).

The contra proferentum rule applied by the courts generally means that ambiguity
must be construed against the principal (the author of the specification). This is one
reason why consensus forms of contract, and documents like Australian Standards
and NATSPEC Reference, are to be preferred to project-specific versions, having
industry wide rather than unilateral authorship (at least in principle).

Use the same terms consistently throughout the documents. Do not use a galaxy of
words and phrases for operating instructions, such as supply and install or furnish.
Use a limited range e.g. provide, submit, supply - with each having particular
meaning and application. Do not use synonyms just to avoid boring the reader - if
you change the term you change the meaning. The drawings, too, should use the
specification keywords. This requires careful coordination.

Check for typographic errors - particularly numerical. These account for around 1.5%
of disputes involving specifications (Nielsen and Nielsen). Tables often slip from
draft to draft, and symbols transmute.

Avoid indefinite words or clauses - eg. rough, smooth etc. Similarly, do not use
colloquialisms - precision is essential.

Use should only for guidance clauses where there is no requirement for compliance
implied - neither common nor recommended in specifications. Some standards use
terms like should or might or can - these standards need to be hardened if they
are to be referred to in specifications.

Use abbreviations only if they are well known and generally accepted (such as
NATA, BCA, PVC, AS, mm, kPa, kV, kA etc.), or define them in the text. The same
applies to technical terms.

Where alternatives are acceptable, they should be indicated clearly and without
confusion e.g. Select from the following: .. Do not use any or either when a
choice is not intended.

Use Remove condemned materials ... on both sides of main entrance

not Remove any condemned materials ... on either side of main entrance.

Restrict the use of A and/or B. Instead use A or B or both.

Scope of Work
The delineation of the scope of work is the prime function of the contract documents.
Indeed scope of work may be defined as everything described in the contract
documents. However the term scope of work is often used for other concepts.
These uses, and better terms for them, include the following:
- Outline description of the works.
- Package definitions.
- Specification section content.

In multiple-prime (package) contracting or nominated subcontract contracting, an
outline description of the works for each package could be provided (e.g. in the
appendix to general conditions), although largely redundant. Inclusion of outlines in
the work sections is superfluous; it is time-consuming, and runs the risk of conflicting
with the rest of the documentation. It is little more than padding, and discourages
estimators, among others, from reading the specification properly.

Be clear about the distinction between the demarcation between consultants, the
structure of the documents and the structure of the subcontracting arrangements.
Generally, the first are the design managers responsibility, the second are the
specifiers responsibility, and the third are the contractors. They are unlikely to be
exactly congruent, nor should they be.

A common point of confusion on this point is the use of the scope of work/work
included clauses and the related work by others/associated works clauses. These
clauses clearly relate to subcontracting arrangements. It is legitimate (and essential)
for the specifier to deal with these matters in multiple-prime contract documentation
(with the assistance of the project manager) or nominated subcontract
documentation, but not in single-prime (head or trade-in-building) contract
documentation.

In single-prime contract projects, there is no work by others. Furthermore the
division of effort is up to the contractor, not the specifier. The contractor will negotiate
the extent of the work and its price, and coordinate the subcontractors - specifiers
must not interfere with the contractors right to do this. This is one reason why the
use of nominated subcontractors is not recommended - sorting out package
boundaries with the contractor and other subcontractors is very complex, and
something that specifiers are rarely competent or informed enough to undertake.

In terms of assisting readers with the structure of the documents, a contents list is a
good start. If expectations for the contents of a given section may vary, a list of cross-
references to related work described in other sections of the specification would help.
This is not the same as work by others - the related work in other sections may or
may not become a part of the work of the subcontractors using this section.

Repetition
Avoid repetition within and between the specification, drawings and other contract
documents. Dont specify what is shown on drawings, and vice versa. Conflict (a form
of ambiguity) between plans and specifications accounts for around one in eight
disputes involving specifications (Nielsen and Nielsen).

Exact duplication (rare) might imply that other items are less important. Use of
different words to amplify or clarify may instead lead to loss of clarity - if a statement
is not satisfactory it should be discarded and rewritten, not amplified elsewhere.

Repetition runs the risk of conflict - changes to the description in one place may not
be picked up elsewhere - it is possible to end up with 3 or 4 different statements on
the same topic. The contra proferentum rule will be applied here.

Repetition has the potential to cause double pricing, conflicting and inconsistent work
practices, and non-examination of significant parts of the contract documentation
(e.g. extensive notes are provided on the drawings - why read the specification?).
Contractual bills of quantities, in particular, can cause major problems arising from
repetition.

It is better to expend extra effort avoiding gaps in the project documentation than to
spend time creating overlaps.

Do not specify the same thing using a mix of proprietary, descriptive, performance or
reference specification. Conflict is bound to arise. In particular do not say Do xyz to
achieve abc - convert to either Achieve abc (performance) or Do xyz
(descriptive).

Or Equal
Dont use or equal. It is an invitation for substitution. Nielson and Nielson advise
that or equal specifications are the primary cause of around 25% of disputes
involving specifications. Or equal approved is not much of an improvement. Or
equal is rarely to be taken literally usually only a few characteristics are critical, the
rest are negotiable or unimportant. Specify the quality and performance required and
accept any product meeting these requirements; or one or more acceptable brand
names or manufacturers.

NATSPEC permits substitution where specification is by proprietary item, provided
certain conditions are met. These include approval. See also RAIA Advisory Note
ANI6.04.102.

Be Brief
A common reaction from inexperienced specifiers is: If in doubt, leave it in!

This reflects lack of confidence and creates bulky documents. Leave it out!

Using NATSPEC, for example, it is expected that half of the prompts and
reference material will not apply to a given project.

Do not make the contractor the subject of a sentence unless this is absolutely
necessary - the entire specification is addressed to the contractor (not the
subcontractor or tenderers), after all.

That is, use:
- Provide light fixtures...; not the contractor shall install light fixtures

General conditions of contract on the other hand have to distinguish between the
responsibilities of several parties.

In specifying materials, avoid shall, will, must, is to and is to be. Where such
sentence structure is unavoidable, must is preferred to shall (J ackson). Do not use
infinitives. Use:
- Provide burnt clay bricks... or
- Bricks: Burnt clay...;

not
- Bricks shall be burnt clay... (when?);
- Bricks will be burnt clay.., (when?);
- Bricks must be burnt clay...; or
- Bricks are to be burnt clay... (when?).

See also the note on imperative mood, under BE CLEAR, above.

Use streamlining, in the style of NATSPEC. It is not new - it was suggested by
Horace Peaslee FAIA as long ago as August 1939 in Pencil Points Magazine (USA).
The style relies on colons and keywords thus:
Galvanising: To AS 4680.

Do not use expressions such as all or the whole of where these are superfluous.
Use
- Use new bricks, not
- All bricks shall be new; or
- The whole of the brickwork shall be in new bricks.

Use which, who and that sparingly, if at all. The same applies to the, a or an
and, even, of e.g. Paint finishes schedule not Schedule of paint finishes.

Careless use of the or a may restrict interpretation and application of clauses,
possibly such that the strict interpretation will not be what you had in mind.

Use numerals instead of words for numbers, except where one number follows
another. Use:
- Provide 6 copies... or
- Use five 10 mm bolts...;
not
- Provide six copies... or
- Provide six (6) copies

Do not use same as a pronoun or said as an adjective. Use:
- Replace rejected materials.;
not
- If materials are rejected, the builder shall replace same; or
- Said materials shall be replaced.

Know when to stop. There is no such thing as 100% documentation but there is such
a thing as over-documentation. The more you specify, the greater the risk of error
and conflict, and the more responsibility you take. General conditions of contract
contain catch-all defaults covering a certain amount of silence in the documents - you
are not generally expected to cover everything.

The more traditional the construction, the less needs to be said, and vice versa. More
on quality needs to be said under a quality assurance regime, but less on inspections
and tests by the principal/proprietor. Avoid lengthy verbal descriptions - draw it or
schedule it instead.
The converse is under-documentation - also to be avoided. Ensure that everything
required is included somewhere in the contract documents. Being overly concise can
lead to ambiguity, so be careful.

Be Fair
Do not attempt to throw all risks and responsibility on the contractor. For example, do
not use and do all other work that may be required to complete the building, or the
contractor shall furnish and include everything necessary for the full and complete
construction of the building whether shown or specified or not shown or described.
These grandfather or murder clauses are a sign of lazy or incompetent specifying -
the specification could stop here! Specify what the other work is. These catchall
requirements may be covered in the general conditions of contract, in any case (e.g.
J CC clauses 6.01 and 6.02, AS 2124 clause 29.1), or by commonly accepted
implied terms, on which see Bennett, Chapter 6.

Avoid the use of etc or and the like. Be specific, so that a basis for pricing is
clearly set: It is better to be definite even if you are wrong; then, at least, there is firm
basis for negotiating the corrections (Rosen & Heineman).

Do not specify anything which the contract administrator or the principal does not
intend to enforce.

On risk allocation see No Dispute recommendation 1.2: Obligations and/or risks
within the control of the Principal should be borne by the Principal. Similarly
obligations and/or risks within the control of the Contractor should be borne by the
Contractor. There should be no discrepancy between the responsibility of a party
regarding an obligation and/or risk and the partys authority to control or influence
that risk This impacts in a fundamental way on approvals and inspections by the
contract administrator (leading directly to quality assurance) and on specification
terminology.

For example, avoid the use of words and phrases which are indeterminate, or
subjective, such as:
to the complete satisfaction of the contract administrator;
as the contract administrator may direct;
acceptable to the contract administrator;
in the opinion of the contract administrator; a workmanlike job;
a first class job;
sufficient; or
adequate.

These cannot be costed; the contractor cannot assess risk - they mean Guess what
I will make you do. Instead, specify objectively what is required. Some of these
terms may make the contract administrator liable for future failure so avoid using
such terms on those grounds also (again, an unfair allocation of risk). The
specification must also be fair to the principal.

Design decisions should be pro-active, carefully considered, and recorded in the
contract documentation - not reactive, ad hoc
3
and made on-site by non-design
personnel in a hurry.

3
Ad Hoc For a particular purpose only
Approvals
With the trend towards a hands-off approach to quality control, it is clear that
approvals (of workmanship, of substitutions, of contractors documents, etc.) carry
risk for the contract administrator (and hence for the principal).

The Royal Australian Institute of Architects (RAIA) shop drawings stamp (see
Advisory Note AN16.01.100 Manage Shop Drawings) recognises this, as did many
architects as far back as 1964 (Senior, page 147). The New South Wales
Department of Public Works and Service (NSW DPWS) advises specifiers to avoid
the use of terms such as to approval and to specify hold points in the preliminaries
only (i.e. not in the technical specification).

In any case, the duties and decisions of the contract administrator should not be pre-
empted by the specification - the roles of the contract administrator and principal
should be defined adequately in the general conditions.

Accordingly use:
- The contract administrator may inspect the following ; not
- The contract administrator shall inspect the following

Some standards are problematic in this regard, committing the purchaser to certain
actions, such as the provision of certain information.

Quality Assurance
Quality assurance is the hands-off approach to site activity by the
documenter/designer in lieu (largely) of traditional quality control. The specification
is vital under quality assurance. Responsibility for execution and quality lies
substantially with the contractor; the required quality must be clearly defined in the
specification for this to work - the contractor cannot rely on the contract administrator
for clarification and evaluation.

In other words, quality assurance (and common sense) requires that the specification
be specific, explicit and quantifiable (or verifiable). Do not specify for excessive
(arbitrary?) intervention and hand holding by the contract administrator - No Dispute
and quality assurance imply this should be minimised. It blurs responsibilities, and
makes it impossible to quantify risk at tender. If you dont trust a contractor, dont use
that contractor (or, if you trust the contractor you are using, eg. consider partnering).
Vetting of tenderers (e.g. to CIDA pre-qualification criteria) is a vital part of this
process.

Definitions in AS/NZS ISO 8402 (quality vocabulary) include:
quality: totality of characteristics of an entity that bear on its ability to
satisfy stated and implied needs and

specification : document stating requirements

Nevertheless, the specification will define the principals hold and witness points, and
project audits involve an element of quality control.

For contractors, as for manufacturers, compliance to AS/NZS ISO 9002 is not proof
positive of compliance to specification and standards - such compliance needs to be
demonstrated separately, through quality control, product certification schemes, etc.
Third-party product certification of the building, where the contract administrator is
the third party, is still a good idea.

Construction Methods
Consider build-ability
4
.
See No Dispute recommendation 3.8:
Consideration should be given to the appointment of a constructor in the
design and documentation process.

Build-ability (including tolerances) accounts for around 15% of disputes involving
specifications (Nielsen and Nielsen). See also Ferguson, and Adams.

However, construction methods (the means) are generally the contractors affair -
products (the ends) are the specifiers. This is implicit under quality assurance. Some
forms of contract make this explicit (e.g. J CC clause 6.03 Construction methods, and
particularly SBW-2 Clause 6. 1). -

NSW DPWS, which until recently used AS 2124, advised specifiers to avoid
specifying that the contract administrator will exercise control over temporary work,
work methods or site activities - ostensibly to minimise liability under occupational
health and safety (OH&S) legislation.

However, specifications commonly call up methods, if only by citing standards or
manufacturers recommendations. The British standards on workmanship (BS 8000
series) are an extreme example. In considering build-ability, methods of construction
may need to be spelled out for novel systems. Sequence of operations, commonly
specified, is one facet of this. Statutory requirements for OH&S may also require
consideration and specification of methods (e.,-. safe practice for roofing).

This conflict between the need to prescribe methods and the contractors right to
select appropriate methods is difficult to resolve under traditional procurement
regimes. Satisfactory resolution may require increased use of the design/construct
procurement route, with detailed documentation (including the specification) being
prepared by the contractor.

Be Logical
Arrange information so it can be easily found. Separate work into work sections and
subsections using a system with a logical search pattern, such as trades,
components and construction sequence.

Break the specification into small work sections, and standardise sequence and tides
of clauses and subclauses in each section. Arrange sentences in a logical order eg.
follow the construction sequence. Small sections help the contractor in the process of
assembly/disassembly for subcontractors; just as small NATSPEC sections will
assist specifiers.

An index is a good idea though unlikely to be comprehensive. NATSPEC Reference
provides an index for its reference specifications in book form. Use of computers
permits diligent specifiers to prepare project-specific indexes.

4
Build-ability how is something built? Who decides how something is to be constructed.
Standardise text of common clauses and subclauses.

Break long clauses into sub-clauses, paragraphs and sub-paragraphs with titles or
bullet points, in a logical hierarchy, each dealing with one item.

Provide titles for all clauses, subclauses and tables. Emphasise these for easy
reference (e.g. bold, capitals). NATSPEC uses subtitles or keywords. Refer to tables
by their title, not . . .to the table below.

For points use either lists (preferred) or expanded sentences, consistently. Lists are
set out thus:
including the following:
* This.
* This.
* This.

Expanded sentences are set out thus:
such as
* This;
* This; or
* This.

Contents
Do not include text best dealt with elsewhere. In particular:
- do not include in individual technical sections material which is, or should
be, covered in preliminaries, general conditions annexure or the general
conditions themselves eg. project description and list of drawings; lists of
selected subcontractors; inclusion of defects liability period, separable
portions, operational maintenance period; management of valuations and
discrepancies. See Bennett (page 25);

- do not duplicate material which is better described in other technical
sections e.g. trenching, painting. Conflict is created, double pricing may
result; and

- do not include matters which do not relate to the contract. Use
Submit a works program at the first site meeting; not
Submit a works program with the tender.

If the latter is required, it should be included in conditions of tendering. Other
examples are:
- tender schedules in electrical or mechanical sections,

- Allow for the inclusion of Allow the provisional sum of...;

- work by others in head contract specifications; and

- loose furniture schedules, where the contractor is only providing fixed
items.

Be logical in what is said and not said. For example:
- do not state requirements but then nullify them by a statement indicating
that a lower standard may be acceptable;

- do not state requirements and then state what will happen if they are not
met - this is for the contract administrator to resolve as circumstances
dictate; and

- do not use Take special care to... or Comply strictly with... etc. These
phrases, alone with underlining or bolding text, imply that some
specification instructions are less stringent than others.

Cross-References
Minimise cross-references between work sections and between the specification,
drawings and other contract documents. When using cross-references (e.g. where a
related item is specified in another section) refer to titles rather than numbers
because numbers are more likely to be changed during preparation of the
specification. Use:
- Comply with Boring - Service trenching not
- Comply with clause 4.13 on page 24.

Numbers (section, clause and page) are useful for navigation purposes however (eg.
over the phone).

Do not state in the specification as detailed on the drawings it may not be use a
precise cross-reference, if any. The converse also applies.

Do not use the very unhelpful phrase unless otherwise specified. The use of the
residuary legatee
5
system is a better way of ensuring, that every part of the project is
covered. For example, use:
Toilet rooms: Obscure float glass.
Entrance doors and side lights: Toughened glass.
Borrowed lights: Plate glass.
Other locations: Clear float glass.

Do not use:
Glass: Clear float glass, unless otherwise specified.

Standards
Reference accepted current standards where appropriate, e.g. for standard
components and materials, rather than:
saying little or nothing on the subject (not usually appropriate for the sort of
projects dealt with by professional specifiers);
writing your own material (time consuming, compliance may not be
economical or viable, and the specification may become very bulky); or
quoting or paraphrasing standards (out-of-context, error-prone, produces
bulky specification, plus issues of copyright).

Be careful to exclude inapplicable text (e.g. design sections), to select options, and to
override unwanted defaults in standard specifications. NATSPEC flags many
standards options in its Templates, and discusses them in its Commentary.

5
Residuary legatee the person named in a will to receive any residue left in an estate after
the bequests of specific items are made
Evaluate the scope and currency of the standard first. For example AS CA55 dates
from 1970. It is imperial and refers to other standards which have been superseded -
citing it is asking for trouble; it may be better to start from scratch.

Not using accepted standards may mean that:
BCA requirements are not met;
unacceptably low-grade imports may be used (e.g. galvanising for fasteners);
insurance requirements are not met (eg. security screen doors);
supplier confusion arises;
extra costs are incurred; and
the utility of standards is undermined.

Do not rely on a blanket instruction to comply with applicable portions of listed
standards, or to comply with all relevant standards. This is usually either inadequate
they contain options, gaps, defaults you may not like or impossible. A list of
standards does not comprise a specification.

Alternative methods of specification may be preferred, of course e.g. by proprietary
item, or reliance on manufacturers written instructions.

Redundancy
Do not inadvertently include irrelevant material - from master specifications (e.g.
instructions to specifiers, text which does not apply to the project) or from previous
project specifications. The document becomes unduly big, causes confusion, and will
embarrass the contract administrator. This sort of inclusion undermines the authority
of the document.

Do not include redundant material intentionally e.g. Comply with the Occupational
Health and Safety Act. The contractor is required, by the general conditions of
contract (or as an implied condition), to comply with applicable legislation. A partial,
possibly inappropriate, list is of little use.

Conclusion
The writing of a building specification requires, in addition to necessary technical
knowledge, a unique approach to written English and an unusual degree of skill with
the use of language.

The specification, like the drawings, has at least nine roles:
- Record of design decisions.
- Document demonstrating compliance with statutory requirements.
- Estimating document.
- Tendering document.
- Legal (contractual) document.
- Helpful on-site working document.
- Disputation.
- Project management tool.
- Facility management tool.

The specification, like the drawings, therefore has many users, from the very literate
to the worker with little command of English.

The project specification must be edited as a whole (e.g. by the architect) including
services engineering sections.

See No Dispute recommendation 3.2: A single point of responsibility should be
allocated to ensure that documentation is properly coordinated. The editing function
is also vital for the specifications readability.

Unfortunately things have not changed since 1955 when Eggleston wrote At least
half the troubles in the architectural world are due to faulty and ill-expressed
documents. Prevention is always better than cure, particularly in terms of risk
management and simple efficiency. The advent of master specifications and
computerised specifications has not removed the need for special techniques and
great care in the writing of original specifications material.

Nevertheless, the use of NATSPEC will go a long way towards adherence to the
techniques outlined.

Appendices Al & A2 are examples of an internal tendering process. One section of
PowerCor is requesting, from the estimating section, the cost of augmentation work
associated with existing plant.

The document has all the attributes of a standardised tender document. For the 2
different requirements, irrelevant sections are ignored/deleted.

Appendix A3 is a GPU PowerNet Invitation to Tender (ITT). This uses as a base
AS 4305 - Minor Works Contract Conditions.

This is mentioned on page 12 with supplementary requirements starting on page 39
(the annexure to the general conditions), supplementary conditions (SCs) starting on
page 42 with detailed schedules (6 of) starting on page 46.

Tender evaluation is considered on page 5. The drawings mentioned are not
included.

Appendix A4 uses AS 4300 - General Conditions of Contract for Design and
Construct as a base. General Conditions of Tendering start on page 5, the Tender
form is on page 22 and Conditions of Contract start on page 23 (General) and 31
(Special).

Tender evaluation and the criteria used are detailed on pp. 17 to 20.

Summary
Tender documents must encompass:
- Drawings sufficient for tendering purposes,
- Equipment and other specifications detailing the project and
- Other information to roll the whole project process in to a complete
package.

Various Australian Standards can be used as pro-formas and templates to ensure
that no element has been over-looked.
The only way to appreciate the types of documents involved is by examining,
thoroughly, the appendices and the various standards listed at the end of Section 4.
Review questions and assignment.
The material in this part of the module does not lend itself readily to questions and/or
assignments. At the end of Section 4, there will be 2 assignments for 2 projects one
small and one large.

An Overview of Australian Law
Why Study Law?
Different branches of law regulate our lives constantly, defining what is acceptable in
our society and what is not. Imagine what might happen, for example, if we did not
have laws against murder and theft. We would live in such a threatening world that
we might not be able to concentrate on running businesses, or raising families, or
whatever our personal objectives were, because we would feel threatened by lack of
legal protection in those essential areas.

In this part of the module we will be looking at Contract law because you may be
required to work on preparing tender documents or responding to tender documents.
These documents are generally legally binding documents and therefore you need to
understand their legal ramifications.

Our laws have evolved over hundreds of years, to protect the rights of individuals in
certain situations, and to allow our society to function on a smooth basis. There are
two commonly recognised major branches of law - Criminal Law and Civil Law ( of
which contract law is one part), which contain most (but not all) of the rules guiding
our society. These notes will deal with civil law, other than for one or two minor
mentions of criminal matters.

When something goes wrong legally people say But I didnt know that. I didnt mean
to do wrong - surely I shouldnt be punished by the courts. In fact, in our legal
system (and those of most other countries), it is a common rule that ignorance is no
excuse. We are legally obliged, rightly or wrongly, to make ourselves aware of each
and every law and regulation which is relevant to our situation.

Sources of Law
Australian Laws come from two broad sources: what we inherited at a time of
settlement from our legal mother country, then Great Britain, and what we have
developed since settlement either (in earlier years) by the British Parliament making
specific laws for us or through our own Parliaments (both State and Commonwealth)
making laws for our population.

When talking of a time of settlement, we do not automatically mean either the time of
Cooks first landing, or even the arrival of the First Fleet in Botany Bay. Each State
was settled at a different date, in different circumstances. For example, Victoria was
separated from the Colony of New South Wales on 1 J uly 1851 by an Act of the
British Parliament. The Victorian Parliament was created to make laws in and for
Victoria in 1855.

The effect of this beginning is that each State of Australia has a slightly different body
of inherited English Law as a base for its legal system. After settlement, only new
English laws, enacted by the mother parliament specifically for its colonies, applied to
Australia.

Over many years until the proclamation of The Australia Act
6
on 2 March 1986
the English parliament still had the legal power to make certain laws binding some of

6
Details available from: http://www.foundingdocs.gov.au/item.asp?sdID=103#significance
our actions in Australia. That power has now finally disappeared. Each State now has
its own law making body, or parliament, which can make relevant laws within its
borders, provided that they do not conflict with a power given to the Federal
Government in the Constitution which Australia accepted on its Federation in 1901.

The Constitution overlays a Commonwealth or Federal system uniformly over all of
Australia, and has power to make laws on certain defined issues or areas (such as
Defence and Foreign Affairs). The Commonwealth cannot override individual State
laws unless the Constitution has given the Commonwealth Government authority to
act in the specific area under question or the States agree. Often the Commonwealth
Government is involved, itself, in legal actions against individual States which seek to
clarify what powers each has under the Constitution.

Some issues which affect operating a business may therefore be governed by old
English Common Law (case law) decisions, and earlier Acts of the British Parliament
in London. Others may be governed by more recent decisions of Australian Courts,
or by Statute Laws passed by the Commonwealth Parliament or by a Parliament in
the State in which the business operates.

Various States also empower Local Government councils to make Regulations,
which have the force of law, on specific local issues, such as health, food processing,
and street-side advertising. These vary from council to council. Understanding this
allows us to adapt to operating a business in a multi-channel legal system.

Distinction between Common Law and Statute Law
Business Law rests strongly on principles evolved in English Courts over long
periods dating back to the famous Magna Carta, to which have been added various
specific laws or Acts of Parliament(s) which add to, delete, or clarify the old legal
principles. A rule developed in older times which still guides Courts in decision
making is known as the Doctrine of Precedent.

Not all laws could be written down, and not every situation was serious enough to
require a specific law to be enacted by a Parliament. A body of what was called
Common Law developed. Under Common Law principles, a decision of an earlier
Court in a similar case situation is binding upon all later Courts at a lower level in that
same legal system, unless changed by a higher Courts decision on a later case, or
by a Statute enacted by a Parliament with authority over that legal system

The advantage of this process is that Courts do not have to decide each situation
afresh in each case; they can either refer to earlier similar cases (so-called unwritten
law but in fact found recorded in old Common Law-books) or to an Act of a
Parliament (called Written or Enacted Law) which has authority within that legal
system.

Again, the Law in each State of Australia is different, not only because of a slightly
different base of English Law inherited on settlement but because each Parliaments
Acts are different (depending on local need). In each Australian State court system,
and in the separate Federal Court system, higher level courts also exercise an
appeal role that is, they may hear appeals from decisions of lower courts in that
system.

You cannot always appeal just because you disagree with a court decision against
you, as most appeals relate to errors of law (i.e. the lower courts application of the
law).

The Structure of Our Court System
You should become familiar with the broad court structure in your State or Country, in
case you have to take legal action against someone, or defend a claim against your
business. In both situations, we are considering civil claims (e.g. for a breach of a
contract) rather than criminal allegations (such as theft) which are heard in a
separate criminal court structure. Criminal problems are generally reported to the
police, and they (not the business) initiate appropriate legal action.

A further branch of law is the Law of Torts; that is civil wrongdoings which include
negligence, trespass, and automobile accidents amongst others. This area also
concerns business operators. These cases are heard in the civil court structure.
Note, however, that it is possible that one situation may lead to legal action being
initiated under two or more legal areas. For example, a drunk driver who hits another
vehicle may be charged with a criminal offence (drunk driving) by police, and also be
sued for damage and injury by the other vehicles owner (tort).

The State Court System
In all states, the Supreme Court sits at the top of our court hierarchy, hearing both
civil and criminal matters, except those concerning Federal Laws or those specifically
delegated (by Act of Parliament) to another court level.

Major civil claims (involving very large amounts of money linked to serious legal
issues) may be initiated at this level. In most states an action cannot commence in
the Supreme Court unless one party claims at least $100,000.

The most significant role of Supreme Courts, in all states, is to hear appeals from
decisions of lower courts within their own jurisdiction (geographical region or state).
They may also hear appeals from decisions on cases initially heard by a single judge
of the Supreme Court. When hearing appeals, a panel of judges will be present
(excluding any judge who may have previously heard the case).

Above the Supreme Court level, a final appeal may be directed to the High Court of
Australia, which rests at the top of all state and federal courts. This final right of
appeal is not automatic; the aggrieved party must first seek Leave to Appeal from the
Supreme Court in their own state, even where that Court may have (itself) previously
heard the case. This is to ensure that the High Courts time is not wasted with
frivolous matters which have already been reasonably decided.

Below the Supreme Court rest a layer of County Courts (known as District Courts in
some states) presided over by a single judge. In Victoria, the District Courts hear civil
claims of between $25,000 and $100,000.

Under that level the Magistrates Court will hear most other civil disputes, as well as
the majority of criminal matters.

Cases involving less than $5,000 between consumers and traders may be heard by
the Small Claims Tribunal, which is not part of the Victorian Court Structure. This
tribunal was created by an act of parliament in 1973 to reduce the cost of legal action
and, where possible, to assist parties rather than enforce laws. Legal practitioners
can only appear if both parties agree; and why should they if the cost is greater than
the risk?

The Tribunal is presided over by a Referee who does not need to follow strict
procedures on hearing evidence. He or she can ask questions of witnesses and act
to ensure equity between parties. However, decisions must be based on the law.
There is no appeal against a referees decision except on natural justice or
jurisdiction grounds.

Court names and the amounts of claims heard vary from State to State.

HIGH COURT OF AUSTRALIA
(Civil and criminal)
SUPREME COURT
(Panel of judges preside)
Hears appeals from lower courts and from single
judges in its own court
SUPREME COURT
(Single judge presides)

Hears criminal cases and civil
claims of a major nature
COUNTY COURT
(Single judge presides)

Hears civil claims
$25 000 to $100 000
MAGISTRATES COURT
(Magistrate presides)

Hears civil claims to $25 000
SMALL CLAIMS TRIBUNAL
(Separate from court system)
Referee presides

Hears Consumer/Trader disputes up to
$5000. no legal practitioners unless both
parties agree.
The Federal Court System.
The High Court of Australia is the highest of all Australian Courts, and was
established under Section 71 of the Australian Constitution with powers to hear
certain cases of a defined nature and other cases on appeal from both lower Federal
Courts and individual State Supreme Courts. The defined cases include matters
arising out of treaty terms between countries, matters in which the Commonwealth
Government is suing or being sued or has a legal interest, disputes between States,
and similar issues

Under the High Court exists another court structure of Federal Courts in two broad
divisions; a General Division has control over such matters as the Trade practices
Act, Bankruptcy and similar issues, and the Industrial Court structures which, recently
altered by major new laws, are a topic in themselves.

In both divisions, decisions of a single Federal judge can be appealed to a higher
level court on issues of law or new evidence. Other specialist Federal Courts exist,
most notably the Family Court which exercises control over matrimonial matters.

The Law of Torts
In business, and in other areas of life, it is not necessary to be a party to some
contractual matter, or to commit some crime, to come into conflict with legal
processes. There is another large body of law, known as Tort Law, which, deals with
wrongs done to other persons which were not necessarily intended as criminal acts
(such as assault would be). It refers also to civil wrongdoings other than those
included in contractual law rules, generally by way of unreasonable behaviour.

The word tort is derived from a Latin word tortus meaning twisted. Commonly
recognised examples of torts include:

Trespass upon land or misuse of someone elses goods.

Committing acts of nuisance; for example making noise which interferes with
neighbour quiet use of their property.

Negligence in providing a reasonable standard of care or product which may
then lead to harm to some other person. (This could be as simple as food
poisoning in a restaurant, or as complicated as a defect in manufactured
goods which might injure some user long after purchase.)

There are many other less significant (from a business view) torts, but we will
concentrate our attention mainly to those above. We should understand that the
general remedy for a breach of a tort duty is by award of damages to the injured
party.

The Court will establish an appropriate level of damages by considering such matters
as degree of intention or lack of care of the wrongdoer, actual loss suffered and the
need to discourage acts which may cause ongoing loss. Courts do not, however,
seek to absolutely minimise all potential risk that is, they recognise that to totally
remove risk in life is either going to be extremely expensive for society or even
impossible. The question often arises, What should be a reasonable standard of
care or behaviour to ones fellows in that situation and in todays society?

The action brought for tort may well survive the death of the injured party. In some
situations a wife may sue for loss caused by the death of a husband or vice versa,
brought about by an act of tort. Also after death, the executor of the dead persons
estate may take action on behalf of that estate.

Trespass
Trespass not only includes walking upon someones land, but also misuse of their
goods or property. Driving your delivery truck over someone elses land to drop oft
goods to a client may bring a claim; in reality the claimant must be able to
demonstrate actual loss or interference with their quiet enjoyment of the land.

There have been some interesting situations in which suppliers have cut fences to
drive through private property to deliver goods to building sites. This is most unwise
without the property owners prior permission. The supplier may be responsible for
loss of stock while the fence was cut, for damage to soil surfaces, and for interfering
with the owners intended use of the land on that day.

A future growth area of trespass may well include misuse of someones computer
together with its content software and files. Some States, notably Victoria, are
addressing this form of trespass by separate statute laws, to overcome difficulties in
proving actual damage or loss. This illustrates the sometimes blurred boundary
between some torts and criminal acts.

Generally the criminal prosecution is brought by the State, whereas the tort action will
be brought to court by the injured party. The offender may then be convicted of a
crime (e.g. misuse of computer files under a statute) and suffer a legal penalty such
as a fine or jail, and subsequently also be sued for damages by the owner.

A common sign which is incorrect at law is Trespassers Prosecuted. Prosecution is
a term reserved for an action brought about for some criminal breach, whereas
trespass generally is a civil wrongdoing against the property owner. The civil owner
can sue for damages under tort, but not prosecute. A more correct notice might
perhaps say Legal remedies will be taken against trespassers. Obviously this is a
little too long.

The fact that someone is on your land without permission does not in itself excuse
you from liability for injury caused to the trespasser. You cannot set up dangerous
traps or leave hazardous situations which might injure trespassers even though they
are on your property without permission. You may be liable in some situations for
physical injury caused by guard dogs (even if supplied by some outside agency to
you). It is essential that such dogs be trained to detain but not physically injure
trespassers.

You may also be liable for injury caused by dangerous equipment or chemicals left
unattended, as your negligence (see later) is not excused by the act of trespass. This
is particularly so when dealing with trespass by younger persons who may not have
an adults understanding of the meaning of trespass and who may wander into
locked properties by routes not considered by adults.

Remember that you can only use reasonable physical force to protect yourself or
your property from trespassers, and must immediately desist from using such force
when the threat to your property ceases. Firing a shotgun at a trespasser will
probably bring you a criminal prosecution for assault or worse, against which the
relatively minor matter of trespass will not be a reasonable defence.

Acts of Nuisance
If operating in a manufacturing business, which may be prone to be noisy or to have
large trucks regularly delivering and picking up goods, care needs to be taken not to
intrude upon the reasonable access and quiet enjoyment of nearby neighbours.
Other common business complaints include depositing rubbish on other properties
(whether accidentally or not), and blocking entrances to other buildings. In fact any
unreasonable level of noise or traffic, or other act which causes discomfort to other
persons or properties, may lead to an action for damages and a court order stopping
continuation of the nuisance.

Sometimes small business operators handle direct complaints very badly. A
complainant is likely to be upset or angry by the time they contact the offending
business, and it is easy to overreact to their somewhat aggressive attitude. You can
defuse such a situation (and save yourself a legal action) by apologising immediately,
and doing your best to correct the nuisance situation quickly. Remember that if you
dont, a court probably will find in favour of the complainant later and your delays may
only increase the level of damages awarded against you.

Negligence
Actions for negligence are another potential growth area of legal cost for small
business operators. Overseas, particularly in the United States, some incredible
awards are being made to persons injured by use of a manufacturers goods, or by
some lack of care proven against a business. In Australia (at the time of writing this
publication), the Australian Law Reform Commission is researching the need for new
product liability laws which may strengthen Common Law remedies against negligent
suppliers and manufacturers.

Traditionally the Law has recognised a fundamental duty of consideration and care
owed by all persons to their fellow human beings. Negligence is defined broadly as a
failure to meet that duty, either by omission of some reasonable act or by heedless or
careless conduct. There are three elements in proving negligence:

Duty of Care - showing that in a particular situation one person should in fact
have provided some standard of consideration for the risk to others.

Standard of Care - the Law requires conformity with established standards
for protection against unreasonable risk.

Level of Damage - that damage which is directly resulting from or contributed
to by the negligent act. It must be a foreseeable outcome of breach of the
standard of care.

The Concept of Duty of Care.
The key to this duty is the question To whom do I owe a duty of care? Broadly the
answer is that a duty of care is owed to avoid all acts or failures to act which might
result in injury or loss to any person reasonably foreseeable as likely to suffer from
my failure.

More simply put, we all owe a duty of care to anyone who might us our products or
services, even if they were not the actual purchaser. Other recognised duties of care
include professional relationships between accountants and clients (or similar),
between employers and employees for job safety, and between occupiers of land
and buildings and visitors (including uninvited persons). We cannot escape results of
a breach in that duty by failure to recognise beforehand who may be injured in the
future.

The Concept of Standard of Care
The general standard applied to cases is What would an ordinary prudent and
reasonable person observe and require in a particular situation? The problem with
this definition is that public expectations change over time, generally towards
expecting higher levels of care.

Factors which may be considered include the degree of inherent risk, the opportunity
for the defendant to have acted to reduce risk beforehand, and the seriousness of
outcomes.

The standard of care which a manufacturer may believe to be reasonable is likely to
be far less than that expected by the independent observer who is not likely to be in
business for him or herself. Broad obligations may be placed upon any firm making
or distributing products to test those products extensively before commercial release
and to ensure lack of risk in all normal (and to some degree excessive or more than
normal) usage.

Level of Damage
There must be a reasonable linkage between damages claimed and the negligence
which is the claimed cause. This linkage does, however, include loss to third parties
who may have not directly used a product. For example, a faulty car which crashes
may lead to claims not only by the driver but by owners of property damaged in the
crash. Also, loss of a husband through an industrial accident may give grounds for a
claim by wife and dependent children.

The situation in common law can be confused by the issue of contributory
negligence. This occurs when either the injured party or some third party partially
caused the event which led to loss.

Throughout Australia, statute laws now spell out liability mechanisms in such
situations. In Victoria the Wrongs Act (1958) provides that contributory negligence
shall not excuse the defendants original negligence, but may be taken into
consideration by way of reducing total damages awarded.

In Summary of Torts.
The above comments are only a brief overview of a few of the more common areas
of claim. The area of Tort is complex; if in doubt consult a lawyer.

The best defence is to be guided by the Golden Rule; think of others welfare and act
to avoid risk before a claim arises.
Contract Law
Types of Contracts.
Each day millions of Australians enter into many individual legally binding contracts,
each with obligations and benefits, often without realising that they have brought
about a legally enforceable relationship. As examples, if you get on a bus to go to the
city, you pay a fare and get a ticket. This forms a legally enforceable contract. If you
go into a coffee shop to buy some lunch and dont pay on the way out, you have
breached a legally binding contractual arrangement.

Similarly, every time a business buys, or sells, or orders, or hires staff, or leases,
(and many other situations) it is entering into legally binding contracts with other
parties. In fact, it is impossible to do business without forming contracts. A common
misunderstanding is that contracts have to be in writing to be enforceable; this is
wrong.

Contracts may be verbal (spoken agreement), fully in writing (a document spelling
out all terms and signed by all parties), evidenced in writing (a bus ticket is evidence
of existence of a contract for that bus ride), or even implied to exist by the actions of
the parties involved.

Contracts can be divided into two groups - simple contracts and formal contracts. A
common misunderstanding is that simple contracts are those not in writing, whereas
formal contracts mean all written contracts. In law, many terms that we take for
granted have a different meaning.

A simple contract is any contract involving an exchange between parties. For
example, when you get on the bus, you exchange cash for a promise of a ride to your
destination. A contract in which both parties have spelt out all the terms in writing is
still a simple contract. The term formal is used to describe a class of contracts in
which there is no two-way exchange (called consideration).

For example, a gratuitous promise (gift). In this situation the contract cannot be
enforced unless it is written in a special form and witnessed in a special manner so
as to show the person making the promise meant it to be enforceable against them,
even though they got nothing in return.

Apart from this, very few contracts have to be in writing to be legally enforceable.
Those that do are usually required as the result of a statutory requirement. They
include:
- Bills of exchange
- Assignments of Copyright
- Transfers of shares
- Marine insurance contracts
- Contracts of Guarantee
- Acknowledgments of debts otherwise barred by statute
- Most contracts involving sale or lease of real estate
- Indentures of apprenticeship (apprenticeship agreements)
- Certain arbitrated industrial agreements.

It is wise, however, that if you are a party to a contract which involves a lot of money,
or is ongoing for more than a few months ahead, to make sure that you do put all
details in writing and get all parties to agree that the written document is a correct
record of what is to happen. All should sign the document, if possible in front of
independent witnesses. A lawyer can help

Elements of a Contract

To be enforceable, every simple contract must demonstrate six separate elements,
and the absence or failure of any single element may invalidate the whole contractual
arrangement. These elements are shown in the box below.

Law students (and that now includes you) often learn the phrase:

If Only France Could Grow Lemons

the first letter of each word gives the first letter of one of the essential elements.

Another common learning aid is FROLIC; i.e. Form, Reality of consent, Offer and
acceptance, Legality of objects, Intention to be bound, and Capacity of parties to
enter into a contract.

Try to learn the elements by use of one of those learning aids.

Intention

Offer and acceptance

Form or consideration

Elements of an Enforceable
Contract

Capacity

Genuine consent

Legality of objectives
ELEMENTS OF AN ENFORCEABLE CONTRACT

Intention to create a legally binding relationship.
Offer and acceptance of offer.
Form of contract, or existence of consideration exchange.
Capacity of all parties to enter a contract must be checked.
Genuine consent to terms must exist, rather than have been
forced.
Legality, i.e. the objective of the contract cannot be in breach of
any law or statute.
We shall talk about each of those elements in more detail later. There are some other
terms used to describe contracts with which we must become familiar. These are
said to describe classes of contracts, for example:

The First Element: Intention to Create Legal Relationship
Intention to enter into a legally binding relationship is essential in a valid contract.
This does not mean, however, that we have to consciously say I wish to enter into a
legal contract when we, for instance, buy our lunch, get onto a bus, or whatever. In
most cases it is inferred by a court from the nature of peoples behaviour. As was
stated before, many common actions occurring every day are in fact automatically
contracts. In fact, intent generally exists where two (or more) persons enter into any
agreement involving an exchange of value, e.g. money for goods, a promise of future
action in return for a promise to pay, etc.

The Second Element: Offer and Acceptance
For a contract to be valid, an offer (containing details of all proposed terms) must be
made by one party to, and be received by, the other party. Then the recipient must
accept that offer in total, without amendment or addition, and communicate that
acceptance back to the offeror in a reasonable time and manner.

The above sounds simple, and yet confusion can easily occur. There are some rules
which test whether or not a valid offer has been made, and whether or not a valid
acceptance has taken place. These include:
1. The offer may be made to one or several persons, but can only be accepted
by person(s) to whom it was directed.

2. The offer must be communicated to tie transmitted to, and brought to the
attention of the intended recipient (the offeree).

Classification by Performance

An executed contract is one in which all parties have done what they
promised to do; the contract is complete.
Classification by Validity

A void contract is one that for reason of defect in one or more essential
elements may have no legal effect.

A voidable contract is one which can be set aside at option of one of
the parties, often because of a problem caused by the other.

An unenforceable contract is an otherwise valid contract which cannot
be enforced in court because of some legal defect.

An illegal contract is one in which the objectives are illegal; it is also
void.
3. All terms or conditions must be communicated at the same time, unless it is
common business practice in a particular situation to assume that you both
accept that certain standard conditions are implied. But beware - courts tend
to go against this assumption where offerors try to enforce such terms against
offerees with whom they have not dealt beforehand in similar situations. It is
safer to advise all conditions clearly.

4. The offer can include a requirement that acceptance be made in a particular
way, or by a particular time. The offeree must follow all instructions in the
offer to form a valid acceptance.

5. An offer can be withdrawn (revoked) at any time up until such time as it has
been accepted. It cannot be withdrawn after acceptance unless the offeree
(or recipient) agrees. Similarly once accepted, that acceptance cannot be
withdrawn by the offeree without the offerers agreement.

6. An offer may lapse if not accepted within some time stated within the offer, or
within a reasonable time. What is reasonable will depend on a courts view of
the situation.

7. An offer lapses if any form of counter-offer is made.
As an example, assume that I offer to sell you my MGB car for $5,000
(lets be ridiculous) and you suggest $4,500 which I reject. You are
then unable to accept my original price because my offer at that price
has now lapsed. It is only available to you if I make a new offer t o sell
at $5,000. In other words, if you wish to haggle about prices or terms,
you run the risk of losing the original offer completely.

8. An offer may also lapse if either party (offeror or offeree) dies before
acceptance occurs, or loses what is termed legal capacity to contract.
Capacity is discussed in detail later. Once the offer has been accepted,
however, death or loss of capacity does not end contractual obligations
automatically.

9. Acceptance must be communicated back to the offeror, either by the method
stated in the offer, or if not stated then preferably by the same means by
which the offer was made. It is possible however, for the offeror to dispense
with the need for formal acceptance, by saying (for example) if you wish to
accept my offer, you may do so by acting in a certain manner instead of
directly telling me. The action may imply acceptance.

10. A person can only accept an offer if they are aware of its existence. This may
sound obvious, but as an example you cannot claim a reward advertised for
return of someones pet if you did not know about that reward before you
found and returned the pet.

11. Offers communicated by post may be accepted by post, unless another form
of acceptance is stipulated. A postal offer is not considered communicated,
however, until it is actually opened and read by the recipient. In contrast,
acceptance is deemed to have been received by the offeror at the instant that
the letter of acceptance is correctly placed into a public mail box.

12. If an offer is made by post, revocation is not effective unless it also reaches
the offeree before that person mails their acceptance.
The Third Element: Form or Consideration
Contractual promises are not enforceable if not supported by consideration or (in
absence of acceptable consideration) if not in a particular term. What do we mean by
consideration? And what is an acceptable form, if consideration is missing?

Consideration is what you get in return for your promise. Imagine the unlikely sale of
my MGB for $5,000, mentioned previously. I offer or promise you the car, for the
consideration (or return to me) of $5,000. In contrast, if I said I shall give you my car
for nothing, the contract lacks consideration for a return of something to me) and
would therefore be unenforceable against me.

It is possible to make such a promise legally enforceable; by putting it into a form
which the courts accept as meaning that the promisor really meant to be
contractually bound even though she or he got nothing in return. These are
sometimes referred to as Contracts Under Seal, or as Deeds or Specialty Contracts.
The important aspect of these contracts under seal is that they are binding because
of the unique form alone, despite any lack of consideration.

Some contracts must be made under seal to be enforceable. These include:
1. Certain contracts entered into by Companies (as defined within the Articles of
the Company in question). This is beyond the scope of this topic, but is
usually included in Company Law.

2. Appointing an agent who is given Power of Attorney. As general advice,
never give someone such a power over your property without good
independent legal advice. Gratuitous promises, i.e. a promise given for
which there is no expectation of consideration in return.

3. Certain leases and transfers of ownership of land.

4. Certain contracts relating to transfer of interests in ownership of shipping.

5. Contracts made under seal are enforceable up to 15 years from their
initiation.

6. Simple contracts, in contrast, are enforceable generally for 6 years, and must
have consideration evident.

Essential Rules of Consideration
1 Consideration must have some recognisable value. Courts, however,
are not concerned that the value is adequate-that is up to the
negotiating skills of the parties involved. For example if you sold your
Rolls Royce for one dollar that may be sufficient consideration to bind
the agreement, but would show poor negotiating skills. The
consideration given must be lawful.

For example an offer to pay $10,000 for the murder of someone else
would involve unlawful consideration in return for the money. The
murderer could not successfully sue for payment if not received - they
may have to resort to other collection remedies.

2 The consideration must be definite, i.e. capable of clear interpretation
and not vague. Consideration must be possible of performance, i.e.
not something totally impossible to do. If I said I shall pay you
$100,000 to walk to the moon unaided by any device, currently the
requested consideration would be impossible to perform.

3 Consideration must be Present or Future but not Past or something
already promised beforehand. As an example, imagine that you offer
someone $100 to remove rubbish from your property, and they
accept. Later you promise them an additional $25 to finish the same
job, which they have not fully completed. You would be liable to pay
only the first $100. Why? Because they gave you nothing new (above
what they had already promised) in return for your additional offer of
$25.

4 Consideration can include a promise not to do something, as much as
a promise to do something.

The Fourth Element: Capacity to Consent
Not everyone has unlimited ability to enter into contracts. Certain classes of persons
may have restrictions placed, by law, on the extent to which they can bind
themselves. It is essential that you be aware of potential restrictions, because if you
enter into a contract with someone whose capacity is limited you take the risk of loss
on the defective contract.

The list of persons with restricted capacity includes:
1. Aliens (at time of conflict);

2. Minors under 18 years;

3. Incorporated bodies such as companies (which are viewed in law as if human
beings). (NB: Most trading companies now have unlimited contractual
capacity.)

4. Persons with diminished mental ability (including drunks);

5. Married persons in regard to a spouses property or credit;

6. Undischarged bankrupts and

7. Convicted felons during their imprisonment.

We will discuss each in turn.

1. Aliens are persons who are not Australian citizens. There is no restriction
upon these persons general ability to contract, but should a military conflict
develop between our country and theirs, the Commonwealth government may
act to intern any aliens in Australia, or to otherwise restrict their ability to
enter into new contracts or to enforce existing contracts. The government also
may act to restrict trading with enemy aliens overseas, which may bar existing
contracts from operating.

2. Minors are those persons under 18 years of age. A minor can enter into valid
contracts for what are referred to as necessaries, i.e. necessities of life
relevant to the minors needs and station in life. Thus, contracts for basic food
and clothing are enforceable against the minor who entered into them.
Contracts for luxury items may not be enforceable, however, unless the minor
normally lives in such a state of luxury that they become essential to maintain
that station in life.

Another class of contracts that may be enforced against a minor who is a
party to them are contracts of beneficial service. These are contracts which
are designed to benefit the minor, such as apprenticeships or (believe it or
not) joining the armed forces.

All other contracts into which the minor has entered may be unenforceable
against them. In most States, these form two classes:
those which are voidable; i.e. binding if not repudiated tie rejected) by
the minor on attaining 18 years of age;

those which are void; i.e. not binding unless ratified (re-accepted) by the
minor on reaching 18 years of age.

Under Common Law rules, a minor who acts to avoid obligations under a
contract solely on grounds of minority could not recover any money or other
goods of value paid if she/he has had some benefit from the contract. This
has been modified in some States by Statute Laws.. For example, in South
Australia the 1979 Miners Contracts (Miscellaneous Provisions) Act states
that the courts may order return of such money or property to the minor even
if the minor has received some other benefit from the contract. This is not the
case in Victoria.

Although minors can become partners within a business partnership (with
adults as partners), it is most unwise for the adult partners to agree to form
any such partnership. The adult partner may become liable for all debts
incurred by the partnership, if it becomes insolvent. The adult can insist, in
that situation, that all assets of the partnership are applied to partnership
debts, and that nothing is paid to the minor until all debts are finalised from
assets. The minors personal assets are also generally difficult to seize by
creditors, if the minor revokes the partnership contract.

Remember, it is not the adult contracting with the minor who can refuse to be
bound by the terms of the contract, it is the minor only. The adult has the
responsibility of checking the age of a person who may be a minor. If they are
a minor, the adult must take the risk of loss having accepted a contractual
situation.

3. Corporations - as mentioned in our earlier introduction to contracts, some
corporations may have limitations place upon either their ability to undertake
some types of transactions, or their method of entering into valid contracts, by
formal corporate documents known as Memorandums and Articles of
Association.

In earlier times, they could seek to avoid contractual liabilities by simply
claiming that a technicality of their internal contractual process had not been
complied with, or that the object of the contract was something which the
company was not empowered legally to do. Since the introduction of uniform
companies legislation early in the eighties, this escape (called Ultra Vires) has
been largely removed.
It may be wise, if a small business is contracting with a large company for a
major amount or important matter, to seek advice as to whether the company
must execute formal documents in some specific way mentioned in its
Memorandum or Articles. If so, ensure that the company follows the process.

4. Persons of Diminished Mental Ability include such groups as lunatics, drunks,
and mentally infirm older persons. If a small business contracts with a person
in one, of these categories, the small business operator must be able to prove
either that the contract was for necessaries essential for the other partys
state in life, or that the other party knew clearly what they were doing (i.e.
what is called a lucid period). If this cannot be proven, the contract may be
set aside (ie. voidable) by the court, and any payment made by the person of
unsound mind may be ordered to be returned.

5. Married Persons in earlier times may have had lesser individual legal ability to
contract on their own behalves (particularly females). Nowadays, both parties
to a marriage retain their individual rights to enter into contracts, but they do
not automatically have a right to bind their marital partners by their individual
actions. Neither is automatically responsible for the others debts.

Only in situations where (for example) a wife might be understood to be
buying something essential for the familys existence, with the implicit
agreement of the husband, might the wife be able to pledge the husbands
credit (or vice versa). This can, in practice, be difficult to prove. Note too, that
this applies to persons apparently married as well. Generally, the law is
moving to the position that the person who incurred the debt is basically
responsible for payment.

Small businesses are wise not to accept assurances that My husband (or
wife) will pay without checking personally with the other party. Once a
marriage has broken up, the other partner may be liable for part of the costs
of necessaries essential to maintain children, but not to maintain the spouse
(other than amounts which the Family Court may order paid). When in doubt,
remember Cash is better than credit.

6. Undischarged Bankrupts are persons, who have owed money and have not
paid those debts, so have been made bankrupt by a Court (see later). For a
defined period, usually three years, they cannot enter into new contracts for
over $500 per contract, without first advising the other party to the contract
that they are in fact an undischarged bankrupt. If they fail to do this, they will
be punished under provisions of Bankruptcy Laws.

They are also restricted in holding company director positions and the like, If
you are negotiating a contract, and the other party admits to being an
undischarged bankrupt, you are wise not to continue further. If you do you will
take the risk of not being paid for whatever you deliver as your part of the
agreement.

7. Convicted Felons are persons convicted of a serious offence, usually of a
criminal nature, and who are serving a term in jail. During that term, they may
have restricted capacity to enter into new contracts, or to enforce any rights
under existing contracts. This varies from State to State.

If you become aware that the other party is in fact negotiating from a prison,
stop! Seek immediate legal advice about your rights.
The Fifth Element: Genuine Consent to the Contract
There are a number of situations in which Courts may believe that one or both parties
to a contract did not genuinely or freely reach agreement to contract. These include
mistakes of fact, situations involving misrepresentation, duress due to use of force) or
situations involving undue influence. In most situations, lack of genuine consent on
some common basis will mean that the contract may be void and unenforceable.
This is, however, a difficult area of law to interpret, and you should seek legal advice
if a conflict occurs.

If the parties have made what is termed a Common Mistake, the contract may be
set aside. The term Common Mistake has a specific legal meaning. As an example,
imagine a situation where two people contract, one to sell and the other to buy, a
load of goods which they believe to be already on an aircraft between J apan and
Australia. Unknown to either, the aircraft has unfortunately crashed beforehand with
the loss of all cargo. They are both mistaken, in common, in the belief that the goods
actually exist at the time that they reached their agreement. The contract cannot be
enforced, either by the seller or by the buyer.

A Mutual Mistake is a situation in which both parties are mistaken, but in different
ways. For example, imagine that one person believes she is selling a 1956
Goggomobile car, and the other believes that he is being sold a 1955 car. The car
turns out to be a 1957 car. Both have been mistaken, but in different ways. No
contract can be enforced in this situation.

A Unilateral Mistake is a situation where one party is mistaken about some part of
the contract, and the other knew of that mistake but sought to take advantage. No
contract can be enforced in this situation, by the party who knew of the mistake.

It is also possible for someone to be mistaken about the nature of a contractual
document that they sign. This usually does not excuse their obligations under terms
in the document, as they should have taken reasonable care (in the view of courts) to
understand what was included. Only in cases where someone cannot read and relies
entirely on the advice of another person, who grossly and deliberately misinterprets
the nature of the contract, will the innocent party be able to avoid the impact of what
they have signed. If the nature of the document is only partly misrepresented, they
may be bound by the contract. This seems harsh, but it is up to all of us to take the
time--or seek advice-before we sign contractual papers.

Misrepresentation may be deliberate (eg. fraud) or innocent (ie. a genuinely held
but mistaken belief). Under Common Law, in most States, Innocent
Misrepresentation means that the contract might be rescinded at the option of the
innocent party, but damages could not be claimed for loss.

This has been changed in South Australia, by the Misrepresentation Act (1971),
which allows damages to be sought and gained in Court. The Act also allows the
contract to be rescinded, i.e. totally set aside, if the Court feels that this is best.
Other states have not gone so far. In all other States people may be able to rely on
an overall ban on misleading or deceptive conduct contained in the Federal Trade
Practices Act (1974). Similar provisions are contained in the Victorian Fair Trading
Act (I 985).

Fraudulent Misrepresentation renders a contract voidable at option of the innocent
party, who could alternatively decide to keep the benefits of the contract and sue for
amounts lost on the poor parts. Fraud (if proven) is also a tort or civil wrong, which
entitles the victim to damages. It is, however, often technically difficult to prove,
despite advice to the contrary in many television dramas! Seek legal advice in this
situation.

The Sixth Element: Legality of Objects
Generally, if one or both of the parties is mistaken as to the correct meaning of a
particular law which affects the nature of the contract, their mistake will not cancel out
any obligations under that contract when it is discovered later. Only if the law bans
that type of contract (or some element of it) may the person be able to avoid
continuing their obligations. This is discussed later.

Illegal contracts are considered void, and will not be enforced (in part or total) by a
court. These include contracts to commit crimes or torts, agreements which hinder
justice, or which are contrary to public moral standards, certain agreements to
discourage marriage agreements to illegally avoid paying taxes (as distinct from good
taxation practice and planning) and contracts which are unreasonable restraints of
trade. The last of these needs more consideration, as it may occur in business.

Restraint of trade not only refers to agreements to reduce competition (which are
barred by the Trade Practices Act), but also to clauses inserted by employers into
employment agreements which seek to stop an employee competing or working for
competitors on leaving. Such clauses have far less effect since the 1979 Victorian
case, Drake Personnel Ltd vs Beddison.

Two exceptions are restrained by the courts:
Firstly, they will usually stop ex-employees from directly approaching an
employers customers (but not from advertising at large to them or from
approaches which the customer initiates).

Secondly, they will offer some degree of protection to the employer against
use of genuine trade secrets (for specialised processes) by the ex-employee
in a new job. Other than in those situations, courts take the realistic view that
it is not in the public interest to let an employee agree to contract themselves
out of future jobs.

Another related situation often occurs when businesses are bought with restraint
clauses inserted which attempt to stop the seller from starting a new business in
competition. The value of these clauses is also falling overtime. Courts will only
enforce what is reasonable, and will put public interest leg not paying the dole to
someone who is skilled and willing to work) ahead of the purchasers. Any such
restraint must be kept to a small geographic area, be for a short period of time, and
relate directly to the actual past nature of the business tie not similar activities) if it is
to have any chance of enforcement.

The additional consideration paid, for a period of restraint, should be adequate to
compensate for loss of employment; preferably it should be indicated separately in
the total contract price.

In all of these situations, the party seeking to enforce the restraint must prove it is
reasonable.

Contracts may also be illegal due to duress (threat of force, or similar, to yourself or
a member of your immediate family, but not to your property, or distant family); or
undue influence of the pressure brought to bear by parent over child, doctor over
patient, or similar). In these situations, the oppressed person should act quickly,
when the pressure is removed, to reject the contract. The person in a position of
undue influence, who is said to have used duress, must then prove to the courts
satisfaction that their actions were not of that type if they wish the contract to be
enforceable.

In general, the effect of illegality is that the contract is void, and with few limited
exceptions any money paid is irrecoverable. In some situations, the court may feel it
is possible to sever an illegal part from the rest of the contract, if a meaningful
remainder is left which can still operate.

Discharge of Contract and Dealing with Breaches

Obviously most contracts are happily concluded by the parties involved performing
their obligations to each other without disagreement. Appropriately, this is called
Discharge by Performance.

Another situation which may occur is when both parties to a contract have some part
of their individual obligations left to perform, but decide together to call a halt to the
matter. In other words, they may be said to forgive each other the balance of the
others duties. This is Discharge by Mutual Agreement. It is also possible that one
party has completed all of their obligations, but the other party is unable to do so. The
first party can forgive the other the balance of their promised consideration, but that
forgiveness will not cancel out the obligation to perform the original promise unless
put in the form of a promise under seal. Sometimes a contract may be brought to an
untimely halt by Operation of the Law.

As examples, if one party becomes bankrupt, it is possible for the Court- appointed
Trustee in Bankruptcy to rescind (or cancel) certain contracts. Also, a contract which
was legal at time of formation may become technically illegal by later introduction of a
new law. As an example, a contract to build a new tourist resort is valid until the
Government enacts a law banning that type of development in the specified area.

Another possible ending is by Frustration. This occurs when some external event
intrudes which makes continuation of the contract impossible due to no foreseeable
fault of the parties. It does not include normal commercial loss which might have
been foreseeable as a reasonable possibility of happening.

Performance

Mutual agreement

Operation of law Discharge of Contract

Frustration

Breach
As examples of frustration; first, if a contract involves a performance by a rock singer,
but she becomes extremely ill and cannot perform, the contract will be frustrated.
Second, if the concert hall in which the singer was to perform burned down
beforehand, with no suitable alternative agreed then the contract may be frustrated.
The most important aspect of frustration is that it must be an unforeseeable external
event, and not happening as a result of some act, omission to act, or otherwise of
any party.

There are other situations in which a contract may be brought to an end, with some
part still unfinished. Usually (but not always) this may mean that one party (at least)
is left unsatisfied, and with possible grounds for legal action.

Lets consider these situations.

Where one party refuses to perform their obligation, the contract is terminated by
Breach. In this situation the innocent party has the opportunity to treat the contract
as concluded and sue for damages for the unperformed portion. Alternatively, the
party not in default may refuse to perform any unfinished part of their own obligation,
use the problem as a defence if sued by the defaulting party for part payment or
otherwise, and seek to recover any money paid to the defaulter if there has been a
total lack of consideration (see earlier).

Another remedy is to seek an order for specific performance, if the unfinished part of
the contract involves transfer of promised property or goods. In some cases it may
also be possible to sue for damages as a result of the breach. In deciding damages,
courts will generally consider actual proven losses rather than penalty or punitive
damages. You should consult your lawyer as each case will depend on the wording
and circumstances of the contract.

When a contractual dispute involves one party giving some sort of personal service
(eg. a contract between a footballer and a team), it will be unlikely that the court
would order the person giving that service (ie. the footballer) to continue (ie. playing
for that team) if the person was unwilling to do so. A more appropriate remedy might
be payment of damages to the club which had suffered loss by the players refusal to
continue.

The breach, in itself, does not automatically discharge the contract. Beware of
refusing to perform your own contractual obligations without legal advice - you may
be the one who is sued.

Other Contractual Matters
1. Conditions or Warranties in law.
These two terms may mean something a little different to what is normally
understood. A condition is some term or aspect of the contract which is said
to go to the very heart of the contractual agreement. In contrast, a warranty
is some aspect of the contracted matter which is not central to the entire
contract but is more of a minor issue.

As an example, imagine that you are running a small hardware store, and a
customer comes in to order five tins of paint, to be delivered by the following
Saturday. You deliver on Sunday morning. Is the customer entitled to reject
the goods? To answer this question, we must try to decide if the delivery day
was the most important thing in the contract-even more important than getting
the paint from your outlet. Would they have accepted the deal if you had said
Sorry, I cant deliver until Sunday? If yes, then the delivery day was a
secondary warranty to the object of getting the paint (the condition). If no; the
delivery date was central to the deal and is the condition at the heart of the
contract.

Why is this important? A breach of a condition entitles the other party to treat
the whole contract as void, and to sue for damages for losses incurred. A
breach of some warranty term, however, only entities the other party to sue
for damages, and not to end the rest of the contract.

2. Exclusion Clauses
Some businesses try to avoid future liability on contracts by either putting up
signs near counters saying No Liability Accepted or printing similar
messages on their receipts or documents which might be passed to
customers. These will only be effective if the rules below are followed:
1. The notice must be clearly visible (or be drawn to the notice of the
customer) before the contract is concluded.
2. If the customer has not used the shops service before (or services of
similar shops which normally have similar exclusion clauses) then the
clause may not be an effective defence against claims.
3. No exclusion clause can be an effective defence in cases of
negligence said to be going to the heart of the contract matter, unless
fully disclosed and communicated beforehand, and agreed to in
writing by all parties.

Use of such clauses may also be in breach of various State laws, if it is seen
to infer loss of some statutory right to redress (eg. rights of consumers under
the Trade Practices Act to return faulty goods).

Summary of Contract Law

CONTRACT
A contract is an agreement between
two or more parties whereby legal
obligations are created which the law
will enforce.
SIMPLE
Must have consideration

Some must be in writing
Some must be evidenced in
writing
The majority can be either
written or oral
FORMAL
May lack consideration

All must be in writing, under
seal and witnessed to be
enforceable
1. Intention to create a legal relationship
2. Offer and acceptance
3. Form or consideration
4. Genuine consent
5. Legality of objects
DISCHARGE OF CONTRACT
Performance
Mutual agreement
Operation of law
Frustration
Breach
And requires six elements
It is either
Review Questions
1. Distinguish briefly between Common and Statute Law.

2. Which court would hear the following cases?
(a) A contractual claim for $4,500 by a consumer against a trader.
(b) A contractual claim for $65,000.
(c) A damages claim for $125.000.

3. If a person is hurt while trespassing on your property, you are not liable.

True or False?

4. You may use reasonable physical force to protect yourself and your property
from trespassers.

True or False?

5. You could sue a neighbouring business for excessive noise or disruption to
your business.

True or False?

6. If your product causes injury or loss to a person, not necessarily the
purchaser, you may be liable.

True or False?

7. What does the phrase If Only France Could Grow Lemons mean?

8. What is the difference between an executed contract and an executory
contract?

9. What is the difference between a voidable and a void contract?

10. What is the difference between an offer and an invitation to treat?

11. Mr. Smith is induced to sign a contract selling his house to a person who
threatens to break his sons leg, or worse, if he doesnt sign. The contract is
said to be:
(a) (i) void (ii) voidable (iii) illegal

due to:
(b) (i) undue influence (ii) duress?

(Which of the above options is correct for (a) and for (b)?)

12. A dry cleaning shop hands receipts to customers, on the back of which the
phrase is printed No liability accepted under any circumstances for any loss,
however incurred.

Is this and effective defence against claims?

Why? Or why not?
Review Answers
1. Common Law is referred to as case law or unwritten law, formed by decisions
of past courts in similar past situations. These past decisions are generally
binding on lower courts in the same legal system (J urisdiction). In contrast,
Statute Law is written law enacted by either State or Federal Parliaments,
which can add to, modify, or cancel case law precedents. Where common law
and statute law conflict, statute law will take precedence and will be followed
by the court.

2. (a) Small Claims Tribunal. (b) County Court (c) Supreme Court (single judge)

3. False. You may be liable. Your negligence is not excused by the act of
trespass.

4. True, but excessive force may see you prosecuted for assault!

5. True. You are entitled to quiet enjoyment of your own premises.

6. True. The duty of care is owed to anyone who might buy or use the product.

7. The first letter of each word gives a clue to an individual essential element of
a valid contract, is intention, offer and acceptance, form or consideration,
capacity, genuine consent and legality.

8. An executed contract is one in which all parties have completed their
promised obligations and it is totally finished. An executory contract is one in
which some promise(s) has still to be completed.

9. A void contract is one which is invalid or unenforceable because of a defect in
one of the essential elements, which renders it ineffective between the
parties. A voidable contract, in contrast, is one which may be voided at the
option of one party - the party who has not contributed to the faults within the
contract.

As an example, a contract which an innocent party was induced to sign
through fraudulent claims of the other party is said to be voidable at the option
of the innocent party.

10. An offer is a statement of terms which is made by one party to a second
party, which invites the second party into a contractual situation by
acceptance of the terms. If not accepted, no contract is formed. If a counter-
offer is made, it wipes out availability of the first offer.

An invitation to treat is an open invitation to anyone who may become
interested in some contractual matter, to come and make an offer. Examples
include goods on shelves in supermarkets, or items in a window display.

11. The contract is void from the start due to lack of genuine consent brought
about by duress.

12. Such exemption clauses are ineffective as a defence against claim unless
they are pointed out clearly to the customer before the contract is concluded.
If printed on the back of the ticket or receipt they will be generally ineffective
unless the customer has been to that shop several times so as to be said to
have had notice of existence of the clause. They will never totally defend a
business against claims of extreme negligence.

Estimating and Project Management
The remaining parts of this module are Estimating and Project Management. While
these two processes are very different in their outcomes, they do share some
common components.

The estimating process involves:
- Breaking jobs up in to the smallest identifiable activities or tasks,
- Costing the materials, equipment and labour for each of these,
- Fitting all of these activities together in to a logical, time-based sequence,
- Considering all of the other likely cost factors and making some allowance
for them;
- Allowing for any time, location or other work limitations,
- Training implications or other personnel limitations etc.
- Considering the cost, delivery, overseas exchange rates of any capital
items and
- Adding a profit margin (to both labour and materials). The final total is
then our estimate.

This estimate then forms the basis of the tender - it must be modified to take in to
account other limitations and contingencies. However, the final figure is your lump
sum amount.

While the process as described above seems simple, the practice becomes
extremely complex. A major pre-requisite is vast, practical (ie. hands on) experience
in each and every task to be carried out.

The final figure is what the principal will pay you (the contractor) to execute the
project. If you are the successful tenderer you will then have to execute the tender
requirements for the agreed price, within the agreed time, with the agreed outcome
etc.

To achieve this, you will need to use the data developed during the estimating
process as the basis of your project management.

The task times, personnel requirements, tools, equipment, processes etc. already
developed will become the basic elements in the project management process.

They are used, with other data, in this process to:
- Plan the activities, the resources required and the logical steps necessary,
- Schedule the activities to best use the resources and
- Control the activities to achieve the desired result. Project management
also involves skills such as mediation, industrial relations, dispute
resolution, leadership, planning etc.

So, in summary, the estimating process concentrates on dissecting the individual
elements of a process and then costing them. Project management concentrates on
re-assembling these elements to control and monitor the complete project.

On a large and complex project, the ability to be able to visualise the relationship
between all of the different elements is essential but impossible without a structured
approach.

Critical path analysis (CPA) and critical path method/management (CPM) are
planning and managing tools. A detailed description of CPA is included in Appendix
A5. It is in your interests to read through the appendix to become familiar with the
terms used.

Estimating
As previously stated, the estimating process is based on the experience of the
estimator. The elements to build a complete estimate are:

The cost of labour (the hourly rate)
Calculating the hourly cost of labour seems a fairly simple process - money paid
divided by hours worked. This is the pay rate, not the cost.

On an annual basis, and taking in to account sick leave (assume 10 days /year),
statutory holidays (10), annual holidays (20) and weekends, this leaves a total of 221
days. A nine-day fortnight will reduce this to 199 days.

Productive hours per day must be considered in the light of agreed and/or award
conditions. Things like brew time, washing time, walking time, travel time etc. must
be considered.

The likely outcome is around 1325 productive hours per year.

On the cost side, there are direct costs such as the annualised pay rate, any
allowances and compulsory superannuation (currently at 8% of gross pay in
Australia).

Add to this the indirect costs such as the payroll costs (including tax), workers
compensation etc. to obtain the annual cost.

Dividing one in to the other gives the cost per hour. To this must be added a profit
margin to obtain the hourly charge-out rate.

The cost of materials
The materials required for each activity must be accurately identified. While the larger
(obvious?) items are generally identified, smaller items (screws, bolts, drill bits, hack-
saw blades) can be easily overlooked.

While their individual cost of each item may be small, the accumulated cost may be
very high.

With major items (prime-cost items) an accurate cost (a firm price over the expected
time frame) must be obtained for all items. These items should then have a profit
margin applied.

Where equipment must be imported, either the currency must be hedged or the
importer must give a firm price, again over the likely time frame. In some instances,
the contract principal may supply items. Obviously, no profit can be made on these
items.
Tools and equipment
Equipment must be either owned or leased/hired.

Owned equipment must have an hourly rate to be factored in to the estimate. In
addition, transport costs and/or time must be considered. For hired equipment, the
same constraints apply but there may be penalties associated with errors of timing.
In addition, caution should be exercised with the use of some equipment. For
example, the noise of air compressors may be a problem requiring silencers,
clearances or footings for cranes may be a problem etc.

Licensing and/or qualifications of operating personnel may cause conflict.

Serial and concurrent activities
Part of the estimating process must include an understanding of which activities are
dependent on the completion of other activities (serial) and those which can occur
together (concurrent).

While this is really part of the planning process, (ie. actually carrying out the work) it
is essential to have an understanding of the coincident demands on labour and
equipment.

This may influence whether you must lease/hire equipment or hire extra labour.
These factors will vary the costs.

Imponderables
Understanding just what is to be allowed for (the scope) is not always straight-
forward.
- Some tender documents may be less than precise.
- Some tasks may be able to be performed in a number of ways.
- Some construction equipment types can place restrictions on work
processes.
- Some parts of the work process may be the subject of judgment or
estimate.
- Safety considerations may change the applicable work practices.

How do we address these imponderables?

It is essential that the estimator uses their experience and judgment to the maximum
to produce the safest and cheapest solution. Where any doubt exists, the estimator
must qualify their estimate (in precise terms).

In addition, the principal will usually have a process in place to clarify any latent
conditions. This is the term used where there may be unusual or unexpected
conditions.
- The ground may have different characteristics to that given in the tender.
- There may be pipes, drains or cables; there may be solid rock not soil, it
might be unstable sand not clay etc.
- Walls may not be load bearing when they should be; concrete which is not
of the specified type etc.
The tender documents should be carefully consulted for details on the treatment of
latent conditions.

Sub-contractors
The principal may use particular sub-contractors (nominated subcontractors) or the
estimator may use their own (known/trusted etc.) or may elect to advertise (usually
known as expressions of interest).

The estimator must ensure that the sub-contractor understands the requirements,
can actually execute the task and has sufficient resources available at the required
time.

Again, the subcontractors estimate must be in writing to which the estimator may
add a (usually nominal) profit margin.

Estimating software
There are a number of proprietary brands of software designed to streamline the
estimating process.

They offer:
- Standardised values for different groups of labour and equipment.
- Standard costs for often-used tasks (with acknowledged variables).
- The ability to effect block changes.
- The ability to nest smaller tasks in to a major project.
- A variety of report options including a bar chart (Gantt chart) etc.

A program in current use and found to be useful is ESTIMATOR II V6.

Summary
- The estimator must have accurate, up-to-date costs for all labour
categories.
- The cost of materials must be accurately assessed.
- The use of owned or hired plant must be carefully costed and managed.
- The sequence of the different parts of the project must be carefully
integrated.
- The effect and likelihood of latent conditions must be assessed.
- The use and type of sub-contractor must be considered.
- Estimating software can save time and improve both accuracy and
visualisation.

Project Management
General
A project consists of a number of tasks that have several characteristics:
- The project has specific start and end dates
- It has well defined objectives
- It achieves a specified objective
- It is unique non repetitive endeavour
- Cost, time schedule, and resources (personnel/labour, equipment
material) are consumed

Project management may be defined as managing and directing the identified
resources to meet the stated objectives.

The project manger will understand:
The scope of the project; what the total project is about.

The costs associated with the project; where will the costs come from?
What financial resources are available and their timing.

What time is allowed for the project and the elements of the project.

What human resources are required and from where they will be sourced.

The communication requirements - what is the structure of the organisation
and how the information will flow.

What quality systems are required and how they will be implemented.

Where required, the source of materials and the necessary contact level.

What are the identified areas of risk and the likelihood of unidentified
areas?

How the project is to be integrated with other elements of associated projects
and their likely impact.

A successful project using a project management approach consists of three stages:

Planning
Understanding what has to be done, including individual activities and
necessary resources, and developing a logical action plan.

Scheduling
Validating when work activities have to be done; ie., when they are started
and completed.

Controlling
Monitoring (or tracking) progress as a project is commenced, analyzing
performance, resolving concerns, and managing status reports.
Planning
Planning involves starting with the estimate and extracting the resources, the
materials, and the time, required to complete the project.

This information is dovetailed to see how the individual components interact with
each other.

The final plan should show:
1. The human resource requirements at any stage of the project.
2. The likely material and equipment requirements during the currency of the
project.
3. Key dates (milestones) during the project for acceptances and/or payments.

The relationships should be integrated using Critical Path Analysis (CPA) to establish
the critical elements.

Scheduling
Scheduling is about time. This involves putting times and dates to each element of
the process.

The estimating software will probably produce the information in a bar-chart form - a
type of Gantt chart.

This allows the project to be understood - the effect of all of the elements can be
seen. Their inter-related effects can then be assessed.

Material on Scheduling, including the steps involved, is included in Appendix A6.

A typical Gantt representation is shown below.

Controlling
Controlling is about the administration of the contract conditions, controlling time-
lines, supervising staff and contractors, preparing summaries for the principal and
ensuring payment claims (and payments) are timely and accurate.

A key element in both scheduling and controlling is the use of adequate project
management software.

Project management software
Students should become familiar with available project management software, its use
and produce a chart for their assignment, based on this software. Microsoft produce
an application in their Office suite called Microsoft Office Project. This is just one of
many different project management applications currently available.

Summary
A project has defined characteristics.

The project manager controls and directs the available resources. Planning involves
the details of how the personnel, materials and equipment are to be used.

Scheduling involves the setting of times to the resources to reach the required
outcomes.

Control involves the oversight and direction of the resources to meet the stated aims.

There is a range of software available to assist with all of the functions of planning,
scheduling and controlling the project.

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