Select the Appropriate Contract

The capacity to contract or form a binding agreement is the ability of a person to enter into an agreement and perform an action since contracting parties must be of sound minds. You must understand the terms of the contract, your duties and responsibilities, and the general plan for the project. Knowing the capacity of the contracting parties to form a binding agreement is crucial to the success of your project. It is important to be direct with your approach and make sure that all elements that constitute capacity to form a binding agreement is addressed. When communicating information with the contracting parties, ensure you are able to directly confirm with the parties involved. This is so you may manage your expectations and so avoid being blindsided by problems that could have been avoided had all parties understood the contents of the contract.

Limited capacity to enter into a contract 

Not everyone can enter into contracts. Limited capacity refers to the temporary or permanent inability of a person to make informed and independent decisions concerning their persons or estate. Certain classes of people are prohibited by law, and you must distinguish them early on so as not to risk having a defective contract. Minors, those with limited mental capacity, those under the influence of alcohol or drugs, the bankrupt, and the like do not generally possess the capacity to enter into a contract.

Below you can read further about the classes of people with limited capacity:

Aliens (at the time of conflict)

 Aliens are persons who are not Australian citizens or citizens to the subject country. There is no restriction upon these persons’ general ability to contract. However, should a military conflict develop between Australia and that of the aliens, then the government may act to intern any aliens in Australia or restrict their ability to enter into new contracts or enforce existing contracts. The government may also act to restrict trading with enemy aliens overseas which may discontinue existing contracts.

Minors under 18 years

A minor may enter into contracts considered as ‘necessaries’ which are necessities of life relevant to the minor’s needs and station in life. These include contracts for necessities like food and clothing. Unless the minor lives in a state of luxury, and it is necessary to maintain their station in life, then luxuries are not considered necessaries.

Another kind of contract that may be enforced against a minor are contracts of beneficial service designed to benefit the minor like apprenticeships.

Although minors can become partners within a business partnership (with adults as partners), it is not wise for the adult partner to do so and agree to form a partnership. The adult partner will always be liable for all debts in the partnership if it becomes insolvent. Only the minor contracting with the adult can refuse to be bound by the contract. The adult has the responsibility to check if their partner is a minor.

Incorporated bodies such as companies 

Some corporations may have limitations placed upon their ability to undertake some types of transactions, or their method of entering into valid contracts, by formal corporate documents like Memoranda, Articles of Association or Articles of Incorporation.

It is wise for a small business 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 guiding documents (Articles or Memorandum). And if so, ensure that the company follows the process.

Persons with diminished mental ability or under the influence of alcohol or drugs 

Persons of diminished mental ability include the mentally incapacitated and people under severe influence of alcohol and prohibited drugs. If a small business contracts with a person under any of these categories, the small business must prove the contract was for the necessities of the other. On another note, if it was not for necessities, then the small business must prove that the other party knew what they were doing or were sober enough to understand.

If this cannot be proven, the contract may be set aside or voidable. A voidable contract is considered binding until repudiated. Voidable contracts can be set aside by the parties because of a problem caused by another. In such cases, any payment made by the party with an unsound mind may be ordered to be returned.

Married persons regarding a spouse’s property or credit 

Both parties to a marriage retain individual rights to enter into contracts, but they do not automatically have a right to bind their marital partners by their individual actions. For example, neither is automatically responsible for the other’s debt.

Another example is that it is only in situations where a wife might be understood to be buying something essential for the family’s existence, with the implicit agreement of the husband, can the wife be able to pledge the husband’s credit (or vice versa). This can, in practice, be difficult to prove. This also applies to persons who are apparently married.

Small business would be wise not to accept assurances that ‘My husband (or wife) will pay’ without checking personally with the other party. Once a marriage has ended, the other partner may be liable for part of the costs of necessaries essential to maintain the children, but not to maintain the spouse.

Undischarged bankrupts

Undischarged bankrupt refers to persons who owed money and have not paid those debts, and have been declared ‘bankrupt’ by a Court. 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 an undischarged bankrupt. If they fail to do this, they will be punished under provisions of Bankruptcy Laws.

Undischarged bankrupts are also restricted in holding company director positions and the like. It is to your best interest if you do not continue entering into a contract with an undischarged bankrupt as there is a high risk of not being paid for making good on your part of the contract.

Convicted felons during their imprisonment

Convicted felons are persons of a grave offence (usually of a criminal nature) and are serving their time in jail. During this term, they have restricted capacity to enter into new contracts or to enforce any rights under existing contracts. This varies from state to state.

If you are aware that the other party is negotiating from prison, stop negotiations and seek immediate legal advice about this matter.

Communicating capacity to form a contract

Typically, it is easy for us to communicate our desire to form a contract without impediments, like those discussed above. However, for some people, they have to be supported with their decision-making. The individual is still considered the one making the decision, with the one supporting them allowing the individual to exercise his decision-making skills as much as he can.

In supported decision-making, the one helping may explain the situation and issues to the individual and help the individual by communicating their desires to others. They must also emphasise that this person has interests, experiences, and goals in life and is still somehow capable of exercising their legal capacity.

Communicating about legal capacity must be directly addressed with the parties, even when they are assisted by any support. It is best to clearly state your intention of confirming their capacity to form a contract. You will need to gather personal information including their age, civil status, financial status, etc. Knowing all this information related to a party’s legal capacity will prevent any hindrances for your project.

Below are tools and devices that you may use to communicate capacity to form contracts:

Internet blog

Construction blogs increases reach to fellow builders who need tips regarding certain methods of construction. A blog is a space for a builder to show their expertise to their colleagues.

Video conferencing

Video conferencing allows documents including plans and drawings to be shared whether from the office or on the move. You can check the progress of the projects or discuss issues as soon as they arise using the live video stream, which speeds up decision-making and helps to keep projects on track and on time.

Smartphone

Smartphones give builders access to construction information, any time, any place. With it, workers, sub-contractors, and vendors can communicate real-time.

Personal computer

Computers have messaging applications like instant messaging, video and audio applications that can help a worker to communicate and collaborate with their colleagues.

Preparing and compiling, as much as implementing, a coherent and robust contract contributes largely to the success of your project. To have a comprehensive contract, additional documents must be included that will ultimately help with showing transparency and resolving any disputes that might occur.

There are different ways to source the right contract type: larger companies often have solicitors to draft contracts, but smaller companies source the required contract type from official government websites if possible, such as NSW Fair Trading or QBCC (QLD) or from different building and construction associations, such as HIA or Master Builders Associations. Always make sure that your contract template is endorsed by the industry and/or it is checked by a specialist solicitor.

Among the documents that should be prepared adjacent to the construction contract are the following:

• Equipment, site accommodation, and services information
• Human resources projections
• Material lists
• Plans, drawings, and specifications
• Project timelines
• Schedules

Equipment, site accommodation and services information

These documents refer to the list of the equipment, accommodation, and services that will be used during the construction project. These are useful, especially in terms of accounting for the costs of the project. You may prepare and compile them by accessing your workplace resources and following your organisation’s policies and procedures for documentation. You may also gather these documents by coordinating with suppliers and site officers as necessary.

Equipment

Equipment is broadly defined as the tools, supplies, machinery, structures, materials, scaffolding, and systems rented by the contractor or subcontractors to use in working on the project. Equipment information allows parties to know the set of tools required for a building and construction project. It outlines the equipment needed for the project and those that will be provided.

Site accommodation

A site is the defined land or location where the project will be executed, guided by the contract. It is also generally defined as the adjacent land or place where the work may be used to work on the project. Site accommodation documents allow parties involved to understand the scope of accommodation that will be provided, and the responsibilities attached to providing site accommodation. On-site is a site office which provides for accommodations for managers, engineers, supervisors, and workers and where meeting and documentation can be conducted.

Services information

For the welfare of workers, some site facilities are required.

These include the following:

• Sanitary facilities (toilets and washrooms)
• Drinking water
• Changing rooms
• Resting facilities.

Other site facilities may include the following:

• Welcome facilities and entries
• Offices
• Training and induction facilities
• Canteen
• Off-loading
• Storage facilities
• Parking areas
• Recycling facilities
• Testing areas.

Lastly, site facilities must have services. Services information allow parties involved to understand the scope of services or labour that will be done, and the responsibilities attached to doing these.

• Electric facilities: Constant and reliable supply of electricity
• Water facilities: Distribution and drainage; Sanitary conveniences, washing facilities, and clean and safe drinking water
• Lighting facilities: In cases where there is no natural light, artificial light must be provided. This may be used for illuminating entry, rooms, and areas and as a form of deterrent for trespassers.
• Communication facilities: This includes telephone connections, secure mobile signals, and stable internet connection
• Security: Security services, sensors, electric fences, wires, alarms, detection systems, and CCTVs

Human resource projections

Before entering a contract, parties must know and have the capacity to provide the needed technical, professional, and financial support to complete the project. Likewise, it is crucial to have the correct mix of people in terms of skills and numbers when you are working on a project. Regulatory guidelines remind companies, contractors, and subcontractors that to have an efficient and safe working experience to achieve maximum output of the following:

• Workers must meet the appropriate skills and competencies needed to meet the objectives of the project.
• Workers must be truthful about their capabilities and must be responsible enough not to go beyond their skills.

A human resources projection or forecast plans and determines the number of people and their respective sets of work while taking sick leaves, vacation leaves, and holidays into account. Human resource projection helps the company plan and find the people they need and measure its working capacity to meet its goals. Human resource projections allow parties involved to know the essential human resource required for the project and anticipate the needed manpower for projects tasks.

Forecasting includes knowing what jobs are needed, and their job descriptions, what skills are needed, and what difficulties are being encountered as the company tries to meet its workforce needs. Human resources projection assists the company to know the problems, solutions, and plans for the shifting phases of its human resources. To prepare your human resource projections, you may collaborate with your human resource department to verify data and collate information.

Materials' list

The materials' list refers to the list of materials that will be used for the construction project. The materials lists would include the brand, the supplier, the dates of delivery and use, the quantities, and other relevant information. Keeping track of all this is also essential when it comes to identifying costs incurred. Preparing your materials lists may involve reviewing your inventory as agreed upon and coordination with your suppliers. A materials list allows parties involved to know the materials that will be used in the building or construction project.

Plans, drawings and specifications

Construction plans are the blueprints that detail the finalised information that you will find in the construction drawings and specifications.

A construction drawing is a document that regularly refers to a detailed graphic representation of what needs to be constructed. This would include the materials, procedures, specifications, techniques, and so on that is required to perform the project. The drawings are generally drawn to scale.

While construction drawings contain information that is also found in the project specifications, it should be noted that these are separate documents and consistency between the related information found between the two documents should be observed. Specifications typically contain a detailed description of the products, materials, and the work that needs to be completed as stated in the construction contract. These are used in conjunction with the construction drawings in carrying out the works, evaluating the efficiency of the choices made in the contract and if changes are to be implemented, and identifying the cost of the project.

To prepare your plans, drawings and specifications, you may need to collaborate with your architects or foremen to collate all details and compile their work. Construction drawings and specifications provide a visual representation of the construction project and the specific requirements and descriptions of each element.

Project timelines

A project timeline refers to a visual representation of the schedules for the construction project. It breaks down the stages of work that needs to be done throughout the provided timeframes, and it can also be used to evaluate the effectivity of the current schedules at a glance. This document comes typically in the form of a spreadsheet or a table. As with the preparation of other documents necessary for a contract, you will also need to collaborate with the contracting parties and different departments to ensure that you are on the same page with the project timelines and to adjust accordingly as agreed. Project timelines provide a visual representation of the schedules for the construction project. It breaks down the stages of work that needs to be done throughout the provided timeframes, and it can also be used to evaluate the effectivity of the current schedules at a glance.

Schedules

A schedule refers to the list of tasks that need to be completed under the obligations of the contract within the agreed time and dates of commencement and completion of the tasks mentioned above.

For this purpose, a Gantt chart (bar chart) is usually employed. This allows the project and all its elements to be seen and understood.

Schedules lists the tasks that need to be completed along with the people obliged to do them on the agreed time and dates of commencement and completion.

This video explains the basics of how to make a Gantt chart in Excel:

There are various factors and special conditions that can affect consent, such as:

Fraud

Fraud in a contract is seen when it is proven that one of the parties committed a misrepresentation so that the other may sign the contract. Like all lies, this can be done by telling a lie or omitting a truth.

If proven that fraud has been committed, the contract is rendered unenforceable. The injured party must prove that fraud has been committed and that misrepresentation has genuinely occurred. Examples of this may include presenting and misrepresenting materials and their costs, falsifying land titles for site construction, and faking licenses for contractors and subcontractors.

Undue influence

Undue influence happens when another person’s influence on the contracting party is so strong that it cannot be seen as that person’s voluntary will to enter into the contract. If the influence is proven to be undue, the courts may set aside the contract.

Mistaken identity or contract terms 

A contract cannot be binding if one of the contracting parties had given consent only because they mistook the person for someone else or mistook the contract terms to something it is not. For example, if a person agrees to a contract because they saw that the payment for their service is supposedly $10,000.00 per hour and later realises that it was a typo and the right amount was only $100.00 per hour, then the consent may be set aside since it was a mistake of contract terms.

Duress

The principle guiding agreements is the liberty to voluntarily enter into contracts. The law will not consider enforceable contracts where you were forced to sign because the person forcing you are in the position to do so. Examples of these include being threatened with harassment or violence unless you sell your land or are being threatened to be kicked out of your rented apartment if you do not sign a contract agreeing to a raise in your rent.

Illegal contracts

If proven that a contact is against the law of the country, state or territories, then the contract cannot be enforced. It is of utmost importance that lawyers and legal experts review your contract before you sign it.

Unwritten contracts

Generally, verbal contracts are honoured and enforceable, especially for small transactions and deals. However, some cases and laws state that a written contract be required for such instances. These include:

• Deeds of sale
• Deeds of transfer of land or property
• Pre-nuptial agreements

Even if you can prove that there is a verbal agreement, if the law requires a written contract, then your verbal agreement is still considered unenforceable. You may check your state or territory’s statute of frauds as the list for those that require a written contract depend on your state or territory.

An example of this is when a builder sends an email through to a trade (Contractor) stating the works are to be completed as per the plans. With no formal contract in place the email serves and the obligations between both parties.

An offer

The first stage of a contract begins when an offeror, who owns a good or a service, negotiates a deal with another party to achieve a particular goal. The one offered to, the offeree, reviews the deal, and if they agree, they must pay the offeror something they own in exchange for another good or service. Negotiations are closed and the contract is finalised when all the parties involved have signed the agreement. This contract is then considered legally binding with grievous consequences if any of the parties violates the terms in the contract.

There are two elements in an offer:

• Expression: parties express the desire to enter into a legally binding contract. As with acceptance, this may come in the form of instantaneous communication or through postal mail.
• Intention: there is a presumption by both parties that the contract will be legally binding and that negotiations will only happen if both parties want to comply with the terms. The is a presumption of good faith on both sides.

Offers may be verbal or written. This may range from an offer to simple services such as washing a family’s clothes for a verbal agreement and a fee to working out a deed of sale as a written contract. This can be done in exchange of goods, the performance of services, and even non-performance.

Simple agreements usually do not need legal advice, but complex agreements that usually need to be written do.

An acceptance

An acceptance is an agreement of the offeree to the terms of the offer and the final agreement of both parties to the contract. Negotiations may be made before a final offer is made and accepted. However, if it can be shown through proofs of communication that the parties intended to be bound by the final terms, then there does not need to be a final acceptance for the offer to be legally binding.

Usually, a contract commences when the parties sign the agreement. This signifies an end to negotiations. However, you may find that if something is done that otherwise would not have happened, it can be interpreted as acceptance. Examples to this include painting a house, hired movers moving furniture to another location, and workers starting to remove the weed from your lawn.

As a general rule on how an individual may accept an offer, silence is considered an insufficient way of accepting offers. However, if there are no stated and set means to accept an offer, then the intention by the parties shall be given consideration.

The acceptance must have been communicated fully to the one making the offer for it to constitute as valid communication. You may consult your organisational policies and procedures for communicating with contracting parties. Below are different forms of communication that you may use for communicating with relevant parties:

• Letter: accepted on the date the letter is sent. However, there are conditions to this because post mail is not a method for instantaneous communication. These conditions are:
  • If the offer allowed for acceptance to be sent by post
  • If the post has been the primary means of communication used while drafting the contract
• Facsimile: as long as the server has received it
• Telephone: as soon as it has been communicated to the one making the offer
• Email: as soon as their server has received it and whether or not they had read or seen the email
• Text message/mobile phone call: as soon as the server has received it.

Different types of contracts suit various construction types. Having the appropriate type of contract will help you in ensuring that you get the right type of protection and a suitable compensation for the work that you are providing. Residential contracts, for example best fit residential construction types.

Written contracts

A contract that is fully put into writing provides proof of what you and the hirer have agreed on. A transparent contract ensures that misunderstandings and disputes are prevented as the terms and expectations are set in writing. It grants all parties involved peace of mind by having their responsibilities, their work, their schedules, and their payments in a clearly defined contract.

Other benefits of a clearly written, legally binding contract include:

• An arrangement of how a dispute may be settled
• An arrangement of how variations may be introduced in the contract
• A record of that was agreed upon
• An arrangement of how the contract may be terminated even before its completion.

Consequently, you are exposing yourself to avoidable risks if you do not put your terms into writing. Examples of such risks are the following:

• Since you do not have a written contract, the other contracting party may misunderstand a clause of the contract and then argue with you that you agreed differently.
• Similarly, one party may make the terms more advantageous for themselves. Since both of you are relying on your memories, this can be tricky for you both to prove.
• The court may also not find a reason for dispute as there is no physical evidence of a contract.

It is imperative that you seek legal advice in drafting and entering into a contract so that you may understand the demands, implications, and constraints you will be in when you sign the agreement.

Verbal contracts

A verbal contract is usually for small projects. Contracts like these ideally only work when no disputes exist between the involved parties. This type of contract can still be legally enforced in court, but there could be difficulties due to the nature of the type of contract.

Verbal contracts also run the risk of having the parties involved be uncertain about their rights, obligations, and liabilities. Disputes might occur if there is no formal writing of what both parties have agreed to.

Part verbal, part written contracts 

Occasionally, agreements can come in both written and spoken forms at the same time. For example, if you already had a verbal agreement and there is a list of materials with specifications to support the agreement, then this constitutes as a part verbal, part written contract. The ‘written’ part of this contract would be the supporting documents related to the contract itself. As much as possible, you have to keep these as terms must be written to avoid relying on each party’s memories.

Selecting the appropriate contract will require expert judgement, which may come from relevant organisational personnel and communication with the contracting parties. You may consult them through meetings, email correspondence and other forms of communication.