Business Law for Engineers

GENERAL CONDITIONS

1. BOND. The Contractor shall, at the time of the execution and delivery of this contract and before the taking effect of the same in other respects, furnish and deliver to the Company a written bond of indemnity to the amount of .... dollars, in form and substance and with surety thereon satisfactory and acceptable to the Company, to insure the faithful performance by the Contractor of all the covenants and agreements on the part of the Contractor contained in this contract.

This bond shall remain in force and effect for the full amount or such smaller amount as may at any time be specified by the Chief Engineer.

The provision that a Bond shall be furnished seems at first not to be appropriate as a part of the Contract itself; this is perhaps true where a Proposal form is used which provides for furnishing a Bond and for the forfeiture of the certified check in case the Contractor fails to sign the Contract and furnish a satisfactory Bond.

Nevertheless the Bond refers to a Contract, and in some forms (as in the Uniform Contract Form) it recites the date of the Contract to more fully identify it. Strictly, the Contract must be executed before the Bond; otherwise there is no Contract whose performance the Bond guarantees. It becomes then a suitable provision that "The Contractor agrees at the time of the execution and delivery of this contract, and before the taking effect of the same 'in other respects,' to furnish," etc. By the use of the words, " in other respects," there remains an agreement, namely to furnish the Bond, and a failure to do so would justify a suit for damages for breach of Contract. For the agreement to furnish the Bond there is ample consideration, because as soon as the Bond is furnished, the Company is at once held to the performance of its part of the Contract.

In some cases the Bond cannot conveniently be furnished at the time and place of signing the Contract; in such cases the provision above appears necessary.

An earlier reading was:

A. This bond shall remain in force and effect in such amount, not greater than that specified, as shall be determined by the Chief Engineer.

Very strictly considered, under the last mentioned reading, the failure of a Chief Engineer to specify any amount (a case of neglect, or a failure to appreciate the necessity for such action) would make the Bond unenforceable. It is doubtful, however, if a court would so construe it. The reading as changed, avoids misunderstanding.

It has been suggested also that there be added, " for such time as may be specified by the Chief Engineer," with the purpose of having the Bond

released as soon as its protection is no longer required. It is probably true that anything gained in this way by reducing the fees paid to the surety company, while primarily a gain to the Contractor, will in the long run be secured to the Company.

Workmen, however, and perhaps material men have a mechanic's lien for perhaps three months after the completion of the Contract, and a suit for damages for injury to person or property may be possible for a much longer time, and the protection of the Bond ought to cover either of these contingencies. Unless a time limit is distinctly specified, the Bond would doubtless be effective even after the completion of the physical parts of the Contract, if properly drawn. It is the common custom now that surety company's fees are based on the Contract price and without a time limit, and in such case there will be no saving in fees by limiting the time during which the Bond remains in force.

A much more elaborate provision is the following:

B. Simultaneously with the execution of this contract the Contractor shall give security for the performance of his obligation by filing with the Comptroller a bond in the form annexed hereto, entitled "FORM OF CONTRACTOR'S BOND," executed by the Contractor and by two or more sureties to be corporations or persons approved by the Commission in the sum of One Hundred Thousand Dollars ($100,000). In case any of the sureties upon the bond shall become insolvent or unable in the opinion of the Commission to pay promptly the amount of such bond to the extent to which such surety might be liable, then the Contractor within ten (10) days after notice by the Commission to the Contractor shall, by supplemental bond or otherwise, substitute another and sufficient surety to be approved by the Commission in place of the surety so insolvent or unable. If the Contractor shall fail, within such ten days or such further time, if any, as the Commission may grant, to substitute another and sufficient surety, then the Contractor shall, for all the purposes of this contract, be deemed to be in default in the performance of his obligations hereunder and upon the said bond, and the Commission may terminate this contract or may bring any proper suit or proceeding against the Contractor and the sureties, or either of them, or may require to be deducted from any moneys then in, or thereafter coming into, the hands of the City and due to the Contractor the amount for which the surety insolvent or unable as aforesaid shall have justified on the bond; and the moneys so deducted shall be held by the Comptroller as collateral security for the performance of the condition of the bond.

The important differences are the provision for new sureties in case the original sureties shall become insolvent, and the required inclusion of the Contractor as one of the parties signing the bond. The form is unusual and not regarded favorably by Contractors. Proper sureties should be secured in the first place.

The Public Service Commission of New York also adds a provision by which the Contractor:

C. may at his option deposit..... ... an equal amount of cash or in value of securities.

The well-to-do Contractor who owns securities may thus avoid the payment of surety company's fees and may, if he sees fit, give to the City some benefit by a bid lower than would otherwise be made.

A form used in another City reads:

D. The Contractor shall give to the City, and maintain in force during the continuance of this contract, a surety bond, satisfactory to the City, in the sum of dollars, executed by authorized surety, guaranty, or trust

company or companies.

The word "maintain " seems to have some value, but limiting the time to "during the continuance of this contract" seems undesirable as does also a further provision to "save harmless the City against injuries to persons or property during the construction of said work, and until the same is accepted." Does the Bond save harmless the City until the work is accepted, or for "injuries to persons or property during construction and until the work is accepted?" The court will doubtless decide.

An alternate reading in Section 1, above, instead of "in form and substance and with surety thereon satisfactory " may be:

E. in the form on file with the Chief Engineer, and with surety thereon satisfactory, etc.

The latter form is better calculated to secure uniform treatment to all bidders.

The form of Bond is the subject of a later chapter.

2. CONTRACTOR'S UNDERSTANDING. It is understood and agreed that the Contractor has, by careful examination, satisfied himself as to the nature and location of the work, the conformation of the ground, the character, quality and quantity of the materials to be encountered, the character of equipment and facilities needed preliminary to and during the prosecution of the work, the general and local conditions, and all other matters which can in any way affect the work under this contract. No verbal agreement or conversation with any officer, agent or employe of the Company, either before or after the execution of this contract, shall affect or modify any of the terms or obligations herein contained.

If, in some cases, the Contractor may have failed to satisfy himself on these points, his signing the Contract stops him from later making any claim of failure to understand conditions. The provision that no verbal agreements or conversation shall modify any terms or obligations is simply a reaffirmation of the principles of the Common Law. The statements of this clause here seem desirable, as the Contractor cannot

well fail to understand from them his status as to these matters under this Contract. Furthermore, it is hardly subject to the criticism made of more drastic provisions to be found in the chapter on Specifications. The word "oral" is preferable to "verbal."

There are other readings in use, but the above seems adequate.

A more extensive provision in use in Chicago is shown below:

A. All bidders for work under this contract are required, before submitting proposals, to examine the site of the work and adjacent premises, and the various means of approach to the site, and to make all necessary investigations in order to inform themselves thoroughly as to the character and magnitude of all work involved in the complete execution of this contract, also as to the facilities for delivering and for handling material and plant at the site and the conditions and the difficulties that will be encountered in the performance of the work specified herein. No plea of ignorance of conditions that exist, or that may hereafter exist, or of difficulties that may be encountered in the execution of the work hereunder, as a result of a failure to make the necessary examinations and investigations, will be accepted as a sufficient excuse for any failure or omission on the part of the Contractor to fulfill in every detail all of the requirements of this contract, or will be accepted as a basis for any claims whatsoever for extra compensation.

This provision is more commonly found in the Proposal and should occur there also, but it is well to have it within the body of the Contract, so that in case of a suit at law, the Contract shall cover the points involved without reference to an outside document. The provision in the Proposal may state that the bidder has also examined the Specifications, plans and drawings, which is hardly necessary here.

In some Contracts it is provided that:

B. The Information for Bidders hereto attached and the Proposal submitted by the Contractor are also made parts of this Contract.

It seems better to incorporate in the Contract such features from the Information for Bidders and from the Proposal as are necessary to a complete Contract.

3. INTENT OF PLANS AND SPECIFICATIONS. All work that may be called for in the specifications and not shown on the plans, or shown on the plans and not called for in the specifications, shall be executed and furnished by the Contractor as if described in both these ways; and should any work or material be required which is not denoted in the specifications or plans, either directly or indirectly, but which is nevertheless necessary for the proper carrying out of the intent thereof, the Contractor is to understand the same to be implied and required, and shall perform all such work and furnish any such material as fully as if they were particularly delineated or described.

This section seems very desirable. It calls attention to, and reaffirms the principle of law that a Contract or any writing is to be construed

with due regard to all its parts, none of which is to be neglected in determining the intent. It is also in some respects more explicit than the provision already cited that:

A. The Contractor shall furnish all materials, superintendence, labor, equipment, and transportation, except as hereinafter specified, and shall execute, construct and finish, in an expeditious, substantial, and workmanlike manner, to the satisfaction and acceptance of the Chief Engineer of the Company.

Together these provisions well cover the requirements in case there should be accidental omissions in any part and leave little opportunity for misunderstanding and the natural sequence, a lawsuit.

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