YANGON TECHNOLOGICAL UNIVERSITY

Department of Civil Engineering

CONSTRUCTION MANAGEMENT
CE – 72152
Contracts and Legal Issues
Assignment (2)
LEGAL CONCERNS BETWEEN MAIN CONTRACTOR AND
DEVELOPER FOR A CONSTRUCTION PROJECT

Lecturer – U Myint Oo

Presented by
Eaint Yadanar Khin (ME.CM - 2)
Yoon Mone Mone Khin (ME.CM - 3)
Than Zaw Htike (ME.CM - 4)
Moe Hein Kyaw (Dip.CM – 1)
Shar Lae Win (Dip.CM - 3)
Htet Wai Yee Aung (Dip.CM - 4)
 (1) Introduction

Contracts and agreements are customized according to our clients’ needs and specific
requests. To help clients navigate the legal issues that arise throughout the multiple stages of
their business life cycle. To prepare a good contract, we must know the legal laws that are
applicable laws. Laws are related with everyone. Legal is the applicable law that are very useful
in every business especially in construction business. There are many types of contracts – among
them, lump sum contract is the common contract. In this assignment, we selected the lump sum
contract that is between the main contractor and the developer. In construction industry, the
following eight contract types are so far practiced:
1. Lump Sum Contract,
2. Bill of Quantities or Unit Rate Contract,
3. Cost Plus Fixed Fee Contract,
4. Cost Plus Percentage of Cost Contract,
5. Item Rate or Schedule of Rates Contract,
6. Labor Contract,
7. Hybrid Contract and
8. Special Contract
Lump Sum Contract: when the project or tender price is determined and quoted as a total
sum of money without individual ratings to execute the whole of the works and / or services
according to the drawings and specifications, it is called a Lump Sum Contract. It is difficult to
administer changes and amendments but experiences of similar projects are used as a basis to
this effect, Works or services are checked based on the specifications, the conditions of contract
or terms of reference and drawings if any for acceptance and closing of accounts and Payments
are agreed at different stages of works or services. A Lump Sum Contract is more suitable for
works of smaller in size and where the contracting parties have prior experience of similar
project. But it is not advisable for projects with considerable uncertainties such as; difficult sub
surface situation, unusual projects, maintenance projects, etc. a Lump Sum Contract mainly
includes Contract Agreement, Conditions of Contract, Drawings and Technical Specifications.
When we prepare the contract, legal concerns are also one thing that are considered in
the contract. Therefore, in the form of contract – we must need to write the problems
encountered in the construction industry since we prepare the contract. Among these problems,
especially legal has many disputes, claims and so on. Legal system refers to a procedure or
process for interpreting and enforcing the law. It elaborates the rights and responsibilities in a
variety of ways. Three major legal systems of the world consist of civil law, common law and
religious law. Jury system is a legal system for determining the facts at issue in a law suit. Tax
system is a legal system for assessing and collecting taxes. Electoral system is a legal system for
making democratic choices. Legal tender is currency that cannot legally be refused in payment of
debt.
 (2) Objective

❖ To understand the legal concerns between the main contractor and developer
❖ To understand the practices of contracts that are fully aware in construction industry
❖ To understand the legal issues that are associated with the construction industry
 (3) Possible Disputes in Construction and Resolution Method

These are the common risks or disputes in the construction project.

• Improper documentation of contract
• Plans and specifications/scope of work
• Shop drawings and submittals
• Change orders/extra or out-of-scope work
• Construction sequencing/project access
• Construction defects
• Inadequate site and/or subsurface investigation prior to starting the design
• Starting design efforts too late and /or unduly limiting the cost of engineering and design
• Calling for bids with an incomplete set of drawings
• Endeavoring to complete the design through shop drawing review.
• Unclear documentation
• Inadequate documentation
• Inadequate site investigation
• Late or inadequate instructions
• Changes initiated by the owner and consultant

(3.1)Improper Documentation of Contract

The signing of a contract with incomplete drawings and specifications is a source of significant
risk for owners, general contractors and trade contractors. For all parties to a construction contract,
incomplete contract documents at the time of awarding a contract substantially increase the risk of major
cost over- runs and project delays.

Incomplete contract documents invariably lead to claims from contractors for extension of time
and additional compensation. When owners have tight budgets or are reluctant to pay more for a project, a
dispute results. The dispute leads to further increased costs, frequently with associated legal costs.

(3.2)Plans and Specifications/scope of Work

Disputes over the contract scope of work, represented by the plans and specifications (as
modified or amended), are some of the most significant areas of dispute on a construction project.
Typically occurring between the owner and the general contractor/subcontractor, contractors and design
professionals often interpret the documents differently, particularly if the description of the work in the
plans/specifications is unclear or ambiguous — or when the plans are contradictory to the specifications.
Typically, there is an implied warranty on the part of the owner that the plans/specifications are correct,
adequate, accurate, and buildable. Of course, there are always exculpatory clauses in the contract by
which the owner attempts to shift that responsibility to the contractor.
In case of owner hires a main contractor for a project, the main contractor should take time
necessary to carefully and fully define the scope of work for everyone that is involved in the project.
(3.3)Shop Drawings and Submittals
A corollary to disputes arising from the plans or specifications is disputes arising over shop
drawings and other submittals. Primary among these are delays, either in the timeliness of the
contractor/subcontractor submitting shop drawings and submittals or in the design professionals
responding back in a timely fashion. The other common problem is the interplay between the design
professional and the contractor/subcontractor, with the design professional rejecting submittals without
adequate explanation and the contractor/subcontractor providing inadequate submittals.
(3.4)Change Orders/extra or Out-of-scope Work
Typically, disputes over change orders and extra work or out-of-scope work boil down to the
change order price and whether or not the contractor/subcontractor is entitled to extra time. Frequently,
the owner requests pricing for the changed work but then disagree with that price and time extension
request — ordering the work to proceed as scheduled. This situation leaves the parties to fight over the
amount and time at project's end.
Disputes also arise when there are many change orders that have a cumulative effect or impact on
the contractor/subcontractor that each individual change order alone may not reflect. Unfortunately, such
an impact claim typically must await project completion and the preparation of a critical path method
analysis to demonstrate the cumulative impact of the changes.
(3.5)Differing Site Conditions
There are two different approaches regarding the owner's responsibility for existing site
conditions. The majority approach is that the owner has the duty to disclose all information in its
possession. Even if there are no studies, the owner warrants that the construction is feasible and cannot
contract away that implied warranty. Therefore, general exculpatory clauses arguably do not relieve the
owner of its warranty.
The other minority approach — only applicable to public owners — is to enforce exculpatory
clauses that put the responsibility for site conditions on the contractor. This is only if the owner has
engaged in fraud or intentional failure to disclose known information.
It is the contractor's responsibility to discover those conditions (apparent or discoverable) through
a reasonable investigation. Therefore, if a contractor encounters conditions that are subsurface or
otherwise concealed, differ materially from those indicated in the contract documents, and are unusual in
nature, the contractor will typically be entitled to more money and time to deal with the differing site
conditions.
(3.6)Construction Sequencing/project Access
The owner typically warrants that the contractor will have access to the project site. Disputes
arise, for example, when the owner fails to provide access particularly in remodels of occupied buildings,
to obtain required permits or easements, to coordinate multiple prime contractors, or to timely provide
owner-supplied equipment.

(3.7)Construction Defects
During the course of construction, the owner may identify work that is not in conformance with
the plans/specifications. If the contractor/subcontractor does not agree with the owner's assertion of that
defective construction, a dispute arises. Typically, both the general contract and subcontracts allow the
owner and general contractor, respectively, to order the removal and replacement or repair of the
allegedly defective work. Assuming the contractor/subcontractor complies, it will have a claim against the
owner at the conclusion of the project if the contractor/subcontractor had conformed to the plans and
specifications.
(3.8)Dispute Resolution Methods
Discussion of construction disputes from the legal perspective would not be completed without a
discussion of the various types of dispute resolution methods.
(3.8.1)Termination
Termination, whether by the owner or the contractor, is the ultimate “dispute.” Typically, contract
provisions allow the owner to terminate the contractor for cause if the contractor:
(1) fails to supply properly skilled workers or proper materials;
(2) fails to make payments to subcontractors;
(3) disregards laws, statutes, ordinances, codes, rules, and regulations; or
(4) substantially breaches the contract documents.
The contractor, whether provided in the contract or not, can terminate if the owner is in material breach of
any of its contractual obligations, the most prevalent of which is failure to pay.
(3.8.2)Mediation
Whether it's during the course of construction (less frequent) or after the project is complete,
mediation is arguably the most satisfying of dispute resolution method. It can occur as early in the process
as the parties are able to organize mediation and identify/schedule a mutually agreeable mediator.
However, mediation is typically most successful after the parties, their attorneys, and the consultants have
had an opportunity to review the other side's project files and prepare whatever impact/delay analysis may
be necessary. Because mediations are nonbinding, they involve a neutral mediator understanding each
side's position/settlement appetite and then bringing the parties together in settlement.
(3.8.3)Arbitration
Arbitration was the favored form of dispute resolution in the construction industry, at least when
the owner was able to dictate the form of dispute resolution. The theory was that arbitration was both
speedy and economical because the parties and arbitrators scheduled it at their convenience. Unless the
parties otherwise agreed, there was no discovery or jury as there is in litigation, and no appeal. Finally,
the arbitration panel was comprised of individuals knowledgeable in the construction industry.

(3.8.4)Litigation
Litigation is dispute resolution in the courts, where all parties are subject to all of the forms of
discovery, such as interrogatories, requests for admission, document production demands, and
depositions. The parties then have a trial, either by a court alone or by jury. If the parties are dissatisfied
with the results, they have an appeal as a matter of right. Historically, litigation has a reputation for being
a long, expensive process. That's one key reason why arbitrations came into vogue on construction
disputes.
(3.8.5)Government Claims Procedures
In the public sector, there are often requirements that contractors must first file a government
claim and even go through an administrative hearing procedure before they can proceed to arbitrate or
litigate their claims.
(3.8.6)Reading the Contract before Executing
Lastly, there is no substitute for reading each contract very carefully before signing it. Beyond
the obvious problems of errors and inaccurate information that creep into negotiated contracts, careful
review may reveal additional risks, improperly allocated risks, and other issues. No agreement is perfect,
but vigilant contract review is one of the most crucial steps in the risk management process
 4. Permits Problems

4.1 Planning Permit Required

All major land use developments, which include new construction, extension, retrofitting,
increase of floor area, and changes in usage of buildings/land, shall require “Planning Permit”.
Planning permit shall be granted by “The Development Planning and Building Authority”.

4.2 Submission Requirements

Where the development involves the erection of a building, the planning authority may
give written directions to the applicant in respect of any of the following matters:
 the level of the site of the building;
 the line of frontage with neighboring buildings;
 the elevations of the building;
 the class, design, and appearance of the building:
 the setting back of the building to a building line;
 access to the land on which the building is to be erected; and
 Any other matter that the planning authority considers necessary for purposes of
planning.
In addition to the documents and plans required to be submitted above, the applicant shall
submit a development proposal report which shall contain the following:
 the development concept and justification;
 a location map and a site plan;
 particulars of land ownership and restrictions

4.3 Decision for Approval and Revision

The Authority shall examine the applications for permits and amendments there to within
a reasonable time after filing. If the Authority is satisfied that the proposed work conforms to the
requirements of this code, the Authority shall issue a permit within reasonable period. If the
applications do not conform to the requirements of the Authority, the Authority shall reject such
applications in writing, stating the reasons. The applicant has a right to revise and reapply based
on the reason given by the authority.

4.4 Responsibilities of the Owners/Developers

Requirements and Duties:
Neither the granting of the permit nor the approval of the drawings and specifications,
nor inspections made by the Authority during erection of the building shall in any way relieve
the owner of such building from full responsibility for carrying out the work in accordance with
the requirements of the Code.
Expiration
Every permit issued shall become invalid unless the work on the site authorized by such
permit is commenced within one year after its issuance, or if the work authorized on the site by
such permit is suspended or abandoned for a period of one year after the time the work is
commenced. The building official is authorized to grant, in writing, one or more extensions of
time, for periods not more than one year each. The extension shall be requested in writing and
justifiable cause demonstrated.
Building Permit Required
Any owner or authorized agent who intends to construct, enlarge, alter, repair, move,
demolish, or change the occupancy of a building or structure, or to erect, install, enlarge, alter,
repair, remove, convert or replace any electrical, gas, mechanical or plumbing system, the
installation of which is regulated by this code, or to cause any such work to be done, shall first
make application to the building official and obtain the required permit.
Action on application.
The building official shall examine or cause to be examined applications for permits and
amendments thereto within a reasonable time after filing. If the application or the construction
documents do not conform to the requirements of pertinent laws, the building official shall reject
such application in writing, stating the reasons there for. If the building official is satisfied that
the proposed work conforms to the requirements of this code and laws and ordinances applicable
thereto, the building official shall issue a permit therefor as soon as practicable.
Permits, Licenses or Approvals
The Employer shall provide reasonable assistance to the Contractor at the request of the
Contractor by obtaining copies of the laws of the country which are relevant to the contract but
are not readily available.

4.5 High Rise Building in Yangon

Application for approval in principle to Yangon Region
Government, filed with the High-Rise Building Inspection
Committee HIC (application documents include architectural drawing and information as to
location height above sea level, spacing (i.e. distance between buildings), parking space)
Several of HIC’s departments review the application
Secretary of the HIC reports on the result of the review to the YCDC Chairman (i.e. the mayor
of Yangon)
 Application documents have to be prepared and signed by a licensed engineer, licensed
contractor and building engineer and include the information already submitted to the Yangon
Region Government, but in more detail and with proper calculations
Engineering Department (Building) forwards, after reviewing, the application to the High-Rise
Building Inspection Committee (HIC) HIC reviews applications for construction permits for
buildings with 8½ to 12½ floors
Applications for buildings with more than 12½ floors are reviewed by the Committee for
Quality Control of High-Rise Building Construction Projects (CQHP)
HIC or CQHP gives recommendation to Engineering Department (Construction) on: pile load
test, deep excavation, foundation, piling, superstructure and M&E
Engineering Department (Building) issues a building permit and, after construction is finished, a
building completion certificate

4.6Performance Bond
The Government and private sector require performance bonds and payment bonds for
projects to protect the tax payer’s investment.
Common performance and payments bonds for government projects consist of building
bridges and roads, although it can comprehend much more than only those two categories. If the
contractor does not complete the project specified in the contract the surety bonding company
will either pay for the completion of the project or hire a contracting firm to complete the project.
A performance bond will protect the owner against possible losses in a case a contractor
fails to perform or is unable to deliver the project as per established and the contract provisions.
Sometimes the contractor defaults or declares himself in bankruptcy, and then in those situations,
the surety is responsible for compensating the owner for the losses. Such compensation is
defined as the amount covered under the performance bond.
Payment from the performance bond is available only to the project/property owner and
no one else can make claims against it.
In order for a performance bond to be effective, the contract must be specific about the
work to be done and because of this, a contractor cannot be held accountable for vague
descriptions that are open to interpretation.
 5. Environmental Risks of Construction

Based on the Environmental Conservation Law 2012, the following are the high level of
awareness and commitment with regard to protecting the environment among owner, contractors
and others involved in the construction industry.

5.1. Risk of Land Degradation

Large projects usually entail extensive land disturbance involving the removal of
vegetation and reshaping of topography. Such activities make the soil vulnerable to erosion. Soil
removed by erosion may become airborne and create dust problem or be carried by water into
natural waterways, thereby polluting them. Due to the soil erosion of the exposed and loose
earth, there will be a deterioration of water quality in the surrounding water bodies due to
siltation. This can result in mud floods and flash floods in immediate or downstream areas during
heavy downpours. Landslides and slope failure can occur on unstable slopes or when the soil is
saturated with water during heavy rainfalls.

5.2Risk to Flora and Fauna

The biological environment includes various species of animal and plant life, and their
habitats. Unfortunately, however, loss of flora and fauna is likely in any development. Planning
is essential to ensure minimal losses during the implementation stages and steps must also be
taken later to ensure that the losses are “replenished.” This is crucial especially when
development is in the vicinity of a protected or animal sanctuary, a forested area, or a catchment
area. Ecological losses should be minimized and suitable protection put in place for the
conservation of flora and fauna.

5.3. Risk to Water Pollution

Water quality is important for economic, ecological, aesthetic, and recreational purposes.
Changes in water quality may affect its aesthetic value or even prevent some uses of the water.
During construction, the potential for soil erosion and risk to water quality is greatest when
removal of vegetation for initial clearing and grading activities exposes soil and makes it
susceptible to erosion. The impacts and risks are greatest during the rainy season where
extensive land clearing can increase sedimentation load into the rivers from erosion of the
exposed soil.
5.4. Risk of Air Pollution
Activities of major concern for air quality are the burning of waste, the emission of fumes
and smoke, and the release of chemical impurities such as heavy metals, acid and other toxic
bases. Air quality impacts from construction include increased dust particulates in the
atmosphere caused by grading, filling, removals, and other construction activities. Air quality
may also be impacted by emissions from construction equipment and vehicles.

5.5 Risks from Noise and Vibration

Noise and vibration can be generated by various activities and equipment used in
construction projects. Noise and vibration levels due to construction activities in the project area
vary depending on the types of equipment used the location of the equipment, and the operating
mode. Adverse impacts resulting from construction noise and vibration are generally limited to
areas adjacent to the project, and are temporary in nature.
Environmental provisions in building contracts for relatively sophisticated projects
commonly put the responsibility for minimizing or avoiding liability relating to environmental
issues on the contractor. The normal approach of employers and developers is that the risk
should rest with the contractor because the contractor has the operational responsibility for it. So,
the contractor takes on the responsibility for having to deal with unanticipated conditions as a
particular condition.
 Chapter(6)
Delay and Financial Issue

6.1 How Delay & Financial Are Related

Delay in construction projects is a common phenomenon and a costly problem. Four
main factors were identified in the literature, namely late payment, poor cash flow management,
insufficient financial resources and financial market instability.The poor cash flow management
is the most significant factor that leads to a project's delay followed by late payment, insufficient
financial resources and financial market instability. Contractors' instable financial background,
client's poor financial and business management, difficulties in obtaining loan from financiers
and inflation were identified as the most significant underlying causes. The study findings
indicate that clients play the most important role in reducing the impact of financial problems
towards the extent of project's delay. Several suitable mitigation actions were suggested by the
respondents. The studies highlight the importance of having more intensive research that give
emphasis on clients achieving a well-managed cash flow in order to obtain a prompt payment
practice in the construction industry.
Workforce shortages, materials supply issues and sequencing trades can all lead to delays
in the project milestones. Owner directives can impact the project scheduling as well. The
contract should define delays and provide for either time or money to compensate for them. The
owner will likely prefer additional time as the sole remedy for delays, but time is too often
inadequate as a measure of the contractor’s additional costs.

Owners may impose liquidated damages for delays in project turnover. When the owner
assesses liquidated damages, the cost can be crippling to a contractor, especially if the owner is
retaining funds or withholding progress payments. A contractor should negotiate with the owner
if delays arise. Some states have pro-contractor laws that provide a remedy for untimely
payments from an owner. Knowing the state’s contractor protection laws is key to managing a
project when delays arise.

A thorough negotiation of owner or contractor-caused delays can address costs for owner
acceleration or suspension, workforce supplementation, mobilization or escalation costs, weather
or other delays. If problems arise early in the project, a contractor can hire an independent expert
to assess schedule delays and begin building the claim for additional compensation. Force
majeure clauses can protect a contractor in the event of unforeseen delays, but in some locales,
performing a project in snow, rain or heat may be reasonable job conditions.

One unexpected and generally non-compensable delay is approval by local building

officials. The contractor should be familiar with the current permitting and building inspection
processes to avoid unexpected delays.
Understanding the impact of these concepts can assist contractors in navigating the risks and
adjusting their bids to more accurately account for unknown contingencies or claims. Often a
project’s complexity or appeal will require the contractor to grant concessions to an owner on
some of the contract terms, but by evaluating the economic impact, the contractor can balance a
desire for more business with the distaste of a frustrating build.

6.2 WHAT ARE ESCALATION CLAUSES IN CONSTRUCTION CONTRACTS?

6.2.1 OVERVIEW

General contractors spend a great deal of their time balancing costs on their projects. To
ensure profitability, they must control material, labor, and overhead costs while continually
receiving payment from clients. The task is difficult and a number of factors affect a contractor’s
ability to do this. One such factor is the varying costs of materials and labor. If fuel or building
materials cost the same when you bid the project as it does halfway through the project that
would be excellent. Unfortunately, that’s seldom the case, especially in our fluid economy.

The contractor’s primary tool for combating this is the escalation clause. An escalation
clause is a provision in a contract that calls for adjustments in fees, wages, or other payments to
account for fluctuations in the costs of raw materials or labor. This clause shifts the burdens for
increasing materials and labor costs from the contractor to the client. It’s an important clause to
include in your contract, so it’s helpful to have an Orlando construction lawyer review your
contract before submittal.

6.2.2 PROS AND CONS OF ESCALATION CLAUSES FOR PROJECT OWNERS

The escalation clause is only as good as a client’s willingness to accept it as part of a

working agreement. Escalation clauses are helpful for owners because contractors will be more
comfortable submitting lower bids, meaning more contractors will bid on jobs. However,
escalation clauses can present challenges because the prices that are being submitted aren’t being
guaranteed. Determining final costs of projects can be challenging.

6.2.3 WHAT COSTS ARE SUBJECT TO ESCALATION CLAUSES?

Escalation clauses can apply to any cost that is subject to fluctuation based on market
conditions. However, escalation clauses are most commonly seen in conjunction with fuel, steel,
and asphalt costs.

Fuel costs: If you follow the news, you know that oil prices fluctuate regularly and over the
course of a year, there can be sharp increases and decreases. Escalation clauses are designed to
protect contractors from those changes.
Steel costs: An escalation clause can be used here to adjust to fluctuations in the steel cost
adjustment index.

Asphalt: Escalation clauses apply to fluctuations of asphalt cement based on average price in a
geographic area.

It’s important to note in each case that escalation clauses are meant to protect contractors from
sharp increases that are beyond the normal fluctuation of market prices.

6.3 Cost over runs caused by contractor

1. Improper planning and schedule
2. Delay of material and equipment deliver by supplier
3. Inaccurate cost estimation
4. Lack of experience contractor and subcontractor
5. Poor project controlling
6. Poor in site arrangement, management and supervision
7. Accident at workplace
8. Poor labor productivity
9. Mistake during construction and rework
10. Machinery and equipment breakdown or failure

6.4 Cost overruns by owner

1. Design changes and changes in scope
2. Design defection
3. Additional works required
4. Late progress payment by owner for completed work
5. Delay of approval from owner
 Chapter (7)
Conclusion

In the construction industry, legal concerns are also important in the contract. The
construction is also related with the legal, so it is also written in the contract. In lump sum
contract, the contractor mostly has the responsibility but there also has the indirect loss for the
developer. For example, if the project can be damaged because of the equipment that is borrowed
by the main contractor, so the main contractor has the responsibility but the developer has the
indirect loss, eg. the project must be delayed. Therefore, we must write the protection ways for
the problems and risks in the contract before we start the construction. If the risks are
encountered although written the protection ways in the contract, we use the system of risk
management. First, identified the risks - the all reasons that can be negative impacts are defined
as the risks. Second, we analysis the risks – how much the degree of impact, how to eliminate the
risks and the best result is the zero impact. Third, we must prepare the medication measures by
planning the risk control measures. In legal concerns, if the equipment is needed to be used – the
equipment is maintained and running good condition – these facts are also included in the
contract. The certified company can be also called the third party test this equipment then give
the approval and certificate for this equipment that is safe for use. If there have an accident – if
the company buys the insurance, compensation will be okay for this equipment but people are in
accident, there has very complicated legal issues in it. Therefore, also write down how to protect
legally these accidents in the contract. In lump sum contract, the most responsible person is the
contractor but there has indirect loss for the developer.

References
❖ Lecture from Sir U Myint Oo
❖ Sources from Internet