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LAW AND ETHICS IN ENGINEERING PRACTICE

Nov 2010

(CEN 800)

FACULTY OF ENGINEERING AND APPLIED SCIENCE

RYERSON UNIVERSITY

A2G: 1196343v7

HOW IS THE LAW APPLICABLE TO ME?

Gas Fired Power Project Gas Fired Power Project Project Management Civil Electrical Mechanical

Computer Computer Aerospace Industrial

Complex Contractual Arrangements

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COURSE OUTLINE Canadian Legal System Business Organizations Torts Torts Contracts Security for Payment Bonds and Performance Guarantee Lien Legislation Consulting/Construction Agreementsg g Insurance Intellectual Property Alternate Dispute Resolutions

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CANADIAN LEGAL SYSTEMB d E li h C L Based on English Common Law Equity Common Law

Theory of Precedent Basis of Predictability Apply Legal Principles Established in Previous

Court Decisions Factual Distinctions and Equitable Relief Provide

for Flexibility

CATEGORIES OF LAW Common Law Common Law

Judge Made Legislative

Government-Made codification of existing common law or enactment of new law

Federal Federal Provincial Municipal

Statutes are Supplemented by Regulations Theory of Precedent

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JURISDICTION BETWEEN FEDERAL AND PROVINCIAL

GOVERNMENTS Parliamentary Supremacy

British North America Act 1867 S#91 Federal Jurisdiction S#92 Provincial Jurisdiction

Ultra Vires

JURISDICTION BETWEEN FEDERAL AND PROVINCIAL

GOVERNMENTS (contd)( ) Constitution Act, 1982 and Charter of Rights

and Freedoms Guarantees Fundamental Freedoms Constitution is Supreme Law Reduced Effect of Parliamentary Supremacy

Reasonable Limits S#33 Override

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COURT SYSTEMHOUSE OF

LORDSOther - 1949SUPREME COURT

OF CANADA LEAVE REQUIRED

Criminal - 1933

B.C. ONTARIO COURT OF APPEALALBERTA

FEDERAL COURTOF APPEAL

DIVISIONALCOURT

FEDERALCOURT

-PATENTS-TRADEMARKS-COPYRIGHT COURT

OF ONTARIOSUPERIOR COURT OF JUSTICE ONTARIO COURT OF JUSTICE

SMALL CLAIMS COURT

COPYRIGHT

-maximum of $25,000

(6 Peopleon Jury) Criminal Family(12 People on Jury) Provincial Offences

COURT PARTICIPANTS Original Trial Original Trial

Plaintiff Defendant

Appeals Appellantpp Respondent

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CIVIL COURT CASE PROCESS Issue Statement of Claim (Plaintiff) Issue Statement of Claim (Plaintiff) Respond with Statement of Defence

(Defendant) Discoveries

DocumentsDocuments Oral

Trial

BUSINESS ORGANIZATIONS Corporation Corporation

Share Capital Non-Share Capital

Partnership General Limited Liability

Sole Proprietorship Unlimited Liability Company

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SALOMON V SALOMON & CO. LTD.1897 HOUSE OF LORDS

MR. SALOMON MRS. SALOMON SON SALOMON

SALOMON & CO. LTD.LOAN

SECURED

MATERIAL SUPPLIER

MATERIAL SUPPLIER

UNSECURED CREDITORS

Issue: Did Mr. Salomon rank before the Unsecured Creditors by virtue of being a secured Debenture Holder?House of Lords recognized Salomons Corporation as a separate and distinct entity from himself there was no evidence of intent by Salomon to deceive or defraud.

FERN BRAND WAXES LTD. V PEARL1972 ONTARIO COURT OF APPEAL

PEARL (DIRECTOR OFFICER &(DIRECTOR, OFFICER &ACCOUNTANT OF FERN)

CO#1 CO#2

- Pearl transferred unauthorized funds to 2 companies controlled by him by loaning them monies from Fern Brand.

- Some of the funds were used to purchase shares in Fern Brand Waxes Ltd.

FERN BRAND WAXES LTD.

- Court stated that the Defendant should not be allowed to profit from his breach of trust.

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LIMITED PARTNERSHIPPARTNER #1 PARTNER #2

GENERAL PARTNER

CORPORATION

SHAREHOLDERS

1%PARTNERSLIMITED

PARTNERSHIP

49.5% 49.5%1%

NON DISTINCT TYPES OF BUSINESS ORGANIZATIONS

Joint Venture Joint Venture Consortium

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CONSIDERATIONS IN SELECTING A BUSINESS ORGANIZATION

Duration Duration Simplicity/Complexity Taxes

Canadian Controlled Private Corporation (CCPC)( )

Liability Separate Identity

CONSIDERATIONS IN SELECTING A BUSINESS ORGANIZATION

(contd)(cont d) Personal Guarantees Property Ownership Registrations

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CORPORATIONS Articles of Incorporation/Letters Patent Articles of Incorporation/Letters Patent Jurisdiction of Incorporation Objects By-laws

R l ti Resolutions Public vs. Private

CORPORATIONS (contd) Participants Participants

Shareholders Directors Officers Employees

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DIRECTORS AND OFFICERS DUTIES

Manage the Corporation Manage the Corporation Act honestly and in good faith In best interests of corporation Exercise the care, diligence and skill that a

reasonably prudent person would exercise in a comparable circumstance

GLOBAL CONSIDERATIONS Form of Business Organization Form of Business Organization Political Risks Foreign Legal Systems Licensing Requirements

Fi i l Ri k Financial Risks Contract Forms

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SECURITY OF PAYMENT AND PERFORMANCE

Bonds Bonds Letters of Credit Guarantees Subcontractor Default Insurance

Bonds guarantee by a surety that contractor will guarantee by a surety that contractor will

perform obligations not insurance bonding company will seek compensation

from contractor Contractors shareholders usually provide

guarantees

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Types of Bonds Bid Bond Bid Bond

forfeited if Contractor fails to enter contract Performance Bond

guarantees to owner that contract will be performed

L b d M t i l P t B d Labour and Material Payment Bond guarantees payment to subcontractors and

suppliers

BONDING RELATIONSHIPOWNER

EQUIPMENTSUPPLIER

SURETY(BONDING

CO )AGREEMENTINDEMNITY

BOND

CO.)SUB-

SUPPLIER

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Letters of Credit More common outside of Canada More common outside of Canada May be close to a blank cheque Usually affect contractors credit capacity Often referred to as Performance

Guarantees in international workGuarantees in international work

LETTER OF CREDIT

LETTER OF CREDIT

OWNER

EQUIPMENTSUPPLIER

AGREEMENT

BANK SUB-SUPPLIER

AGREEMENT

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GUARANTEE

GUARANTEEOWNER

EQUIPMENTSUPPLIER

PARENTCOMPANY

SUB-SUPPLIER

CONSTRUCTION LIEN ACT Lien Lien Holdback -10% Trust Provisions Priority of Mortgages

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$

Time SubstantialPerformance

Substantial Performance Two Part Test Two Part Test

1. the work must be ready for the purpose intended (the Qualitative Test)

2. the cost of completing incomplete items and rectifying known defects must be less than an amount calculated as:

) 3% f h fi $500 000 f C P i la) 3% of the first $500,000 of Contract Price, plusb) 2% of the next $500,000 of Contract Price, plusc) 1% of the remainder of the Contract Price

(the Quantitative Test)

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EXAMPLEContract Price = $3 500 000Contract Price = $3,500,000

Quantitative Calculation:3% of $500,000 = $15,0002% f $500 000 $10 0002% of $500,000 = $10,0001% of 2,500,000 = $25,000

$50,000

$

Sub Perf. Publication of the Certificate of Sub Perf.

45 days

TIME

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$

Sub Perf.TIME Completion

COMPLETIONThe completion of incomplete items andThe completion of incomplete items and rectification of known defects is less than the lesser of:

1) $1,0002) 1% of the Contract Price) % C

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$

CompletionSub Perf

TIME

45 days

Owners Questions How much input does the owner wish to

have in the design of the project? Is the owner interested in a unique design or

one that will be relatively generic? Is the completion date of the project critical

h ?to the owner? Is overall cost critical to the owner?

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Owners Questions (contd) How experienced is the owner? How risk adverse is the owner? Does the owner have its own in-house

administrative staff? Are there performance guarantees that are

important to the owner?important to the owner? How is the project being financed? Is there any equipment that has a long lead

time for delivery?

Owners Questions (contd) Are there particular designers, equipment

suppliers or trade contractors that the owner wishes to utilize?

How much construction experience does the owners consultant have?Will h i i Will the owners expectations require unique construction experience?

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Project Structures Traditional project structure Construction management project structure Contractor/construction manager project

structure Multi-designers project structure Engineering, procurement and construction

management (EPCM) project structure Design/build project structure

TRADITIONALOwner Consultant

Contractor Sub Consult Sub Consultant

Sub #1 Sub #2

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Advantages of the Traditional Project Structure

Single point responsibility of the Single point responsibility of the consultant and contractor

The owner can keep its involvement fairly limited

Easier to acquire a fixed price from the t tcontractor

Cooperative relationship between the owner and the consultant

Advantages of the Traditional Project Structure (contd)

The number of contractor initiated change The number of contractor initiated change orders which affect the price should be relatively limited

The consultant and the contractor bear any risks of non-performance of the subconsultants and the subcontractors, respectively

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Disadvantages of the Traditional Project Structure

Not conducive to fast-trackingg Until prices are received from contractors

pursuant to the tendering procedure, the owner is not fully aware of its final costs

Not conducive to having input from the contractor during the designcontractor during the design

If the project fails to perform in accordance with the owners expectations, it is necessary to assess responsibility between the consultant and the contractor

CONSTRUCTION MANAGEMENT

C lt t O Construction Consultant Owner Manager

Trade #1 Civil Trade #2 Mech Trade #3 Elec

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Advantages of the Construction Management Project Structure

Very conducive to fast-trackingy g Because the construction manager is not taking

on any direct liability for the trade contractors, the construction managers fee does not need to incorporate any risk with respect to the particular trade contractorsp

The construction manager can be retained early in the design development process and provide very advantageous construction advice during the design.

Disadvantages of the Construction Management Project Structure

Because the construction manager does not have Because the construction manager does not have privity of contract with the trade contractors, not only does the owner not have the advantage of looking to the contractor as the party with single point responsibility, but the construction manager does not have the same level of control over such trade contractors

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Disadvantages of the Construction Management Project Structure

(contd) The ultimate cost to be paid by the owner will The ultimate cost to be paid by the owner will

not be determined until such time as the last component of work is tendered for construction

Pursuant to the Occupational Health and Safety Act, once the owner enters into more than one contract for the construction of a project, the owner becomes the constructor

CONTRACTOR/CONSTRUCTION MANAGEMENT

Owner ConsultantOw e Co su

Contractor/ConstructionManager

Sub #1 Sub #2 Sub #3

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Advantages and Disadvantage of the Contractor/Construction

Management Project Structure Advantages

The contractor/construction manager becomes involved in the project very early in the design process

Conducive to fast-trackingConducive to fast tracking Disadvantage

It may not be possible to seek a fixed price at the time of retaining the contractor/construction manager

Diagram #4Multi-Designer Project Structure

Owner A hi

General Contractor

Architect

StructuralEngineer

MechanicalEngineer

ElectricalEngineer

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Advantage and Disadvantage of the Multi-Designer Project Structure

Advantage Advantage Since no one particular designer takes on the

responsibility or liability for all other designers, the cumulative fees payable to all designers should be lower than those payable to a single designer

Disadvantage Requires the owner to assume overall

coordination responsibilities

Diagram #5Engineering, Procurement and

Construction Manager StructureOwner Engineer/

ConstructionManager

Prime Contractor

Prime Contractor Supplier

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Advantage and Disadvantage of the Engineering, Procurement and Construction

Management Project Structure Advantage

One entity takes an active role in both the design and construction of the project

DisadvantageAs is the case in the construction management project As is the case in the construction management project structure, the EPCM party is usually only an agent of the owner and as such does not take on any direct liability for the trade contractors or equipment and material suppliers

Diagram #7Design/Build Project Structure

OwnersOwner s Consultant Owner

Design/Builder

Consultant

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Advantages of the Design/Build Project Structure

Where time of delivery performance or Where time of delivery, performance or output of the project is critical to the owner, single point of responsibility makes one person responsible for such matters

Conducive to fast-tracking

Advantages of the Design/Build Project Structure

The designer and the contractor work The designer and the contractor work together as a team

The single point of responsibility is important to lenders in project financing projects

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Disadvantages of the Design/Build Project Structure

It is very difficult to adequately and fully define th f th d i /b ild bli ti ithe scope of the design/builders obligations prior to the design being completed

Price for the design and construction of a project cannot realistically be determined with precision until the design is finalizeduntil the design is finalized

The designer will no longer have the same interest in satisfying the owners expectations if those expectations will result in additional construction costs to the design/builder.

Forms of Contract Stipulated Price Stipulated Price Unit Price Cost Plus

Cost Plus Percentage Cost Plus Fixed FeeCost Plus Fixed Fee Cost Plus Lump Sum Bonus

Guaranteed Maximum Price plus Share of Savings

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Unit Price often found in excavation and municipal often found in excavation and municipal

servicing contracts use where quantity of work is not well

defined defined method of measurement is essential

Cost - Plus more appropriate where design is not more appropriate where design is not

complete other situations where significant

uncertainties exist bonus arrangements may provide incentive g y p

to reduce costs

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Guaranteed Maximum Price Hybrid between Stipulated Price and Cost Hybrid between Stipulated Price and Cost

Plus plus Share of Savings adds incentive to

reduce costs design must be reasonably completeg y p

Insurance1) Property) ope ty2) Liability3) Errors & Omissions

Professional Liability- Cap of Limit- Deductibles- Exclusions (i.e., Liability excludes faulty workmanship and faulty design)

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Intellectual Property Patents of Invention Patents of Invention Trademark Passing Off Copyright

I d t i l D i Industrial Designs Trade Secrets

Patents of Invention Inventions must be

New and useful art, process, machine, manufacture or composition of matter

Novel Reduced to something physical/tangible

Term: 20 years from date of application Patent rights can be assigned to others or used

under a license agreement Exclusive right to use or license the invention Can be assigned

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Patents of Invention (contd) Is it the employers invention or the

l ?employees? Remedies

Damages sustained by patent holder Injunction Recovery of profits obtained by infringer

Trade-mark Used to distinguish wares or services manufactured,

sold, leased, hired, or performed by someone from those of others

Owner has exclusive right to use trade-mark Mark must be distinctive Registered trade-marks are effective for a period of

15 years: can be renewed for unlimited 15-year periodsCan be licensed Can be licensed

Remedies Restraint on future use Liable for damages

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Passing Off A type of legal action against someone who

t d k i il t d k tuses your trade-mark or a similar trade-mark to yours

Unregistered trade-mark You must show that customers purchase from

someone else because they mistakenly believe h h d li i hthat they are dealing with you

Remedies Restraint on future use Liable for damages

Copyright Subsists in original literary, dramatic, musical,

artistic work, communication signals, sound recordings, performances

Right to produce or reproduce something; perform and deliver it in public; publish

Term: life of the author + 50 years Includes engineering plansc udes e g ee g p a s Assignment must be in writing moral rights: right of identification as author,

integrity of the work (i.e., Eaton Centre art)

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Industrial Designs Designs (shape, pattern, ornament) that are

ornamental or aesthetic in nature Not mechanical construction or method of

manufacture Design must be novel and original Term: exclusive right to use design for 10 years g g y

from registration Assignment must be in writing

Trade Secrets Formula , pattern, device, compilation of info

used in ones business which gives advantageused in one s business, which gives advantage over competitors, i.e., formula for a chemical

Some rely on this as opposed to patents Legal action:

Show info was confidential Show secret information was communicated to the Show secret information was communicated to the

person at fault in circumstances implying a duty of confidence

Degree of secrecy Duty of confidence: employer and employee

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Dispute Resolution1. Partnering Dispute Avoidance. a t e g spute vo da ce2. Negotiation3. Dispute Review Boards4. Mediation5. Arbitration

a) Mandatoryb) Binding

6. Private Court7. Litigation

Mediation Independent third party attempts to bring Independent third party attempts to bring

parties together Very useful if all parties want to settle

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Characteristics of Arbitration Choose the tribunal may be expert if Choose the tribunal - may be expert if

desired May be quicker and cheaper Less public Usually binding Usually binding Parties must agree to participate and be

bound by decision

Arbitration Agreements usually a clause in a larger contract usually a clause in a larger contract may be a stand alone agreement agreement should define:

arbitrator(s) - number, identity, qualifications, how chosen

rules and procedure timing

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Arbitration Act Philosophy to encourage arbitration Philosophy to encourage arbitration Courts must almost always enforce

arbitration agreements Rights of appeal are limited prevents arbitration being simply a delaying prevents arbitration being simply a delaying

tactic

ADR on International Projects Arbitration Clauses usual Arbitration Clauses usual in Ontario the International Commercial

Arbitration Act applies provides even less flexibility to courts to

intervene Contracts encourage non-binding ADR

methods