Regulations Dealing with Contractors Have Changed
The landscape of building and the construction industry has changed a lot compared to when the Contractor’s License Law, or Republic Act No. 4566 was enacted.
Back then, there were not too many condominium projects and office buildings in the metropolitan areas of the Philippines. Still, the Philippine government saw the need to regulate the construction industry, but placing safeguards for those engaged in building contracting and construction. Aside from requiring the licensing of general engineering, building and contracting companies with the then, newly-minted Philippine Licensing Board for Contractors.
Fast-forward to a few decades after, you have the latest amendment to the old Contractor’s License Law, under Republic Act No. 11711, which updated the requirements for licensing and registration of covered contractors, and imposed larger fines and bolder penal provisions to covered persons who violate the law or contracting regulations. In addition to actual registration, the maintenance of the contracting license is also a requisite to doing business as a general engineering, building and contracting company because a license in good standing is a continuing requirement under the law. To do so is punishable under Section 35 of Republic Act No. 11711.
There are Numerous Issues To Consider When Dealing with Contractors
However, skirmishes and disagreements with building and engineering contractors is only one factor in the equation. Entering into a building or construction agreement is multifarious, and involves contractual arrangements, relationships, and obligations with numerous parties. Aside from the contractor, contracting business or construction company that you engaged to build your building or house, for example, it is possible that you may be dealing with, separately, engineers, architects and other professionals. Also, it is sometimes the case that certain supplies are sourced by the client itself. Hence, you, as the client, have to deal with suppliers and manufacturers directly. Hence, these, in themselves, already present a situation teeming with issues, such as delays in delivery of supplies, substandard work, substandard equipment, lack of know-how, significant lag in implementation, among many other issues. Fortunately, these are concerns which, to be sure, you are aware of, or, at the very least, may have been mitigated by contracts which contain provisions to protect you from liability.
Apart from these issues, one concern which you may catch you blind-sided is liability from third persons which may arise from what you have contracted others to build or construct for you.
Third Party Liability is a Concern When Dealing with Contractors
Third party liability should always be a concern in any contracting arrangement, most especially in a construction contract or agreement. This is because in any contracting arrangement, someone does work for you. Hence, while you are contractually assured of the outcomes, the persons actually doing the work are, in practical terms, beyond your control. Since it is entirely understandable for humans to err, the persons who carry out the contractor’s businesses – construction workers, foremen, engineers, architects, electricians – and the respective equipment they use, from as small as the hand drill to connect two segments of a door, to a large bulldozer employed to clear a path for the construction of your building – these are all prone to cause injury to third persons.
Also, the most unexpected things can happen in the process of building a house, constructing a building or other construction works. Construction debris may fall causing injury to others. Structures intended to provide temporary fortifications may collapse. Also, it is entirely possible that despite the competence, preparation and all good intentions of the contractor or engineer handling the construction, certain happenstances difficult to predict may occur.
For example, while the Building Code of the Philippines, or Presidential Decree No. 1096 regulates the manner in which construction is to be made, to wit:
“Sec. 1202, Excavation, Foundation and Retaining Walls
x x x
(b) Excavation and Fills
- Excavation or fills for buildings or structures shall be so construed or protected that they do not endanger life or property.
- Whenever the depth of excavation for any construction is such that the lateral and subjacent support of the adjoining property or existing structure thereon would be affected in a manner that the stability or safety of the same is endangered, the person undertaking or causing the excavation to be undertaken shall be responsible for the expense of underpinning or extending the foundation or footings of the aforementioned property or structure.
Excavation and similar disturbances made on public property shall, unless otherwise excluded by the Building Official, be restored immediately to its former condition within 48 hours from the start of such excavation and disturbance by whosoever caused such excavation or disturbance. …”
it can happen that the unanticipated weakening of lateral support of a structure surrounding the construction or excavation might occur. These nuances in construction can take place, even after a Building or Construction Permit has been secured, the necessary clearances complied with, and technical know-how in place.
While the injured third person or passer-by can sue the contractor, ultimately, the client/owner of the property is the one identified as responsible for the incident. It is the client who caused the construction of the building and hired the contractors, who will get end up sued, or at the very least, be part of a suit filed together with the building contractor hired by the owner. In the end, it is the wary client who ends up burdened with these troubles.
How One Be Protected From Liability to Third Parties in Contracts Involving Contractors
How does the owner of the building himself or herself on the face of such types of liability?
There is no singular answer to this question. As mentioned, the issues that may arise from a construction contract is multi-faceted, and almost always involves numerous factors which can be, singly or combined, be the source of liability.
However, one thing is certain, the client can always protect himself or herself through a properly drafted construction agreement, taking into account all aspects of the construction, the probable delays that may be encountered, and specific provisions on handling loss, damage, injury or liability to third persons.
An Indemnity Clause is An Effective Measure in Contracts Involving Contractors
One good way to ensure that the client/owner of the building under construction can sleep more soundly at night is an adequate indemnity clause in place in the building or construction agreement.
An indemnity clause is simply a clause that allows one party (the person indemnified) to be free from liability, while the other party (the one obligated to indemnify) answers for anything that the former would be required to.
The Philippines is no stranger to indemnity clauses. As a matter of fact, the Civil Code of the Philippines provides the most fundamental basis for indemnity clauses. In Article 20 of the Civil Code, it is provided that:
“Article 20. Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same.”
In fact, the Civil Code of the Philippines is littered with various concepts of indemnification, like in Criminal Cases under Article 35 of the Civil Code of the Philippines, where the plaintiff in a civil action arising from the crime may be required to submit a bond to indemnify the defendant in case the complaint should be found malicious; in Articles 447, 466, 470, and Article 474 of the Civil Code of the Philippines, where the owner of property, in general, was utilized by another without authority may seek indemnification from the latter.
In construction agreements, and other contracts involving the building, engineering, construction or contracting of building works, such as the repair or construction of buildings, edifices, houses and other structures, the owner of the property who sought the expertise of contractors and builders will surely benefit from a well-placed and properly worded indemnity clause in any type of construction agreement.
A simple indemnity clause, such as:
“The Contractor shall defend, indemnify, and hold the Client harmless from and against any losses, damages liabilities, suits, and expenses, including attorneys’ fees and litigation expenses from third party claims arising out of, or in the course of, the Project…”
would do wonders in protecting the client/building owner from liability.
Suits Arising from Indemnity Clauses in Contractor Contracts and Arrangements
In fact, in the presence of such a clause, it would be entirely property for the building owner/client to file what is referred to as a Third-Party Complaint under Rule 6, Section 11, of the Rules of Civil Procedure, as amended. The provision under the Rules of Civil Procedure reads as follows:
“Section 11. Third, (fourth, etc.)-party complaint. — A third (fourth, etc.)-party complaint is a claim that a defending party may, with leave of court, file against a person not a party to the action, called the third (fourth, etc.)-party defendant for contribution, indemnity, subrogation or any other relief, in respect of his opponent’s claim. …”
What is significant in the quoted provision of the Rules of Civil Procedure is the phrase “for contribution, indemnity, subrogation or any other relief, in respect of his opponent’s claim.” This means that through the Third-Party Complaint, the client/building owner may shift his or her liability to the third party, to the building contractor or construction company.
No less than the Supreme Court in the case of Capayas vs. Court of First Instance of Albay, G.R. No. L- 475, 31 August 1946, acknowledged the operative effect of third-party claims:
“So in the case of Carbola Chemical Co., Inc. vs. Trundle Engineering Co. (U. S. Dist. Ct., S. D. N. Y., December 26, 1942), it was held that in an action for breach of contract to render engineering services and to survey a plant, the defendant was allowed to bring as a third-party defendant, the manufacturer which sold defendant’s equipment to the plaintiff (7 Fed. Rules Services, 14a11, Case No. 1). And in a negligence action by the purchaser of a confection in which it is alleged that the confection contained a foreign object, the defendant may bring in the person who supplied him with the constituent containing the foreign object, as a third-party defendant (Saunders vs. Southern Dairies, Inc., U. S. Dist Ct., District of Columbia, November 6, 1939 [2 Fed. Rules Services, 14a226, Case No. 3]).”
The presence of a properly worded and well-placed indemnity clause is clearly beneficial to someone entering into such types of contracting agreements. Hence, a word to the wise – do not sign your construction agreement without it.
About Nicolas and De Vega Law Offices
If you need assistance in civil or other criminal law-related issues or have questions about family law, property ownerhsip, settlement of property, we can help you. Nicolas and de Vega Law Offices is a full-service law firm in the Philippines. You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines. You may also call us at +632 84706126, +632 84706130, +632 84016392 or e-mail us at [email protected]. Visit our website www.ndvlaw.com.
Liability for damages, building contractor, construction agreement, engineering contractor, construction contract, building construction contract, indemnity clause, third party liability, liability from contracting, indemnity agreement,
This article talks about how to protect yourself from liability when engaging construction contractors, general engineering contractors, building contractors, and construction companies.