3 - Contract Practice Flashcards
What should you consider when recommending a form of contract?
- Complexity
- Overall value
- Risk
- Client behaviours
- Control of quality or design
- Time constraints
- Quality constraints
- Nature of client (public, private)
What does a Contract need to be binding?
1) Offer
2) Acceptance
3) Consideration
4) Intention
5) Capability
6) Legality
What are the differences between Under Hand or Under Seal (as a Deed)?
- Under hand limits liability for a claim to 6 years
- Under seal limits liability for a claim for 12 years
- Under hand requires any one person given authority by a director
- Under seal requires two directors listed on Companies House, or Director and Company Secretary
- If Under Seal (as a Deed) then this must be explicitly stated
When would you expect something to be signed Under Hand vs. Under Seal?
- Under hand for simpler projects or for temporary elements of projects, such as a large scaffold/temporary works scheme.
- Under deed when it’s a full construction project with potential for latent defects to occur.
Explain the make up of an NEC ECC Contract
- Core clauses:
General Terms Contractors Responsibilities Time Testing and Defects Payment Compensation Events Title Risk and Insurance
- Choose one of 6 main options
- Select W option for Dispute Resolution - option W2 in the UK due to the Construction Act
- Choose relevant secondary X options
- Select Y options (have to select Y(UK)2 because of LDEDCA)
- Contract Data Parts 1 and 2
- Scope
Can you identify all the Main NEC ECC options?
A - Priced Contract with Activity Schedule
B - Priced Contract with BoQ
C - Target Contract with Activity Schedule
D - Target Contract with BoQ
E - Cost Reimbursable Contract
F - Management Contract
When would you use Option B?
- Design is largely complete to provide good BoQ
- Client wants to pay only what they should for the actual quants
- Allows interim payments based on typical valuation
- Client takes risk of Quants
- Eases cashflow
- Can be administrative heavy
When would you use Option A?
- When requirements are well defined
- When you want Contractor to take the risk
- Simple stage payments based on activity schedule
When would you use Option C?
- For D&B
- Not greatest level of design, enough to price, but need to get on with the project
- When Client risk under A/B would be too great
- Incentivise the contractor to reduce cost
- Parties are collaborative and want to work together
When would you use Option E
- Emergency works (repair fire damage)
- Just need to get on with it
When would you use Option F
- Very experienced
- Don’t want to pay large PC overheads
- Cost risk with Client
What JCT Contracts do you know of?
- Minor Works (up to £100K, small, simple)
- Intermediate Works (up to £500k, medium, simple)
- Major Works (£millions, large, complex)
- Standard Building Contract (£millions, large, complex)
- Design and Build (£any value, technically)
- Constructing Excellence (£millions)
What is the difference between Reasonable and Best Endeavours?
Reasonable is less onerous than Best.
Best implies that no stone should be left unturned and that may mean a party has to use extra resources to do so. If they don’t, they may find themselves in breach.
What is the CE process under NEC?
- NCE issued by Contractor within 8 weeks of it occurring.
- PM responds within 1 week confirming or rejecting
- PM accepts and requests quotation
- Contractor submits quotation
- PM reviews within 2 weeks
- PM accepts and implements CE
Key Rules
- Deemed acceptance by PM if don’t respond to quotation
- PM can request quotation on the basis EWN should have been issued
- PM can assess quotation
- PM can request Contractor make assumptions in their quotation
What Insurances are required under JCT?
- CAR insurance in following options
A - Taken out by Contractor
B - Taken out by Employer
C - Taken out by Employer (existing building) - Employers Liability Insurance
- Professional Indemnity Insurance
- Non-Negligence Insurance (6.5.1)
- Can also provide Latent Defects insurance
What Insurances are required under NEC?
NEC4 states the four specific events for which the contractor is liable. These are:
- Claims from third parties
- Loss or damage to works, plant, materials, and equipment
- Loss or damage to client property
- Death or injury of employees
Can you tell me about design liability in NEC4?
- If X15 is selected then Design is limited to Reasonable Skill and Care.
- X15 requires PII to be taken out.
- If not, it needs to be to suit Scope, which is therefore Fit for Purpose.
Can you tell me about some Secondary X Options and what changes were made in NEC4?
X15 - Liability for design - reduces to Reasonable Skill and care
X8 - Undertakings to Others (Collateral Warranties)
X22 - ECI (Stage 1 and 2)
What was the Third Party Rights Act 1999?
Reformed the principle of contract privity in English law to allow third party rights
What was the Latham Report 1994?
‘Constructing the Team’ - identified two key things:
1) Payment practices were poor
2) Disputes were expensive and time consuming.
Led to many of the elements of the HGCRA
What are the key elements of the HGCRA?
- Right to stage/interim payments after 45 days
- Right to adjudication
- Removal of pay when paid
- Right to be informed of amounts due
- Right to suspend works
What are the key elements of the LDEDCA?
- Withholding notice changed to Pay Less
- Contracts don’t just have to be in writing
- Payment notice still required even if zero
- Payment notice required 5 days after due date
- Remove pay when certified loophole
- Remove unfair allocation of adjudicator’s costs
What is Tort Law?
Area of law that mainly deals with negligence. Allows parties to bring a case against another due to the Duty of Care.
What are the three general types of LOI?
- Letter of comfort
- Instruction to spend
- Recognition of contract
What are the key things to consider about LADs?
- Zero/Nil means zero for anything!
- If blank, that ULAD can apply
- Must be a genuine pre estimate of the loss
What is the difference between a bond and a guarantee?
- Bond is a financial 3rd party underwrite of costs incurred due to an obligation not being fulfilled.
- Guarantee is a 3rd party guaranteeing to fulfill that obligation.
What are some issues to watch out for with Bonds, Warranties and Guarantees?
- How they relate to the main contract
- Any time bars on correspondence?
- Exact process must be followed
Give me 3 key clauses from NEC
- 60.2 - Compensation Events
- 10.2 - Mutual trust and cooperation
- 63.10 - Discrepancies
What are some key changes in NEC4?
- New ECI X Option
- Deemed acceptance of programme
- Gender neutral language
- ‘Dividing Date’ rule for assessing CEs
- X15 Option for design liability
What is the NEC EWN process?
- Parties give EWNs to each other if prices, programme, or quality are affected.
- PM enters on the EWN register and issues out.
- PM instructs EWN meeting within first two weeks and then when they want to throughout.
- If scope change is decided as a solution, needs to be instructed when EWN register is re-circulated.
What if a client is not happy about PII levels?
- Just accept it
- Get project specific PII
- Look at additional items such as Latent Defects Insurance
What happens at Practical Completion?
- Works deemed complete
- Defects period begins
- LADs fall away
- Insurance for building responsibility of Client
- Half retention released
What happens at Sectional Completion?
- Works for that section deemed complete
- Defects period beings BUT NOT FOR NEC
- LADs for that section fall away
- Half retention for that section released BUT NOT FOR NEC
- Insurances to be resolved
What happens at Partial Possession?
- Works for that section deemed complete
- Defects period beings BUT NOT FOR NEC
- After calculation, LADs for that section fall away
- After calculation, Half retention for that section released, BUT NOT FOR NEC
- After calculation, Insurances to be resolved