3.1 Contract Practice

Question 1

What is a legally binding Contract? What are the key elements?

Answer 1

An agreement for one party to fulfil obligation in exchange for consideration. The key elements for a contract are:
-Offer
-Acceptance
-Consideration
-Intent to form a legal relationship

Question 2

What is the Local democracy, Economic Development and Construction Act 2009?

Answer 2

The Act amended the housing grants construction and regeneration Act 1996. Makes further amendments to how contracts are entered, payments and adjudication.

Question 3

What are the provisions under LDEDC act?

Answer 3

-Construction contracts no longer need to be in writing.
-Pay-When-Certified is no longer allowed.
-Payment notice must be issued no later than 5 days from due date.
-Payment notice must show calculation of payment even when it’s Nil.
-Default notice can be issued by other party fails to issue Notice. If payment isn’t issued by final date of payment then suspension of work.
-Pay less notice is issued if notified sum is found to be unsound but must calculate sum due to when pay less is served.

Question 5

What is a letter of intent?

Answer 5

A letter from Employer to Contractor indicating the Employer’s intention to enter into contract.

Question 6

Advantages of Letter of intent?

Answer 6

-Save time and cost by starting contract works before main contract is agreed.

Question 7

Disadvantages of Letter of intent?

Answer 7

-May result in complacency in getting main contract agreed and signed.
-Less robust than a main contract.
-Employer’s negotiation strength is usually reduced.”

Question 8

What is a PCG?

Answer 8

Parent Company Gurantee - Security for the Client incase of contractor insolvency. Particularly used for smaller companies which a part of a group. The group will be required to meet the smaller company’s obligation.

Question 9

What are Third Party Rights?

Answer 9

-Contracts (Rights of third parties) Act 1999.
-Allows third parties to enforce terms of contracts that they are not party to but that benefit them.

Question 10

Advantages of third-party rights?

Answer 10

-Save time and cost as you don’t need to issue multiple CWs?
-Certainty, no renegotiating unlike CWs.

Question 11

Disadvantages of third-party rights?

Answer 11

-Lack of flexibility
-Need for careful drafting

Question 12

What is a Collateral Warranty?

Answer 12

A formal contractual document that creates a direct contractual relationship between two parties.

Question 13

What is the difference between a bond and a collateral warranty?

Answer 13

Bond is generally financial and CWs pass on contractual obligations. Bonds are contained within the contract but CWs sit outside the contract.

Question 14

Example of the collateral warranty?

Answer 14

D&B contract Employer might want CWs for the design team.

Question 15

What is an assignment?

Answer 15

Assignments pass the benefit but not the obligation to a third party.

Question 16

What is a bond?

Answer 16

Protection for the holder from non-payment, lack of performance, insolvency or warranty issues

Question 17

What are the different types of bonds?

Answer 17

-Performance bond
-Retention bond
-Advance payment bond
-Tender bond
-Off-site materials bond

Question 18

Why would an employer require a performance bond?

Answer 18

-Contractor is new or unapproved
-Concerns over contractor’s finances
-A recession is looming
-Employer wants to protect their commercial exposure

Question 19

What are different types of performance bonds?

Answer 19

On demand - available without meeting any requirements
Conditional - requires employer to prove a loss as a consequence of the contractor.

Question 20

What is a Tender bond?

Answer 20

Provides security if the successful bidder fails to get into contract.

Question 21

What is an Offsite materials bond?

Answer 21

Provides security for material being manufactured off site that have been paid for.

Question 22

What is a retention bond?

Answer 22

Will pay the Employer part or all the bond if contractor fails to complete the defects.

Question 23

What is an advanced payment bond?

Answer 23

Protects the payment that is issued before contract works begin.

Question 24

What are defects and the different types?

Answer 24

Part of work not in accordance with scope or law. There can be Patent or Latent defects.

Question 25

What is novation?

Answer 25

Replacing one party in a contract with another.

Question 26

What is retention?

Answer 26

A percentage (usually between 3-5%) of the contract is held during the construction stage to safeguard against defects the contractor fails to remedy.

Question 27

What are the types of Insurances?

Answer 27

-Professional Indemnity - cover professional negligence.
-Product liability - cover damage caused by defective product.
-Public liability - covers injury to third parties or damage to their property.
-Employer liability - covers the employees for work related illness or injury.
-CAR

Question 28

What can be done at tender stage to identify potential contractor insolvency?

Answer 28

-Check for front loading in tender submission.
-Bank references
-Credit check D&B Report
-Previous references
-Bond or PCG

Question 29

What are the considerations when selecting a contract?

Answer 29

Client
Priorities - time, cost, risk, quality
Procurement route
Value of work
Nature of work
Complexity of work
Size and location of work

Question 30

Advantages of standard forms of contracts?

Answer 30

-Written by legal experts
-Quicker to agree as most employers and Contractors are familiar.
-More consistencies and aid from previous parties.
-Less administration issues.

Question 31

Disadvantages of standard forms of contracts?

Answer 31

Broad and would need amendments to tailor to Employer/contractor.

Question 32

What are examples of JCT Contracts?

Answer 32

-Standard Building Contract
-Minor Works Building Contract
-Design and Build Contract”

Question 33

What are relevant events? with examples?

Answer 33

Event that prolongs the project. Entitles the contractor to an extension of time.
-Variations and instructions
-Exceptionally adverse weather

Question 34

What are relevant matters? with examples?

Answer 34

Issues that occur in a project that the employer is responsible for and entitle the Contractor to loss and expense claims.
-Failure to give possession/access to site.
-Delay instructions
-Delay in work the Employer is responsible.

Question 35

What is the difference between partial possession and sectional completion?

Answer 35

Sectional completion is pre-planned and involved delay damages. Partial possession requires the Contractor’s consent.

Question 36

What the contracts within NEC suite?

Answer 36

-NEC ECC + short (Client and Subcontract)
-NEC Professional Service + short (Client and Subcontract)
-NEC FM
-NEC Alliance
-NEC Design build operate

Question 37

NEC Secondary Clauses

Answer 37

X1 - Inflation adjustment
X2 - Changes in law
X5 - Sectional completion
X7 - Delay damage
X11 - Termination by Client
X15 - Contractor’s design
X22 - Early contractor involvement(Only used with Option C&E)

Question 38

What compensation events and some examples?

Answer 38

Changes in the project that result in changes in cost or time for either the client. List detailed in Clause 60. Some include:
-Access to site
-Changes to scope

Question 39

Contract Practice - Level 2 example?

Answer 39

Raising subcontract with Atkins on RAF M.
What is included in the contract:
-Contract document
-Framework agreement
-Collateral warrant
-Scope register (Drawings list and site information list)
-Payment schedule

Question 40

Contract Practice - Level 3 example?

Answer 40

Advised on the need of another contract for the surveys on RAFM. Had to use a full contract due to the survey value and risk of work and insurances.