3.1 Contract Practice Flashcards
What is a legally binding Contract? What are the key elements?
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
What is the Local democracy, Economic Development and Construction Act 2009?
The Act amended the housing grants construction and regeneration Act 1996. Makes further amendments to how contracts are entered, payments and adjudication.
What are the provisions under LDEDC act?
-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.
What information is typically found in a letter of intent?
- Detailed decription of works
- Contract sum
- Date for possession
- Date for completion
- Insurance provision
- Method of payment
- Expiration date of the letter
- Right not to award main contract
- ADR
What is a letter of intent?
A letter from Employer to Contractor indicating the Employer’s intention to enter into contract.
Advantages of Letter of intent?
-Save time and cost by starting contract works before main contract is agreed.
Disadvantages of Letter of intent?
-May result in complacency in getting main contract agreed and signed.
-Less robust than a main contract.
-Employer’s negotiation strength is usually reduced.”
What is a PCG?
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.
What are Third Party Rights?
-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.
Advantages of third-party rights?
-Save time and cost as you don’t need to issue multiple CWs?
-Certainty, no renegotiating unlike CWs.
Disadvantages of third-party rights?
-Lack of flexibility
-Need for careful drafting
What is a Collateral Warranty?
A formal contractual document that creates a direct contractual relationship between two parties.
What is the difference between a bond and a collateral warranty?
Bond is generally financial and CWs pass on contractual obligations. Bonds are contained within the contract but CWs sit outside the contract.
Example of the collateral warranty?
D&B contract Employer might want CWs for the design team.
What is an assignment?
Assignments pass the benefit but not the obligation to a third party.
What is a bond?
Protection for the holder from non-payment, lack of performance, insolvency or warranty issues
What are the different types of bonds?
-Performance bond
-Retention bond
-Advance payment bond
-Tender bond
-Off-site materials bond
Why would an employer require a performance bond?
-Contractor is new or unapproved
-Concerns over contractor’s finances
-A recession is looming
-Employer wants to protect their commercial exposure
What are different types of performance bonds?
On demand - available without meeting any requirements
Conditional - requires employer to prove a loss as a consequence of the contractor.
What is a Tender bond?
Provides security if the successful bidder fails to get into contract.
What is an Offsite materials bond?
Provides security for material being manufactured off site that have been paid for.
What is a retention bond?
Will pay the Employer part or all the bond if contractor fails to complete the defects.
What is an advanced payment bond?
Protects the payment that is issued before contract works begin.
What are defects and the different types?
Part of work not in accordance with scope or law. There can be Patent or Latent defects.
What is novation?
Replacing one party in a contract with another.
What is retention?
A percentage (usually between 3-5%) of the contract is held during the construction stage to safeguard against defects the contractor fails to remedy.
What are the types of Insurances?
-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
What can be done at tender stage to identify potential contractor insolvency?
-Check for front loading in tender submission.
-Bank references
-Credit check D&B Report
-Previous references
-Bond or PCG
What are the considerations when selecting a contract?
Client
Priorities - time, cost, risk, quality
Procurement route
Value of work
Nature of work
Complexity of work
Size and location of work
Advantages of standard forms of contracts?
-Written by legal experts
-Quicker to agree as most employers and Contractors are familiar.
-More consistencies and aid from previous parties.
-Less administration issues.
Disadvantages of standard forms of contracts?
Broad and would need amendments to tailor to Employer/contractor.
What are examples of JCT Contracts?
-Standard Building Contract
-Minor Works Building Contract
-Design and Build Contract”
What are relevant events? with examples?
Event that prolongs the project. Entitles the contractor to an extension of time.
-Variations and instructions
-Exceptionally adverse weather
What are relevant matters? with examples?
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.
What is the difference between partial possession and sectional completion?
Sectional completion is pre-planned and involved delay damages. Partial possession requires the Contractor’s consent.
What the contracts within NEC suite?
-NEC ECC + short (Client and Subcontract)
-NEC Professional Service + short (Client and Subcontract)
-NEC FM
-NEC Alliance
-NEC Design build operate
NEC Secondary Clauses
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)
What compensation events and some examples?
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
Contract Practice - Level 2 example?
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
Contract Practice - Level 3 example?
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.
Why would you not use PSC for site works?
- payment are different (no option b, d, f)
- insurances
- comp events
What are the different types of LoI?
- Comfort : gives assurance that the party intended to act at that particular time.
- Proceed with consent to spend : allows work to proceed to a certain value.
- Recognition of contract : contract is substantially agreed.
What is retention of title?
Allows the owner of goods to retain ownership until they’re fully paid for.
What is the difference between ECC and ECSC?
- Short only has lump sum payment option
- Designed for simple, low risk contracts
- No PM or supervisor, just Contractor and Client
- No requirement for programme
How do you assess EoT claims?
NEC Programme/Time is detailed in clause 30 - 36
- Review the accepted programme against the latest programme/CE.
- Only changes in key dates or planned completion are CEs.
- PM can assess if there isn’t an Accepted programme.
What is the main certs under NEC?
Completion Certificate - Given when scope is complete and any major defects are resolved.
Defects Certificate - Issued by Supervisor/PM confirming all defects have been resolved in the DLP.
Final Certificate - Given after final assessment following Defects cert or termination certificate.
How do you value change?
Under NEC Option C (Dependent on Options selected):
- One of the 21 CEs should be triggered under clause 60
- Defined cost of work done to dividing date.
- Defined cost of work to be done after the dividing date.
- Fee applied
Review the resources that have been affected within the activity schedule. Can also refer to the Schedule of Cost Components. CE should bring the contractor back to where they were before the event.
