Assignment, Third Party Rights & Collateral Warranties (Section 7)

Question 1

What are 3rd party rights?

Answer 1

3rd party rights allow parties not privy to a contract to enforce rights of that contract.

Question 2

What is The Contracts (Rights of Third Parties) Act 1999?

Answer 2

The Contracts (Third Party Rights) Act 1999 changed the law of privity of contract; third parties may now enforce the terms of a contract where:

1. ) an express right has been grated to do so in the agreement or
2. ) the contract grants a benefit to a third party

Question 3

When were 3rd party rights implemented in all contracts?

Answer 3

May 2000.

Question 4

What and where 3rd parties to a contract stated?

Answer 4

The terms and parties who can enforce these terms are stated in the Contract Particulars.

Question 5

If a third party is not named in the contract do they still have any rights as a result of the Act?

Answer 5

Yes.

If the contract grants a benefit to a third party (which isn’t named in the contract) then they may still enforce the rights of the contract.

Question 6

What is a collateral warranty?

Answer 6

Collateral Warranties provide for aduty of careto be extended by one of thecontractingparties to athird partywho is not party to the originalcontract.

Question 7

What is included in a JCT standard warranty?

Answer 7

Limit of liability, net contribution clause, PI insurance, step in rights, assignment and novation rights

Question 8

What are step in rights?

Answer 8

Step-in rights can be used to enable aprojectto continue with one party being replaced by another. For example if theclientbecomesinsolvent, the funder would be able to step into their position,completetheprojectand so potentially recover the money owed to them.

Question 9

What is a limit of liability?

Answer 9

A limitation of liability clause is a provision in a contract that limits the amount of exposure a company faces in the event a lawsuit is filed or a claim is made.

Question 10

What are net contribution clauses?

Answer 10

A net contribution clause states that where two or more parties involved in a construction project, the liability of each party will be limited to the amount which would be apportioned to that party by a court.

Question 11

What are the advantages of Collateral Warranties and 3rd Party Rights?

Answer 11

Advantages of CW’s:

1. ) They’re flexible
2. ) Contractors are used to CW’s
3. ) Can be introduced at any time i.e. after the main contract has been agreed.

Advantages of 3rd Party Rights:

1. ) Cheaper than CW’s
2. ) Saves time
3. ) Less admin

Question 12

What is assignment?

Answer 12

Where the benefits of the contract are assigned to another party (CWs).

Question 13

What is novation?

Answer 13

Where the benefits and the burden of a contract are transferred from one party to another (Architects in D&B)

Question 14

What is required when novation is used?

Answer 14

Novation agreement (principle contract must have express terms obliging the contractor and the consultant to enter into the novation agreement), novation fee schedule, CW from contractor to pre-novated design team and client to novated design team (issues over liability)*.

NOTE - the contractor will only need a collateral warranty to the pre-novated design team if the contractor doesn’t wish to take of the design team effectively as if they had been the employer from the beginning i.e. the contractor states that they have examined the design and adopted it.

Question 15

What is a limitation clause?

Answer 15

Limit to liability - limits the amount of financial exposure a company faces in the event a lawsuit .

Question 16

What are the advantages of novating a design team?

Answer 16

1. ) Reduced contractual risk for the employer (transfer of responsibility to the Contractor)
2. ) Contractor has greater influence and control over the design (increases buildability of the design)
3. ) Ensure consistency of the design (rather than contractor using different design team).

Question 17

What are the reasons for not novating a design team?

Answer 17

To maintain quality i.e. the client can keep a closer eye on design quality if the design team report directly to them (rather than being novated to the contractor).

Question 18

If you novate your design team how can you ensure you maintain quality in the design?

Answer 18

Retained advisors.

Design team are novated to the contractor during on-site operations but still have retained services reporting duties to the original client. If the same design team reports to both the client and the contractor then this may create a conflict of interest. It is best practice for two separate teams within the design consultancy to report to the client and the contractor.