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C - Contract Practice Flashcards

1
Q

What are the principles of Contract Law?

A

1) Offer
2) Acceptance
3) Consideration
4) Intent
5) Legality
6) Capacity

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2
Q

What is meant by OFFER?

A

A promise made by one party which matures into a Contract when accepted by the other party

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3
Q

What is meant by ACCEPTANCE?

A

Where a party agrees to the terms of the offer presented by another party, creating a binding contract.

  • Acceptance must be unconditional
  • Negotiations are counter offers, not acceptance
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4
Q

What is meant by CONSIDERATION?

A

Parties must exchange something of value for a contract to be binding.

  • E.g. Selling their house for $1 is valid consideration. Selling for nothing is not.
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5
Q

What is meant by INTENT?

A

Not all agreements between parties are Contracts. It must be clear the parties intended to enter into a legally binding contract.

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6
Q

What is meant by LEGALITY?

A

For a contract to be enforceable, the subject matter of the contract cannot be illegal.

  • E.g. A contract for the sale of illegal drugs is not enforceable.
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7
Q

What is meant by CAPACITY?

A

All parties must have the ability to understand the terms of any obligations under the contract.

Consent to the contract must be freely given.

Each party must have the capacity to deliver their consideration (e.g deliver the services and pay for it)

  • E.g. Force, fraud, misrepresentation of a party renders a Contract void.
  • People under 18, under the influence of drugs or alcohol and those suffering mental health conditions generally lack the capacity to enter into contracts
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8
Q

What is the Construction Contracts Act 2004 (WA)?

CCA

A

Came into operation 1st January 2005

Often referred to as the ‘Security of Payment Legislation’. Similar legislation exists in each State and Territory around Australia.

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9
Q

What are the objectives of the Construction Contracts Act 2004 (WA)?

A

1) Prohibits and modifies certain provisions in construction contracts
2) Implies provisions in construction contracts when particular matters are not addressed in the contract
3) Provides a means of rapid adjudication of payment disputes

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10
Q

When does the Construction Contracts Act 2004 (WA) apply?

A

To all contracts for construction work undertaken in Western Australia.

  • Construction work is broadly defined in the Act, it includes most of the commonly understood activities relating to construction.
  • Mining and mineral extraction is not covered under the Act
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11
Q

What does the Construction Contracts Act 2004 (WA) PROHIBIT?

A

1) Pay when paid clauses
2) Contracts which require a payment to be made more than 30 days after the claim is made (previously 50 days)
3) Any terms that attempt to contract our of the operation of the Act.

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12
Q

What are the IMPLIED provisions provided under the Act?

A

1) When and how to make a payment claim
2) When and how to respond to a payment claim
3) When a payment claim is due to be paid
4) Variations
5) Interest on overdue payments
6) Ownership of goods
7) Duties as to unfixed goods on insolvency
8) Retention money

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13
Q

What does the Act imply regarding when and how to make a payment claim?

A

The Contractor is entitled to make a claim at anytime, after the Contractor has performed any of its obligation.

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14
Q

What does the Act imply regarding when and how to respond to a payment claim?

A

The receiving party must provide notice of dispute within 14 days of receiving the claim.

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15
Q

What does the Act imply regarding when a payment claim is due to be paid?

A

Payment must be made within 28 days after a party receives a claim.

Where they do not reject, or dispute a claim, they must pay the whole amount of the claim, or the amount that is not disputed.

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16
Q

What does the Act imply regarding variations?

A

The Contractor is not obliged to carry out a variation, unless the Contractor and the Principal have agreed on:

  • The nature and extent of the variation
  • The amount, or means of which calculating the amount to be paid for the variation
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17
Q

What does the Act imply regarding interest on overdue payments?

A

Interest is payable if a payment is not made by the time required.

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18
Q

What does the Act imply regarding ownership of goods?

A

Ownership of the goods pass once the Contractor has been paid, or when the goods are installed.

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19
Q

What does the Act imply regarding duties as to unfixed goods on insolvency?

A

If the Principal becomes insolvent, they must not allow unfixed goods to become fixtures, or fall into the possession of anyone other than the Contractor.
Secondly, they must allow the Contractor reasonable opportunity to repossess the goods.

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20
Q

What does the Act imply regarding retention money?

A

Retention money is to be held in trust by the Principal, until the happening of a number of specified events.
The money will be paid to the Contractor, unless the Contractor agrees in writing to give up claim on the money.

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21
Q

What is the rapid adjudication process under the Construction Contract Act?

A

A quick, cost effective alternative to going to court or arbitration.

  • A party intending to take a dispute to adjudication must serve written notes within 90 business days of the dispute arising
  • The respondent has 10 business days to respond with supporting documentation
  • The adjudicator has 10 business days to make their determination

Under the Act, each of the parties bear their own costs of adjudication.

The decision is binding, although it can be taken into more formal proceedings - e.g. Arbitration, Litigation

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22
Q

What amendments were made to the Construction Contracts Act WA (2004) under the Amendment Bill 2016?

A

1) Measurement of time changed from ‘days’ to ‘business days’
2) A blackout period was introduced over Christmas and Public Holidays
3) Parties now have 90 business days after the dispute arises to apply for adjudication (previously 28 days)
4) Maximum time allowable for payment of a claim is 30 days (previously 50 days, note this is still measured in days, not business days)
5) Change in the definition of ‘payment claim’, now allows for previously made claims to be recycled.
6) Adjudicators have the power to allow an applicant to withdraw their claim. This enables parties to continue to try to settle their differences, even after lodging the claim for adjudication.

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23
Q

What is a Letter of Intent?

A

A method of instructing the contractor to proceed with the works before the contract has been formally executed

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24
Q

In what circumstances may a letter of intent be used?

A

1) Where the employer needs to commence works before a certain date
2) Where there are materials with long lead in times and it would aid the programme

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25
Q

What is the purpose of a letter of intent?

A

To form a legally binding agreement until the actual contract is signed, that allows work to commence while safeguarding the employers rights

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26
Q

What are the main elements of a letter of intent?

A

1) The Parties
2) State the Contract it is intended to enter into
3) Contract Sum
4) Clear description of the works
5) State any limits - value / time / scope
6) Procedures - for key issues such as payment / termination / dispute resolution
7) State the ‘Contract will apply retrospectively’
8) Confirm that the Contract created by the LOI will be terminated upon execution of the principle Contract
9) State the basis for calculating payment, should the main contract not be executed

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27
Q

Who issues a letter of intent?

A

The Client

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28
Q

Who signs a letter of intent?

A

Both the Client and the Contractor

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29
Q

What are the advantages of a letter of intent?

A
  • Allows the work to commence before the contract is finally agreed
  • Provides more safeguards than just telling the Contractor to start without one
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30
Q

What are the disadvantages of a letter of intent?

A
  • May lead to complacency and di-incentivise them to sign the main contract
  • Less robust than the main contract
  • You would not want the works to continue for very long without getting the Contract signed
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31
Q

What types of letters of intent are there?

A

1) Comfort Letter
2) Consent to Spend
3) Letters recognising the existence of a binding contract

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32
Q

When may your Client use a Comfort Letter?

A

A non-binding letter, used to express a party’s intention to act in a particular way at some point in the future

  • Such a letter does not oblige the party making the statement to act in that way
  • It does not create a Contract between the parties, but may impose certain obligations on parties in relaying to payments for any work undertaken

NOT BINDING

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33
Q

When may your Client use a Consent to Spend Letter?

A
  • Provides an instruction to proceed. This allows works to proceed up to a certain value while the contract is being finalised
  • It does create a legally binding contract, which is superseded once the principle contract is executed

BINDING

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34
Q

When may your Client use a Letter Recognising the Existence of a Binding Contract?

A
  • Also referred to as a letter of acceptance
  • Used by some forms of Contract to formally execute the Contract itself
  • Typically issued only once the Contract has been substantially agreed, usually marks the completion of negotiations between parties
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35
Q

What would you say if the Client asked you to draft a letter of intent?

A

As it is a legally binding document we are not qualified to draft them as a Quantity Surveyor.

Not covered by PI Insurance

Advise them to seek legal advice

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36
Q

What is a Pre-Construction Services Agreement (PCSA)?

A

Documents the services that the contractor is to perform before entering into the building contract.

It identifies the terms and conditions under which these services are to be performed.

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37
Q

What is the difference between a letter of intent and a pre-construction services agreement?

A
  • In legal terms, not much between the two
  • Key difference is the situations where either is used
  • PCSA generally used during a two stage tender, when the Contractor is brought in to liaise with Consultants. Most PCSA’s make no provision for the Contractor to enter site to carry out works.
  • Letters of intent usually not part of the tendering process and provide the Contractor to enter site and carry out works
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38
Q

What should be taken into account in the wording of a PCSA?

A

1) Ensure it does not commit the Client to enter into a building contract
2) Clearly document the services the Contractor is to provide and how they will be paid
3) Ensure they are only obliged to pay for the documented services and nothing else
4) State that the Client may decide at his own discretion whether to appoint the contractor at the end of the second stage, or whether to even proceed with the project at all
5) State that if they do not appoint the Contractor, the Client will not have any liability for any loss of profit, contract or other opportunity.

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39
Q

What are the possible pitfalls of PCSA’s?

A
  • It is possible that PCSA’s may include enabling works although it is not advisable to go beyond that
  • The more works the Contractor completes before entering the principle contract (when the Contract Sum and programme are agreed), the weaker the Client’s negotiating position becomes
  • If the Contractor is not selected, new Contractor’s will be reluctant to adopt responsibility for previous Contractor’s works - Split liabilities
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40
Q

Would you recommend the use of PCSA’s?

A

Yes

  • Important if the pre-construction period covers a long period of time
  • If the contractor is to integrate into the design team and provide advice
  • You need to be careful that it does not encourage a lot of work to commence before the building contract is signed
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41
Q

What alternative forms of procurement could be used that may safeguard the Client better than proceeding under a Pre-Construction Services Agreement?

A

Construction Management

This would allow the Client to start construction before the design is complete as oppose to trying to shoehorn a traditional or D&C contract into a programme where it does not fit

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42
Q

What are the common Contract Documents?

A

1) Conditions of Contract - and any amendments to the standard forms (General Conditions)
2) Preliminaries
3) Contract Sum Analysis
4) Drawings
5) Specifications
6) Existing Building Information
7) Any Contractors Proposals for Contractors Design Portion

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43
Q

What is a Standard Form of Building Contract?

A

A form of contract that contains conditions which are applicable, or can be made applicable by the use of alternatives, to a wide range of building projects.

It is common for a standard form of building contract to be used in construction, however, in some cases bespoke contracts will be implemented which will be loosely based on a standard form of Contract.

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44
Q

Name some Standard Forms of Contract

A

Australian Standard Form (AS)

UK
Joint Contracts Tribunal (JCT)
New Engineering Contract (NEC)

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45
Q

What is a bespoke contract?

A

Contract conditions that are drafted specifically for a particular project

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46
Q

What are the advantages of Standard Forms of Contract over Bespoke Contracts?

A

1) Written by legal experts
2) Rights and obligations of each party are clearly set out
3) Risks should have been allocated equitably between the parties
4) Parties should be familiar with the provisions in the form
5) Time and expense of preparing contract documentation is reduced
6) Case law is built up over time - provides a good source of knowledge and clarity of terms

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47
Q

What are the disadvantages of Standard Forms of Contract over Bespoke Contracts?

A

1) Apportionment of risk is rarely questioned and therefore becomes implicit - not managed appropriately
2) Familiarity is decreased as they are rarely used as printed - regularly amended
3) May not be appropriate to the needs of a particular project or client
4) Using an inappropriate Standard Form for the project will cancel out the advantages

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48
Q

When would a bespoke contract be used rather than a standard form?

A
  • Generally used for major projects with extensive obligations
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49
Q

What are the different types of Standard Form of Contract?

A

Three types:

  • With Quantities
  • Without Quantities
  • With Approximate Quantities
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50
Q

When would you use a Standard Form of Contract ‘With Quantities’?

A
  • Work has already been designed
  • Where there is a Bill of Quantities
  • It is a lump sum form of Contract
  • Contractor’s risk is limited to price only
  • Client takes the risk of errors in the bill
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51
Q

When would you use a Standard Form of Contract ‘Without Quantities’?

A
  • Work has been designed prior to the Contract but there is no bill
  • Contract documents include drawings, specification and schedule of rates
  • It is a lump sum form of contract
  • Contractor’s risk includes both price and quantity
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52
Q

When would you use a Standard Form of Contract ‘With Approximate Quantities’?

A
  • This is a remeasurement form of Contract
  • There is no Contract Sum
  • Used where the design is not completed at the time of execution
  • An approximate Bill of Quantities has been prepared
  • Construction is wished to commence prior to the design being completed
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53
Q

What are the main types of Australian Standard Forms of Contract?

A

AS4000-1997 - General Conditions of Contract

AS4902-2004 - General Conditions of Contract for Design and Construct

AS4905-2000 - Minor Works Contract Conditions

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54
Q

When would you use the AS4000?

A

Suitable for a wide variety of Construct only projects including building, civil, electrical and mechanical engineering.

  • Can be made up with Lump Sum or Schedule of Rates, or both
  • Has provision for a Bill of Quantities
  • Requires administration by a Principal-appointed Superintendent
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55
Q

When would you use the AS4902?

A

Suitable for Design and Construct Projects

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56
Q

When would you use the AS4905?

A

Suitable for construction projects of a simple nature and limited monetary value (Advisable under $250,000)

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57
Q

What is a Measured Term Contract?

A

Where a client requires maintenance / minor works to be undertaken on a regular basis, over a defined period of time, on a defined list of properties

Contract agreed on a Schedule of Rates for carrying out certain types of work

Can be let on a fixed, or fluctuating price basis

Contains a break provision for terminating the Contract early

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58
Q

What is the legal principle of Contra Proferentum?

A

Where ambiguous clauses are construed against the party who put the Contract forward.

If a Contract is prepared by one party who may use superior bargaining power to get the other party to accept it, Contra Proferentem may apply

It does not apply to standard forms of Contract, although it would apply to any amendments

It applied to bespoke contracts

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59
Q

Can a Quantity Surveyor provide legal advice for Contracts?

A

NO

Quantity Surveyor’s are not insured, not qualified to give legal advice

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60
Q

What is retention?

A

A sum that is generally deducted at each monthly payment claim.

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61
Q

What is the purpose of retention?

A

It provides the client with some security that the Contractor will return to correct any defect during the defects liability period.

If the Contractor does not return, the client can use the retention held to fund the payment of others to correct the defects.

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62
Q

What are the typical features of retention?

A

1) It is usually a fixed % of the Contract Sum (typically 5%)
2) 50% is typically released at Practical Completion
3) Remaining 50% is released at the end of the defects liability period

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63
Q

What are the disadvantages of retention?

A

Can cause cash flow problems for contractors, especially if the retained amount is significant

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64
Q

What alternatives are there to retention?

A

Retention Bonds e.g. Bank Guarantees

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65
Q

What principles apply to using Retention Bonds?

A

1) Provided by the contractor in lieu of retention from interim payments
2) Should be the same value as the retention would have been
3) The alternative needs to be stated within the Contract particulars
4) Eases cash flow problems for Contractors
5) Same principles of amount and periodic release apply

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66
Q

What are the disadvantages of the use of retention bonds?

A

1) Employer pays a premium for taking out the bond
2) Increases the employers cash flow
3) The employer does not get the interest accruing on the retention held
4) It may reduce the Contractors incentive to complete the defects

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67
Q

How is retention / retention bonds applied on Construction Management Contracts?

A
  • Retention is applied to each individual trade contract
  • Practical completion certificates must be issued for each trade package, so there are numerous defects liability periods.
  • This means retention must be released when required for each individual contract
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68
Q

When does retention get released?

A

50% at Practical Completion

50% at the end of the defects liability period

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69
Q

Who keeps the interest on retention money?

A

The Client

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70
Q

What is Assignment?

A

Where the RIGHTS AND BENEFITS of one contractual party are transferred to a third party

Assignment allows the benefits of a contract to be transferred, but not the burden (burdens must be novated).

The right to assign does not need to be agreed as part of the contract. However, it can be restricted or excluded from the contract

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71
Q

Can benefits be assinged under the contracts you work with?

A

Amended AS4000 - Typically excluded from contracts i have used.

Clause 9.1 - Parties must obtain prior written approval to assign under the contract, cannot be unreasonably withheld.

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72
Q

Can you provide an example of when assignment may occur?

A

A contractor can assign the benefit of payment to a sister company to improve cash flow.
However, assignment cannot transfer the responsibility to undertake the WUC

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73
Q

What is Novation?

A

Where Contractual RIGHTS AND OBLIGATIONS are transferred to a third party

Benefits and burdens can be transferred under novation.

Novation agreement is not possible without consent.

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74
Q

Can you provide an example of when novation may occur?

A

Common in D&C contracts where the design team is appointed by the Client, once the contractor is appointed, the design team are novated to work for the Contractor.

Contractor is not automatically responsible for the design prior to novation, to achieve this the contract needs to state the contractor has examined and adopted the design

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75
Q

What affect does novation have on the client’s rights?

A
  • Lose all contractual relations with the novated party

- Common for there to be a collateral warranty

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76
Q

What are Collateral Warranties?

A

Creates contractual relationships between parties where there would otherwise not have been any

Alongside another agreement

77
Q

Why are collateral warranties used?

A

Due to the principle of privity of contract, the rights and obligations under a contract can only be enforced by a party to that contract

Collateral warranties give remedies to parties that due to privity of contract would not otherwise have them

78
Q

Provide some examples of when a collateral warranty may be used?

A

1) When the design team is novated over to the contractor under a design and construct agreement. Common for collateral warranties between the client and the novated party
2) Third party financial institutions in a project, but not party to the main contract e.g. funding institutions, future tenants / purchasers
3) The client may want collateral warranties with key subcontractors or suppliers, as if the main contractor were to go into liquidation they would have no contractual link with them for redress in case of defective workmanship

79
Q

How are warranties requested?

A

They should be notified to the tenderers at the time of tender

80
Q

What are the common clauses / terms of collateral warranties?

A

1) They should mirror that of the main agreement

2) Therefore, if a party is in breach of the main agreement, they would also be in breach of the warranty
- Limitation of liability
- Reasonable skill and care vs fit for purpose
- Requirements of PI Insurance
- Assignment rights
- Novation rights

81
Q

What are the third party rights within Australia?

A

General rule under Australian law is that only the parties to a contract are bound by its terms and entitled to benefit and enforce the rights granted by it.
This is known as the doctrine of privity of contract.

Australia has no legislation to allow third parties to enforce contracts generally. However, some jurisdictions do have legislation for third parties to enforce contracts in certain circumstances

82
Q

What is a limitation clause?

A

Clauses that limit a party’s liability for loss e.g.

  • Limitation to a fixed sum
  • Limitation to the extent of PI Insurance
  • Exclusion of consequential loss
  • Limitation to loss that can be recovered from a third party
  • Limitation to responsibility - net contribution clause
83
Q

What is a net contribution clause?

A

Ensures that the consultants liability is only for the loss they cause

If another party is also responsible for the loss, the client will have to sue them separately.

84
Q

What are the main sources of guarantee sought in construction?

A

1) Bond

2) Parent Company Guarantee

85
Q

What is a bond?

A

An arrangement where a contractual duty owed by one party to another is backed up by a third party

86
Q

What form must a bond be in?

A
  • Must be in writing

- It will contain a duration and financial limit

87
Q

Who normally provides a bond?

A

A financial institution

88
Q

What are the main types of bond?

A

1) Performance bond
2) Retention bond
3) Materials off site bond
4) Advance payment bond
5) Tender bond
6) Payment bond

89
Q

What is a performance bond?

A

Guarantees the satisfactory performance of one party’s contractual obligations

Typically 10% of the Contract Sum

90
Q

How can a client call for payment of a performance bond?

A

They have to prove that the contractor has defaulted in their obligation under the main contract and that a loss has been suffered

91
Q

Why might you get a performance bond for a smaller contractor?

A

They are more at risk of going insolvent.

Less well established, probably are more dependent on credit and good cash flow

92
Q

How much is a typical performance bond worth?

A

10% of the Contract Sum

93
Q

What are the two variations of performance bonds?

A

Conditional - Client has to prove that the Contractor has not performed

On Demand - No pre-conditions needed to be met. Not often used, seen as too harsh

94
Q

What is the purpose of a tender bond?

A

Covers the party inviting the tender, if the lowest tenderer refused to enter into a contract with them

Can be important if the inviting party is in turn tendering for work on the basis of that tender

Should prevent idle tendering - incentive to put in a serious price

95
Q

What is the purpose of a retention bond?

A

Instead of deducting retention from each interim payment

The value should be the same as if retention were deducted

96
Q

What is the purpose for materials off site bond?

A

Covers the employer against loss or damage to materials already paid for, before materials are delivered to site.

97
Q

What are the arguments against requesting bonds?

A

1) Shouldn’t be needed - tender selection process should ensure only reliable, capable contractors are selected
2) Unnecessary premiums are added to the contract sum, which are unlikely to be called on - this can add a lot of money to project costs if the developer is a regular builder

98
Q

Where may bonds be appropriate?

A

1) If the contractor is new or unapproved
2) To protect the interests of a ‘one off’ developer
3) Where a bond is thought appropriate to the risks of the project

99
Q

What is a Parent Company Guarantee?

A

An arrangement where the contractual performance of one company in a corporate group is underwritten by the other members of that corporate group

100
Q

What are the differences between Bonds and Parent Company Guarantees?

A

PROTECTION

  • Bonds provided by a third party
  • PCG is only as strong as the Parent Company

COST / AVAILABILITY

  • Bonds are provided for a fee
  • PCG’s are free

COVER

  • Bonds do not guarantee completion of the project, just recovery of a loss upto a certain amount
  • PCG’s guarantee continuance, but is little use if the parent company is bust

DURATION

  • Bonds expire at practical completion, or the end of the defects liability period
  • PCG’s can be 12 years

ENFORCEMENT
- Bonds are notoriously difficult to get pay-out. Bondsman will require the breach of contract to be upheld in adjudication or court proceedings

101
Q

What is insurance?

A

A risk spreading mechanism

102
Q

What insurance policies may be required under the contract?

A

1) Insurance of the Works
2) Public Liability Insurance
3) Insurance of Employees
4) Professional Indemnity Insurance

103
Q

What is insurance of the works?

A
  • Commonly known as ‘Contractors all-risk insurance’
  • A policy that covers all risks associated with a construction project
  • Must be raised under joint names of the contractor and principal
  • Covers against the cost of unforeseen loss or damage to building works, plant and materials
104
Q

What is public liability insurance?

A
  • Covers against personal injury or death, or loss or damage to property of third parties such as members of the public or independent subcontractors
105
Q

What is insurance of employees?

A

All firms that employ staff are legally required to hold employers liability insurance

Insurance that covers employers liability for injury, illness or death of an employee because of work they do for the employer

106
Q

What is professional indemnity insurance?

A

Provides financial cover in the event a client suffers financial loss as a result of a breach of professional duty

Not always required for a contractor, only if providing professional services e.g. design

107
Q

What does ‘joint names’ mean with regards to insurance?

A

Where the employer and contractor are insured under the same policy.

It stops the insurer having the right to subrogation against the other party if they caused the loss

108
Q

What is subrogation?

A

A legal technique where the insurer steps into the shoes of the insured in order to take the benefit of any legal rights or remedies they may have against a third party responsible for the loss.

109
Q

What is a valuation?

A

They are carried out by the Quantity Surveyor periodically to pay the Contractor for the works completed.

Usually carried out monthly, although the contract will specify the intervals

110
Q

What is the purpose of a valuation?

A

To advise the client on a recommended value to be paid to the contractor for the works completed.

Enables the Superintendent to issue their certificate

111
Q

How is the Construction Contracts Act relevent to valuations?

A

Prohibits and implies contractual provisions relating to payment

  • Contractor entitled to submit a progress claim at any time after completing the works
  • Payment claims must be responded to within 10 business days
  • Payment terms can be no more than 30 days from the date of the claim
112
Q

What are the provisions within the AS4000 for making and responding to a progress claim?

A

CLAUSE 37

  • Security must be in place prior to the Contractor submitting their first progress claim
  • Contractor shall claim payment progressively in accordance with Item 28 - Annexure A
  • An early progress claim is deemed to have been made on the date for making that claim
  • The claim must be in writing and provide a value of the work completed, any adjustments, the amount previously certified, the amount claimed by the contractor and a statutory declaration
  • The Superintendent shall issue the contractor a progress certificate within 10 days
  • The Contractor is to submit a tax invoice within 2 business days of receipt of the progress certificate
  • The Client must pay the tax invoice in accordance with the Contract and the Construction Act
113
Q

What is a Statutory declaration?

A

A legal document that contains a written statement about something that is true.

It must be witnessed by an approved person.

114
Q

What are the main components of a valuation?

A

1) Preliminaries
2) Measured work
3) Variations
4) Materials on site
5) Materials off site
6) Loss and expense
7) Retention

115
Q

How does the AS4000 deal with unfixed plant and materials?

A

CLAUSE 37.3

The Principal shall not be obliged to make payment for unfixed plant or materials

116
Q

What must be in place to include payment for unfixed plant and materials?

A

1) Additional Security
2) Satisfy the Superintendent that:
- The plant / materials have reasonably, but not prematurely been delivered
- Ownership will transfer to the Principal upon payment (vesting certificate)
- The plant / materials are properly stored, labelled the property of the principal and adequately protected / stored
- The plant / materials are appropriately insured

117
Q

What is retention of title?

A

Where the sub-contractor or supplier retains the ownership of materials until they are paid for by the Contractor.

This is why vesting certificates are important - otherwise the Client may be paying for materials that are not owned by the Contractor.
This can lead to disputes in the event of insolvency

118
Q

Under the AS4000, what happens if the Superintendent does not issue a progress certificate?

A

If a progress certificate is not issued within 10 business days of receiving a progress claim, that progress claim shall be deemed to be the relevant progress certificate.

CONTRACTORS CLAIM IS TO BE PAID IN FULL

119
Q

What is a named sub-contractor?

A

The client supplies a list of names in the preliminaries / specification and the Contractor chooses which one they would like to appoint.

120
Q

What are the advantages of using named sub-contractors?

A

The client can influence the contractors sub-contractor selection, whilst leaving the responsibility of their performance with the Contractor.

121
Q

What is a nominated sub-contractor?

A

A sub-contractor selected by the client to carry out an element of the works

The client will nominate the sub-contractor in the preliminaries / specification

The nominated sub-contractor is imposed on the contractor

The works are normally subject to a prime cost

122
Q

What are the advantages of using nominated sub-contractors?

A

1) The client dictates which sub-contractors are used
2) The sub-contractor could have had input into earlier design stages
3) High quality - nominated sub-contractors are usually used for specialist tasks and the work should be to a high quality acceptable to the client

123
Q

What are the disadvantages of using nominated sub-contractors?

A

1) Their performance is the responsibility of the Client
2) If they delay the Contractor, the Contractor can claim EOT and loss and expense
3) Depending on Contract terms, the contractor is not responsible for their design - split points of responsibility

124
Q

What are liquidated damages?

A

A mechanism in the contract for the contractor to pay the client in the event that the contract is breached.

Typically associated to failing to achieve practical completion by the date stipulated in the contract

125
Q

How are liquidated damages calculated?

A

A genuine pre-estimate of the likely loss

NOT A PENALTY

126
Q

What would be included within liquidated damages?

A

Client loss associated to rent / sales, may include:

  • Loss of rent
  • Loss of income
  • Fees
  • Storage costs
  • Rental costs
  • Fees and fines imposed by third parties
  • Finance costs

Typically set as a fixed daily or weekly sum, although there may be more complicated formulae where works are phased

Important that the method of calculation is precise and formally documented

127
Q

Can liquidated damages be adjusted?

A

NO

Fixed amount, cannot be adjusted if the client incurs a larger or smaller loss

128
Q

What are the benefits of liquidated damages?

A

Removes the obligation of the Client to prove actual losses in the event of a delay

Limits the Contractors liability to a known amount in the event of a delay

129
Q

What clause under the AS4000 deals with liquidated damages?

A

CLAUSE 34.7 - Liquidated Damages

Amount of L&D’s is stated in Item 24 - Annexure A

130
Q

Who can certify Liquidated Damages under the Contract?

A

NOT THE QUANTITY SURVEYOR

The Superintendent certifies the amount due and may issue a provisional assessment of the amount due when issuing any progress certificate

The Principal may deduct such amount from the amount certified

If an EOT is subsequently granted, the Principal shall repay the Contractor any damages paid for the days subject to an EOT

131
Q

What is an extension of time?

A

Adjusts the completion date and relivest the Contractor’s liability to pay liquidated damages for the period of the extension

132
Q

What are the benefits of being able to grant an extension of time?

A

1) It relieves the Contractor’s liability for liquidated damages for a delay that they did not cause
2) It enables another completion date to be set, which maintains the employer’s ability to take liquidated damages if another delay occurs

133
Q

What happens when ‘time is at large’?

A
  • There is no completion date
  • Contractor only has the obligation to complete the works in a ‘reasonable time’
  • Client would have to prove that the Contractor had not completed in a ‘reasonable time’
  • Liquidated Damages cannot be claimed (no date to take them from)
134
Q

What is the procedure for claiming an extension of time?

A

1) The Contractor should notify the Superintendent and the Client of anything which will probably cause a delay
2) They should be notified in writing and evidence the facts of the causation and the extent of the delay
3) They should provide any further information requested by the Superintendent
4) The Superintendent shall assess the claim and provide the Contractor and the Client a written direction evidencing their assessment

135
Q

What are the time periods relating to granting an extension of time in the AS4000?

A

1) The Contractor has 28 days from when they should reasonable have become aware of the causation occurring to claim for an EOT
2) The Superintendent has 28 days from receipt of the claim for an EOT to provide a written direction

136
Q

What is a ‘Qualifying Cause of Delay’?

A

A term used in the AS4000 which identifies events that entitles the Contractor to an extension of time.

Qualifying causes are listed in Clause 1

137
Q

What are the Qualifying Cause of Delay listed in the AS4000?

A

1) Any act, default or omission of the Superintendent, Principal or its Consultants or Contractors (not employed by the Contractor) that is not:
- permitted in the Contract
- within a timeframe permitted in the Contract
- caused by a breach of the Contract by the Contractor
2) State wide industrial dispute
3) Variations
4) Inclement weather
5) Changes to legislative requirements affecting the WUC

138
Q

What relevence does Item 23 (Annexure A) have in relation to extensions of time?

A

It allows parties to agree that a cause of delay, which would otherwise be a qualifying cause of delay to be excluded.
Therefore it does not entitle the Contractor to an EOT.

139
Q

Under the AS4000, what happens if the Superintendent does not respond to an EOT claim within the stipulated time frame?

A

The claim for EOT is deemed accepted as claimed.

140
Q

What is Loss and Expense?

A

Reimburses the contractor for direct loss and expense incurred in carrying out additional work or from an employer’s breach of Contract

141
Q

What is the procedure for claiming loss and expense under the AS4000?

A

The contractor can claim for loss and expense when they have been granted an EOT for a COMPENSABLE CAUSE and has reasonably incurred extra costs as a direct consequence of the delay

The contractor shall notify the Superintendent of its claim for delay costs within 7 days of the determination of the delay by the Superintendent, including any necessary supporting documentation

142
Q

What is a ‘Compensable Cause’?

A

A term used in the AS4000 which identifies events that entitles the Contractor to claim for delay and disruption costs (loss and expense)

Compensable causes are listed in Clause 1

143
Q

What are the Compensable Causes listed in the AS4000?

A

1) Any act, default or omission of the Superintendent, Principal or its Consultants or Contractors (not employed by the Contractor) that is not:
- permitted in the Contract
- within a timeframe permitted in the Contract
- caused by a breach of the Contract by the Contractor

144
Q

What is the difference between a ‘Qualifying Cause of Delay’ and a ‘Compensable Cause’?

A

A qualifying cause of delay entitles the contractor to and EOT

A compensable cause entitles the contractor to loss and expense

AN APPROVED EOT DOES NOT NECESSARILY LEAD TO A CLAIM FOR LOSS AND EXPENSE

145
Q

What are the principles of loss and expense claims?

A

Delay - Time related

Disruption - Inefficiencies and the need for additional resource

Works may be delayed, but not disrupted and conversley
Works may be disrupted, but finish on time

146
Q

What is a delay claim?

A

Essentially a claim for prolongation

Certain resources may have been required for a longer period of time - thus incurring additional cost

147
Q

What is a disruption claim?

A

The contractor will need to show that they were obliged to carry out works in a less efficient manner, as a result of defaults of the client or their representatives.

Disruption costs are more difficult to prove

148
Q

What is the key thing to remember when assessing a contractors claim for loss and expense?

A

It should be the ACTUAL loss incurred by the Contractor

149
Q

What would happen if the contractor provided their claim late, or didn’t provide the required information?

A

They would lose the contractual right to claim for loss and expense

150
Q

What are the common heads of claim for loss and expense?

A

1) Time related preliminaries - additional time on site
2) Thickening of preliminaries - additional supervision due to variations
3) Disruption - under utilisation of plant / labour - difficult to prove
4) Increase labour / material costs during the delay
5) Head office overheads
6) Loss of profit
7) Finance charges - interest
8) Acceleration costs
9) Claim preparation costs

151
Q

How are overheads and loss of profit often calculated in a loss and expense claim?

A

Using formulae

  • Hudson Formulae
  • Emdem Formulae
  • Eichleay Formulae
152
Q

Once loss and expense is ascertained, how is it added to the Contract Sum?

A

It should be added immediately and paid in the next progress claim.

It is not subject to retention

153
Q

Can you use contract rates to calculate a claim for loss and expense?

A

Yes

You would value it in accordance with the valuation rules

154
Q

Explain how you have assessed a claim for loss and expense

A

I have never assessed loss and explain claim, but I would:
Firstly assess if the claim was based on a Client delay or disruption as it is much more difficult to substantiate a disruption claim, I would assess the validity of the claim based on the relevant compensable cause
I would also review the contractors application to identify which of the losses relate to the compensable cause claimed.

155
Q

If you are assessing a claim for loss and expense, what would be the impact of concurrent events?

A
  • A concurrent delay is a delay caused by two or more events that are causing the delay
  • Both issues should be considered on their own meruit and reviewed separately
156
Q

Having assessed the Contractors claim, you find yourself a long way from the Contractor’s figure. How would you advise your client to proceed?

A

The contractor needs to provide any relevant evidence to support the claim.
Assuming this has been provided and the claim has been assessed in a fair and reasonable manner, I would advise the client to only pay the substantiated amount

157
Q

In a claim for loss and expense can a contractor claim for loss of profit?

A

Yes, they can claim for lost profit and overheads which stem from the delays caused by factors which entitle the contractor to a claim for loss and expense.

Contractors must prove on the balance of probabilities that if the delay had not occurred, it would have secured work which would have resulted in additional profit and contribution to head office overheads.

158
Q

What is a Global Claim?

A

Where there is no attempt to separate out all the different causes and their effects.

It lists a whole load of causes of delay / loss and expense and gives the overall effect

159
Q

Why might you discourage global claims?

A

Due to difficulties of proving or disproving them.

Courts are losing patience with global claims - recently considered by the Supreme Court of WA in Built Environs WA Pty vs Perth Airport Pty Ltd

160
Q

What is acceleration?

A

Either describes the completion of the works in a shorter time than anticipated at tender, or the act of recovery by the contractor if they are in delay

161
Q

What options may be considered to accelerate the works?

A

1) Resequencing the works
2) Increasing the working time
3) Increasing the resources employed
4) Changing the working methods
5) Increasing incentives

162
Q

Which are the most and least efficient methods of acceleration?

A

Re-sequencing of the works can be the most cost effective and efficient

Increasing working time and resources employed is usually the least efficient as it usually results in less efficiency

163
Q

Why would a contractor want to accelerate the works?

A

1) Reduce the site running costs
2) Free up key site staff for other jobs
3) Ensure completion on time to avoid liquidated damages

164
Q

Why would a client want to accelerate the works?

A

1) Take possession earlier than the contract date
2) Avoid the site being handed over late
3) Mitigate EOT delays

165
Q

What is the date for completion?

A

The date fixed and stated in the contract particulars

166
Q

How does the date for completion differ from the completion date?

A

This is the date for completion, or any other date that is subsequently fixed (i.e. after and extension of time)

167
Q

What is practical completion?

A

When the client takes back posession of the works

168
Q

What is sectional completion?

A

The completion and handover of the works to the employer in agreed stages

169
Q

Do the works have to be totally complete before practical / sectional completion?

A

Practical completion is a vague concept.

AS4000 defines practical completion as when ‘the works are complete except for minor defects’

170
Q

Can the Practical Completion Certificate be rescinded once issued?

A

No

Superintendent should avoid issuing a ‘conditional’ certificate which is subject to completion of various defects

171
Q

What are the consequences of Practical / Sectional Completion?

A

1) Possession of the site - therefore obligation to insure the works shifts from the contractor to the client
2) Contractors liability for liquidated damages ceases, as does the client’s liability for loss and expense
3) The works can no longer be varied
4) Half of the security is released
5) The defects liability period commences
6) Performance bonds and guarantees may no longer be enforceable
7) Tennants or purchases may have rights of occupation

172
Q

What is partial possession?

A

Where the CLIENT REQUESTS and the CONTRACTOR CONSENTS to the client taking possession of the works / part of the works before the date of practical / sectional completion

173
Q

What are the consequences of partial possession?

A

For the relevant part, practical completion is deemed to have occurred on the relevant date.
Therefore, the same consequences follow.
In addition, liquidated damages for the works / that section are reduced by the proportion that the value of the relevant part relates to the contract / section sum

174
Q

What is the defect liability period?

A

The contractor has an obligation to make good any defects that arise during this period of time

175
Q

How long is the defect liability period?

A

Stated in the contract

AS4000 default is 12 months

176
Q

What is a fluctuating price contract?

A

Where the contract sum is adjusted for changes in the costs of materials and labour as well as statutory contributions, taxes and levies

177
Q

What is the procedure for claiming and paying fluctuations?

A

The contractors shall notify the Superintendent in writing when they feel fluctuations are due
They should provide information and calculations if requested by the superintendent
Once ascertained the amounts should be added to the next interim certificate

178
Q

When would you advise fluctuations to be used?

A

1) If the contract period is very long and the contractor cannot accurately forecast changes at the time of tender
2) It benefits the Client by preventing the contractor from pricing a lot of risk
3) AND should reduce the chance of the contractor going insolvent if prices rise a lot
4) Also used if there is expectations that the market will deteriorate and prices will fall

179
Q

What is termination?

A

Where the contract works are lawfully stopped under the contract

180
Q

Who can terminate the contract?

A

1) The Client
2) The Contractor
3) Termination due to Frustration (unforeseen events)

181
Q

What are the grounds for which the Client can terminate an AS 4000 Contract?

A

If the Contractor commits a substantial breach.

Substantial breaches include, but are not limited to:

1) Failing to:
- Provide security
- Provide evidence of insurance
- Comply with a direction of the Superintendent in relation to defective work
- Use the materials or standard of work required by the Contract
2) Wrongful suspension of the works
3) Substantial departure from a construction programme without reasonable cause, or the Superintendent’s approval
4) Where there is no construction programme, failing to proceed with due expedition and without delay
5) Knowingly providing documentary evidence containing an untrue statement (statutory declarations)

182
Q

What are the grounds for which the Contractor can terminate an AS 4000 Contract?

A

If the Client commits a substantial breach.

Substantial breaches include, but are not limited to:

1) Failing to:
- Provide security
- Provide evidence of insurance
- Rectify inadequate Contractor’s possession of the site
- Make payment due and payable pursuant to the Contract
2) The Superintendent not giving a certificate of practical completion or reasons for not achieving practical completion

183
Q

What is termination by frustration?

A

Where Contracts can be set aside due to an unforeseen event either renders the contractual obligations impossible, or radically changes the party’s principal purpose for entering into the Contract

184
Q

How are variations assessed?

A

1) Using applicable rates or prices in the Contract
2) Using adjusted rates or prices in a bill of quantities, schedule of rates for works of similar nature - adjusted for quantity, time and specification
3) Last resort to use dayworks where the work is of a nature that cannot be valued in any other way.

185
Q

If the Superintendent thinks the work is not in accordance with the specification, what can they do?

A

They can instruct the contractor to open up for inspection any covered work, materials or goods to determine if they are in accordance

186
Q

Who bears the cost for the contractor opening up the works for inspection?

A

The costs are added to the contract sum UNLESS the work is NOT in accordance

187
Q

If the works are not in accordance, what options does the Superintendent have and the consequences of each?

A

They have 4 options:

1) Instruct the contractor to remove all defective work at their own expense / time
2) Notify in writing that the work can remain - an appropriate deduction should be made from the contract sum
3) Issue instructions for variations that are necessary as a result of the work - if ther are necessary, no costs or EOT should be given
4) Instruct the contractor to open up and test further work to determine the extent of any non-compliance. No costs should be given, but if the work is in accordance an EOT can be given.

188
Q

When may a Superintendent’s certificate for payment differ from the QS Progress Claim Recommendation?

A
  • When Liquidated Damages are deducted

- Deduction for opening up the works (if the contractor is found to be at fault)

QS APC (18 decks)

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