C2 - Contract Practice Flashcards
What are the various forms of JCT contract?
JCT
Minor Works
Intermediate Building Contract
Standard Building Contract with Quantities
Standard Building Contract without Quantities
Design and Build
What are the various forms of NEC contract?
NEC
Option A - Priced Contract - Activity Schedule
Option B - Priced Contract - Bill of Quantities
Option C - Target Contract - Activity Schedule
Option D - Target Contract - Bill of Quantities
Option E - Cost Reimbursable Contract
Option F - Management Contract
Short Contract
Professional Services Contract
Why would you choose a certain JCT contract?
Value & Complexity
- Minor Works = Typically less than £250,000 - No need for BQ - No partial possession/sectional completion
- Intermediate Contract = Less detailed than SBC
- Standard Building Contract = All options available to be executed
- D&B = Where the Client wants total design and delivery responsibility with guaranteed price and handover date
What are the roles under JCT?
JCT
- Employer
- Employer’s Agent
- Architect / Contract Administrator
- Contractor
- Principal Designer
- Principal Contractor
What are the roles under NEC?
NEC3
- Employer
- Project Manager/Supervisor
- Contractor
What is the role of a Contract Administrator (CA)?
Administers the contract and attempts to assure the contract sum by ensuring the Contractor complies with the contract
What is NEC3’s Contract Data Part 1 and 2?
- Part 1 (Provided by Employer)
Project particulars; description, personnel, start date, insurance requirements etc - Part 2 (Provided by Contractor)
Address, personnel, tender price, programme completion date
What are NEC3 Z Clauses?
Amendments to the contract
What are collateral warranties there for?
Extends a duty of care to a third party who is not party to the original contract
What documents normally form part of contract documentation?
- Contract
- Drawings
- Specification
- Pricing document (BQ, SoW)
What happens if the CA Cert issue date/payment date falls on a Sunday?
- Default to last working day
- Agree set payment dates in advance to stop this happening
What types of bonds are you aware of?
- Performance Bond = 10% of contract value. Ensures a client against the risk of a contractor failing to fulfil their contractual obligations. Issued by insurance company or bank
- Retention Bond = An agreement between Employer and surety provider who acts as guarantor. Employer doesn’t hold cash retention
Benefits of a Retention Bond?
- Saves Contractor chasing retention monies
- Contractor pays for it
- Security if the Employer becomes insolvent
- They have an expiry date - and factors in PC and End of Rectification Period dates
Benefits of a Performance Bond?
- Usually inserted if fear Contractor will experience financial difficulties
- Contractor pays for it
- 10% of contract sum
- Cost of bond inserted within Preliminaries
- Remains until End of Rectification period
What is an advance payment bond?
- Say if Contractor has to purchase materials prior to construction works begins
- Bond protects the Client if the Contractor fails to fulfil their obligations
- It is usually an ‘on demand’ bond
What is a Parent Company Guarantee?
- A guarantee by the parent company of a contractor/consultancy in the event of default
- PCG underwrites the contract
- No cost for it
- Performance Bond has less risk, as the amount of money is stipulated
- It is hard to get
- Client may prefer PCG, but Consultancy/Contractor may prefer PB
- Performance Bond stays in place if company goes into liquidation
What would happen in a situation where the liquidated damages in a contract are stated as £0, but client wants to claim damages as they are incurring loss?
They would be unable to claim monies back if it is stipulated as zero in the contract
What would happen in a situation where the liquidated damages in a contract are not filled in (left blank), and client wants to claim damages as they are incurring loss?
The damages are UNLIMITED
Can contractor claim costs for preparation of loss and expense claim in his loss and expense claim?
No, they are not recoverable
What is normally included in a Letter of Intent?
- Cap on spend
- Description of the works
- Insurance requirements
- Programme
- Expiry date
- Should be reviewed by legal counsel before issue
Is a Letter of Intent a contract?
- No, it is the intention to enter into contract only
- Allows Contractor to get started in advance of signing contract - ordering materials perhaps
- They should be avoided if possible
Types of Letter of Intent
- Comfort letter - A comfort letter will not create a contract between the parties but may impose on either or both of the parties, certain obligations in relation to payments due for any work undertaken
- Instruction to proceed with consent to spend letter - This type of letter allows work to proceed up to a certain value while the contract itself is being finalised. This type of letter will create a legally binding contract between the parties which will pre-date the principal contract but be superseded once the principal contract is executed
Disadvantages of a Letter of Intent?
Less robust than a main contract
What are the key differences between JCT and NEC?
- JCT = Lump sum / NEC includes for target cost
- Different terminology
- Different roles
- NEC has no provisional sums
- NEC programme is a contractual document
- JCT more private sector / NEC more public sector
- JCT ground risk is with Contractor
A Contractor has not handed a site over on time - What happens next?
- They are liable to Liquidated Damages
- LAD’s can be seen as a motivator
Can the QS deduct LAD’s?
Under JCT no, the Employer can only recover this. Under NEC3 the PM can recover them
Is there a cap on LAD?
Maximum % of contract sum, normally 10%
How are LAD’s invoked on a sectional completion arrangement, where one of the sections is handed over to the Client late?
The level of LAD’s per section are listed in the contract
What effects does sectional completion have? How are project insurances affected?
- Section completion certificate must be issued on practical completion of each section
- When the last section completion certificate is issued, a practical completion certificate for the Works should be issued at the same time
- Obligation to heat, insure, secure the works transfers to the Client after all sections complete
- Ability to claim LAD for that part ends
How do you value variations?
- BQ rates
- Fair and reasonable Contractor quotes
- Dayworks
What else needs to be in place to pay materials off site?
- Insurance to cover any loss or damage to the materials while in the Contractors possession
- No retention of titles attached
Can you clarify who would insure these materials? Who retains ownership of the materials?
- The Contractor insures the materials for any loss or damage
- They become the Employers property upon payment of those items listed in the Interim Certificate
What is a Retention of Title?
Goods remain the property of a supplier until paid in full
What is a Vesting Certificate?
If goods are paid for and not delivered, the vesting certificate identifies ownership of the goods
What is novation in Design & Build contracts? When is it used and what is it for?
- Novation is a process by which contractual rights and obligations are transferred from one party to another
- This can be beneficial to clients as it maintains continuity between pre-tender and post-tender design whilst leaving sole responsibility for designing and building the project with the contractor
Who is responsible for quantities in a ‘without quantities’ contract?
Contractor takes ownership of the quantities
What are the different types of performance bond?
- On Demand = Issued by Bank = Paid out when demanded, without question
- Conditional = Issued by Insurer = More common = Only paid out if Contractor is in default and has to be proved
What actions would you take if the Contractor was rumoured to becoming insolvent? Would you stop payments if rumoured?
- Payments cannot stop as it must be demonstrated the Contractor is becoming insolvent and not by relying on rumour
- Try and find out further information
- Notify Client
- Is the site secured?
- Take photographs
- Carry out on site valuation day of insolvency
Explain the risks of using JCT with quants vs without quants?
- Without quants is not a fixed price, can still raise variations, contract sum can change
- With quants is remeasureable
What are the time limits for certificates under JCT IBC and SBC?
- Contractor submits interim application 7 days before to due date
- Quantity surveyor issues interim valuation on due date
- Contract Administrator issues interim certificate 5 days after due date
- The final date for payment to the Contractor is 14 days from the due date
- Payment cycle lasts 21 days
Which day is the payment period from?
Due date - Which everything is referenced from
Can the 14 day change for payment?
Yes, if stated in contract amendments and agreed to
What if a Contractor doesn’t issue a valuation?
CA requests the QS to carry out an interim valuation before expiry of the 5 days after the due date
What if a certifier fails to issue certificate under JCT?
The interim application shall become an interim payment notice if certificate not issued within 5 days
What if an Employer wishes to pay less than the sum applied for?
- The Employer is required to inform the Contractor not less than 5 days before final payment date and the basis on which it was calculated
- Pay Less Notice Issued (Only the Employer can issue this, not the consultant)
What if an Employer doesn’t pay a sum due to the Contractor under JCT?
In addition to the unpaid sum, the Employer must pay interest on that amount from the payment date until the time payment is made
What are the time limits for certificates under JCT D&B and MW?
- Contractor submits interim application on or before due date
- Quantity surveyor issues interim valuation
- Contract Administrator issues certificate 5 days after due date
- The final date for payment to the Contractor is 14 days from the due date
- Payment cycle lasts 14 days
What are the time limits for certificates under NEC3?
- Contractor submits interim application 7 days before to due date
- Quantity surveyor issues interim valuation on due date
- Project Manager issues certificate 5 days after due date
- The final date for payment to the Contractor is 14 days from the due date
- Payment cycle lasts 21 days
What if a certifier fails to issue certificate under NEC3?
If the Contractor has already made an application specifying the sum he considers is due, then the sum applied for will become due
What if an Employer doesn’t pay a sum due to the Contractor under NEC3?
The Contractor has the right to suspend the works until the matter is resolved
What items are not subject to retention?
- Loss and expense claims
- Statutory costs
- Fluctuation payments
Sectional completion, partial possession and practical completion - whats the difference?
- Sectional = Employer wishes the Works to be completed according to a particular timetable
- Partial = Enables the employer to take possession of any part or parts of the Works before practical completion
- Practical = Works are generally considered to be substantially complete and nearing ready for use
What are LAD’s? How are they calculated? Who is responsible for calculating them?
LAD’s are a genuine pre-estimate of the Employers likely losses which may be incurred by late completion. They are not a penalty. If the amount is not a realistic pre-estimate then it is deemed to be a penalty. The Employer or Financial Advisor is responsible for calculating them, however the QS may be asked to provide input.
What are Unliquidated Damages?
Where damages are deemed to be a penalty and therefore unenforceable. The Employer is left to claim ‘unliquidated’ damages in respect of what they can prove. They are damages with no limit
What if a Contractor did not agree with the level of LAD’s in a Contract?
The level would be disclosed at tender stage and they could refuse the tender or they could clarify their return. If they have not done this and then don’t agree later, they would have to prove the figure is a penalty to avoid the costs. Their other option is to negotiate with the Employer.
What if the Employers circumstances changed - would the level of LAD’s still be applicable? What could the Contractor do?
The level of LAD’s are not adjustable upwards according the level of loss incurred. But the Employer can agree a lesser value to be paid. The Employers consultants may advise them to lower the level of LAD if their actual losses decrease, so that the Contractor has less of a case for calling it a penalty
How would you advise a Client of what to base his LAD’s upon if building a hotel?
Loss of revenue from bookings, cancelled events, abortive staff costs
What is included in valuations for JCT/NEC3 contracts?
- Works executed (Inc. prelims)
- Variations/CE’s
- Expenditure of Prov Sums
- Adjustment of PC Sums
- Materials on/off site
- Loss and expense
What are the procedures for EWN and CE under NEC3?
- EWN = The Contractor and the Project Manager give an early warning by notifying the other as soon as either becomes aware of any matter which could increase the total prices, delay completion
- CE = The Contractor notifies the Project Manager within 8 weeks after becoming aware of it, if he doesn’t, he loses his right to claim for it
- CE = On receipt of a notification from the Project Manager and an instruction to provide a quotation, the Contractor provides that quotation within 3 weeks
- CE = A failure by the Project Manager to reply within 2 weeks of this notification is treated as acceptance by the Project Manager that the event is a compensation event and an instruction to submit quotations.
What are disallowed costs under NEC3 - can you give examples?
These are costs that the PM can refuse to certify if they feel it has not been properly executed ie: incorrectly specified materials
Why would you ask to see insurance policy documents?
Yes, to check if the levels of cover are appropriate
What are a Client’s priorities when choosing a type of contract and how would you advise in their selection of a contract?
- What are their drivers? Time / Cost / Quality
- What is their appetite to risk?
How would you evaluate an Extension of Time (EOT) claim?
- Is it a Relevant Event is a breach that comes with delay, Like; adverse weather, strikes, numerous variations
- Is it on the Critical Path?
How would you evaluate a loss and expense claim?
Is it a Relevant Matter is a breach that comes with damages, ie results in loss and expense. Like; delays in giving instructions, failure to give possession of site, discrepancies in contract documents
Would you agree that Preliminaries should form the basis for evaluating such a claim?
Additional:
- Plant hire charges
- Site supervision
- Travel costs
- Insurances
- Energy costs
What is the contractual entitlement of a Contractor to materials off site?
He is entitled but they must be stored safely, securely, marked, segregated and be insured. But have no retention titles attached to them
What would you advise a Client who is considering not honouring an Architects certificate?
To not consider this as reducing the Contractor’s payment could put them and sub-contractors into difficulty, possibly affecting project progress
How would you calculate LAD’s?
They are a genuine estimate of the financial loss caused to the Client from a delayed handover ie: lost rental, labour, sales costs etc
How does the JCT contract deal with variations?
- Is it a variation?
- Based on pricing document if work of a similar nature, character, condition
- Or fair and reasonable rates
- Reported in the correct manner - Contractor submits quotation within 7 days of CA instruction
- Dayworks as last resort
What is required for a contract to exist?
Offer and acceptance, intention to create legal relations
The Contractor is about to start on site and notices that the plastering is grossly under measured - what do you do?
- Check the quantity and determine if there is an error
- If there is an error, then the additional quantity will be treated as a variation
Explain the different types of insurance in a JCT contract?
- Contractor - Public Liability
- Contractor - All Risks
- Employer - Employers Liability
- Consultant - Professional Indemnity Insurance
How are LAD’s included in a contract?
The are agreed in advance and stated within the contract particulars so the Contractor knows the extent of his potential liability
Explain the procedure for levying LAD’s?
- Non-completion Certificate must first be issued !!!
- The Employer may request the QS to ascertain the amount of damages, but it is only the Employer who can recover the damages from the Contractor under JCT. Under NEC3 the PM can recover them
- Pay less notice issued by Employer, deducting LAD’s from sum owed
What happens if the Client becomes insolvent?
- Terminate the employment under the contract, but insolvency must be proved
- From the date the Client becomes insolvent, obligations under the contract to carry out and complete the works are suspended
- Contractor must prepare a statement of the amount due and submit to the Client within 2 months. Client must pay any amount due within 28 days of submission of the account
What happens if a Contractor becomes insolvent
- Terminate the employment under the contract, but insolvency must be proved
- The Client need not pay any outstanding monies
Why would you use a Target Cost contract?
- Risk is shared
- Also known as pain/gain
- Encourages positive behaviour between all parties
What contract documents make up a D&B contract?
- Contract
- Contractor’s proposals
- Contract sum analysis
What can the Client do if a Contractor fails to insure the project?
If the contractor fails to insure, the employer may take out and maintain the appropriate insurance, deducting the cost from monies due or sue for the debt
What are relevant matters and relevant events?
- A relevant event is an event that causes a delay to the completion date, which is caused by the client ie: numerous variations/instructions, strikes, adverse weather etc
- A relevant event results in an EoT
- A relevant matter is a matter that causes damages for which the client is responsible that materially effects the progress of the works ie: delays in giving instructions, failure to give possession of site, discrepancies in contract documents
- A relevant matter results in Loss and Expense
What is a neutral event?
- An event which is out of control of both parties ie: adverse weather
- Employer and Contractor share risk
- Contractor normally entitled to EoT but not damages
What is normally appended to the back of Contracts? Give me an example?
- Contract amendments
- In my experience amendments to payment terms typically
Does JCT provide for acceleration?
Yes, SBC does - Provision for acceleration quotations
Tell me about a Contractor’s Right To Suspension?
If an Employer fails to pay a sum, and the failure continues for 7 days after the Contractor gave notice, he may suspend obligations until payment is made in full
If there is an extreme weather event, how is it assessed under JCT?
- JCT = Classed a Relevant Event
- JCT = Has no definition and is up to the discretion of the CA/Architect
- JCT = Weather records from previous years are analysed, from weather station closest to site
- JCT = Notification of delay to the works must be given forthwith when the delay becomes reasonably apparent
If there is an extreme weather event, how is it assessed under NEC?
- NEC3 = Classed as a Compensation Event
- NEC3 = Much more detailed than JCT
- NEC3 = Adverse weather will only constitute a compensation event if a weather measurement which is shown to occur on average less frequently than once in 10 years is recorded within a calendar month
- NEC3 = Details of the types of weather to be measured and the place where measurements are to be taken should be set out in the Contract Data Part 1
What are the NEC3 Final Account timescales?
Strictly speaking, through the change control procedures, the Final Account should be agreed by the end of the contract
Have you certified payments under NEC3?
- No, I have not acted as PM under an NEC3 contract
- I prepare an Interim Valuation and submit to the PM to certify and issue
What are the JCT 2016 changes?
- Payment changes to sub-contracts timelines
- CDM 2015 is fully integrated into the contracts
What are specified perils?
- Fire
- Earthquakes
- Storms
- Explosion
What are X Clauses?
- Optional secondary clauses to be used
Have you heard of NEC3 X17 Low Performance Damages?
- Damages listed within Contract
- If constructed hydro-electric dam doesn’t meet kwh power requirements, liable for damages
What is the term Take Over within NEC3?
- Where the Employer occupies the space, either before or after the works are complete
- If not taken over before completion, Employer takes over the works not later than two weeks after Completion
Does NEC3 Short Contract include for holding back 25% monies due to no programme?
Short Contract is short in nature, doesn’t go into detail, and I would refer to the Main Contract/Black Book
What is Force Majeure?
- Unforeseeable circumstances that prevent someone from fulfilling a contract
- Fire, exceptionally adverse weather conditions, war, terrorism and strikes
- It is a Relevant Event = EoT
What are the restrictions on a JCT Minor Works contract?
The contract is silent on some matters and does not include provision for:
- No phased possession or completion
- No PII for contractors design portion
- No provisions for Collateral Warranties
- No advance payment
How could you overcome restrictions to JCT Minor Works?
The Contract was amended so that:
- PII insurance was clearly stated for the Contractor to maintain £5 million
- Included an implied warranties clause
What would a Consultant’s appointment typically contain?
- Form of Agreement
- Terms and conditions
- Schedule of Services
- Statement of Fee
- Supporting Documents
What would the typical components of a Consultant’s appointment contain?
- Duty to use reasonable skill and care
- Obligation to comply with instructions
- Duty to comply with Client’s brief
- Duty to comply with Programme
- Co-ordination with other consultants
- Duty to provide warranties to third parties
- Client obligation to provide information
- Payment clauses
- Additional Services with an adjustment to the Fee
- Insurances to be provided by the Consultant
- Intellectual Property/Copyright
- Assignment
- Suspension of the Services
- Termination
- Notice provisions
- Dispute Resolution
- Limitation of Liability
- Definitions
What are the differences between a Consultant appointment and a building Contract?
- Intention: Advice v Physical Asset
- Duty: Reasonable Skill and Care v Fitness for Purpose (D&B Contractor: design & construction)
- Ownership: Title v Copyright
- Insurances: PI v Construction All Risks
What is Contractor’s Design Portion?
- The contractor’s designed portion is associated with JCT construction contracts
- It is an agreement for the contractor to design specific parts of the works
- The contractor may in turn sub-contract this design work to specialist sub-contractors
(This should not be confused with design and build contracts where the contractor is appointed to design the whole of the works)
