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