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ICE CPR > Commercial > Flashcards

Commercial Flashcards

1
Q

What are Y clauses in the NEC contract?

A

There are three optional Y clauses:
• Option Y(UK)1: Project Bank Account
• Option Y(UK)2: The Housing Grants, Construction and Regeneration Act 1996
• Option Y(UK)3: Contracts (Rights of Third Parties) Act 1999. This Option should be used only in the UK. If used it limits third parties rights under the Contracts (Rights of Third Parties) Act 1999 to only those parties and rights stated in the Contract Data Part 1.

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2
Q

What does the first clause (10.1) in the NEC3 contract state?

A

‘The Employer, the Contractor, the Project Manager and the Supervisor have an obligation, not only to comply with the contract but to act in a sprit of mutual trust and co-operation.

Note: in NEC4 this has been broken into two different clauses. The first (10.1) clause states the requirements to comply with the contract. The second (10.2) requires the parties to act in a spirit of mutual trust and co-operation.

Related article: https://www.clydeco.com/blog/projects-construction/article/the-meaning-of-mutual-trust-and-cooperation-in-nec

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3
Q

What is the role of the Supervisor in the NEC contract?

A
  • Responsible for quality control. This is covered by core clause 4, name ‘Testing and Defects’ in NEC3 and ‘Quality Control’ in NEC4.
    • Does NOT supervise the Contractor.
    • Required to keep good site diaries.
    • Independent of the Project Manager.
    • Has the right to instruct a search for a Defect, and the responsibility to issue the Defects Certificate.
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4
Q

What are the 6 main options in the NEC Engineering and Construction Contract suite?

A

A – Lump Sum with Activity Schedule
B – Lump Sum with Bill of Quantities
C – Target Cost with Activity Schedule
D – Target Cost with Bill of Quantities
E – Cost Reimbursable
F – Management Contract

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5
Q

What is a Early Warning (EWN) in the NEC contract?

A

‘Early warning notices, referred to in clause 16.1 of the NEC contract, are to be issued for potential problems. Both the Contractor and the Project Manager must issue an early warning as soon as either becomes aware of any matter that could possibly (not definitely):
• increase the total of the Prices.
• delay Completion.
• delay meeting a Key Date.
• impair the performance of the works in use.
• adversely affect the work of Others.

A risk reduction meetings follows the issuing of an EWN so all parties can agree the best way forward to eliminate or reduce the risk. The Project Manager revises the Risk Register to record the decisions made at each risk reduction meeting and issues the revised Risk Register to the Contractor.

EWNs are one example of how NEC embeds good project management practice in the contract in a way that makes it advantageous for parties to comply. In this instance, the impact of a compensation events can be assessed as if an EWN had been raised and the other party had mitigated accordingly (63.5).

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6
Q

What is the NEC Professional Services Contract used for? What are the main options?

A

The Professional Services Contract is tailored to providing a service, rather than doing physical construction works. The main option clauses are:
• A Priced subcontract with activity schedule
• C Target contract
• E Time based contract
• G Term contract Option

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7
Q

What is Defined Cost in the NEC contract?

A

Defined Cost includes “only amounts calculated using rates and percentages in the Contract Data (Schedules of Cost Components) and other amounts at open market or competitively tendered prices with deductions for all discounts, rebates and taxes which can be recovered”. In target costs contracts, the Contractor is only paid for defined costs incurred, minus disallowed costs and plus a fee. The fee covers overheads and profit. This would be the Price for Works Done to Date (PWDD) for NEC Option C to F contracts.

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8
Q

What forms the documentation of a NEC ECC contract?

A

The components of an NEC ECC contract are as follows:
• The form of agreement.
• The conditions of contract. This includes the main Option, any secondary option clauses (X clauses), the dispute resolution option (W clause) and any amended or additional clauses (Z clauses).
• Contract data (parts 1 and 2).
• Prices (including a schedule of cost components), activities schedules, bill of quantities.
• Works information.
• Site information.

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9
Q

What are the requirements for correspondence under NEC?

A

All communications must be in a form whereby there can be read, copied and recorded (i.e. verbal doesn’t hold any contractual weight). A notification must be communicated separately from other communications.

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10
Q

What is the Price for Work Done to Date (PWDD) in the NEC contract?

A

The price for work done to date (PWDD) varies by main option:
• Option A – The sum of the completed tasks on the Activity Schedule
• Option B – The sum of the actual measurement of items on the BoQ
• Option C to F – The sum of Defined Cost less Disallowed Cost plus Fee to date

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11
Q

What does the fee include in the NEC contract??

A 
'     • Profit / Head Office Overheads
     • Insurance Premiums
     • Corporation Tax
     • Advertising and Recruitment Costs
     • Sureties and Guarantees
     • Indirect Payments.
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12
Q

Why was the NEC Contract introduced? What were the aims?

A
  • Greater flexibility, allowing the contract to be used across all engineering and construction projects.
    • Numerous primary and secondary option clauses to suite the projects needs.
    • Written in plain, present tense English to make it clear and simple.
    • Stimulates good project management through various mechanisms.
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13
Q

What are the three main financial statements?

A
  1. Cash flow statement - this shows cash inflow and outflow, effectively showing the bank balance of a company.
  2. Profit and loss account (also known as the income statement) - this shows income generated and expenses occurred, showing the profit or loss of a company.
  3. Balance sheet - this shows the values of assets and liabilities, showing the net worth of a company.
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14
Q

What types of insurance are required under NEC?

A
  • Insurance against loss of or damage to the works, plant or materials
    • Public liability insurance
    • Professional indemnity Insurance
    • Contractor’s equipment loss insurance
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15
Q

What is in Contract Data Part 1 in the NEC contract?

A

’ • Details of the employer and key personnel.
• The location of the works information and site information.
• The language and law to be adopted.
• The period for reply.
• Options for adjudication / arbitration.
• Starting date / defects date / defects correction period.
• Payment details.
• Options for compensation events.
• Risk and insurance.
• Confidentiality.
• Construction operations.
• Employees.
• Intellectual property.
• Novation.
• Termination.
• Data protection.
• Force majeure (unforeseeable circumstances that prevent someone from fulfilling a contract).
• Early warning / compensation events.
• Disallowable expenses.
• The split in regards to pain/gain for target cost contracts, as well as any thresholds.

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16
Q

What is a Schedules of Cost Components in the NEC contract?

A 
These provide division between reimbursable items of cost, and items deemed to be included in the Fee. The schedule does not actually constitute a schedule of costs, simply a list of cost components that the Contractor can recover directly, which are
     • People, 
     • Equipment (non-permanent), 
     • Plant & Materials (permanent), 
     • Charges,
     • Manufacture & Fabrication,
     • Design,
     • Insurance.
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17
Q

What are the different schedules of cost components in the NEC contract?

A
  • Schedule of Cost Components (SCC) – used with Options C, D, E and F for payment of Defined Cost and assessment of compensation events.
    • Shorter Schedule of Cost Components (SSCS) – only used for assessing compensation events. This is always used for Options A and B, but also for Options C and D if the PM and Contractor agree.
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18
Q

What is the role of the Project Manager in NEC?

A

’ • Contract administrator
• Employer’s representative but acts independently
• Must be very familiar with the Contract, Works and Site Information

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19
Q

What are the 9 core sections of the NEC contract?

A
  1. General
    1. Contractor’s main responsibilities
    2. Time
    3. Testing and Defects
    4. Payment
    5. Compensation events
    6. Title
    7. Risks and insurance
    8. Termination
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20
Q

What is Disallowed Cost in the NEC contract?

A

Disallowed cost is defined as:
• that which should not have been paid to a Subcontractor or supplied in accordance with the contract.
• that which was incurred because the Contractor did not comply with an acceptance or procurement procedure in the Works Information.
• that which was incurred because the Contactor failed to give an early warning which the contract required them to give.
• that which was incurred correcting Defects after Completion.
• fines, charges, penalties and fees imposed on or accepted by the Contractor as a result of any unsafe, unlawful or criminal conduct.

21
Q

What is the role of the Contractor in NEC?

A
  • Carry out and complete the works in accordance with the Works Information and by the Completion Date.
    • Appoints subcontractors and, if required, designers.
    • Obeys the instructions of the Project Manager and Supervisor.
22
Q

What is in Contract Data Part 2 in the NEC contract?

A
  • Details of the contractor and key personnel.
    • The location of the programme.
    • The location of works information for contractor’s design.
    • The location of the activity schedule.
    • Direct fee percentage.
    • Subcontractor fee percentage (NEC3 only – there is only one fee percentage in NEC4).
    • Working areas (including offices).
    • Details to be included in the risk register.
    • The tendered price.
    • Cost components.
23
Q

What is completion defined as in the NEC contract?

A

Completion is when the Contractor has:

 1. done all the work which the Works Information states they are to do by the Completion Date, and
 2. corrected notified Defects which would have prevented the Employer from using the works and Others from doing their work.
24
Q

What are X clauses in the NEC contract?

A

They are optionary secondary clauses. There are 20, although X8 to X11 and X19 aren’t used in the ECC contract.
• Option X1: Price adjustment for inflation (used only with Options A, B, C and D)
• Option X2: Changes in the law
• Option X3: Multiple currencies (used only with Options A and B)
• Option X4: Parent Company Guarantee
• Option X5: Sectional Completion
• Option X6: Bonus for early Completion
• Option X7: Delay damages
• Option X12: Partnering
• Option X13: Performance bond
• Option X14: Advanced payment to the Contractor
• Option X15: Limitation of the Contractor’s liability for his design to reasonable skill and Care
• Option X16: Retention (used only with Options A, B, C, D and E)
• Option X17: Low performance damages
• Option X18: Limitation of liability
• Option X20: Key Performance Indicators

25
Q

What is the payment process in the NEC contract?

A

Applications for Payment are submitted by the provider of the works/services. The client for the works/services reviews and issues a payment certificate stating whether they: accept, accept in part, or reject. A pay-less notice must be issued if the entire amount claimed for is not paid.

26
Q

BSCU Why is there a large difference between the initial target cost and the EFC (approx. £400m difference)? Was the project poorly priced? What is the difference between EFC and Initial Target Cost?

A

Due acquisition costs of buildings surrounding the Bank Station Capacity Upgrade project. The Target Cost of Dragados’ contract is now ___ (up £?m since contract award).

EFC: is the total cost of the project to the client, such as internal management costs, acquisition and legal fees.

Initial Target Cost: A ‘target cost’ is agreed between the parties which is made up of the Contractor’s estimate of the ‘Defined Costs’ plus a fee which is to cover the Contractor’s costs, overheads and profit. Throughout the works the Contractor is reimbursed for his “Defined Costs” plus fee minus any “Disallowed Costs”.

27
Q

Why ECC? What other options are there? Also, why was Option C chosen? Why not Option B or D?

A

The NEC3 Engineering and Construction Contract (ECC) is the main construction contract within the NEC3 family, from which the options A-F are extracted.
ECC has used on some of the most high profile projects in the world, including the London 2012 Olympics, as well as day projects like the construction of buildings, highways and process plants.
Other options:
• Engineering and Construction Subcontract (ECS)
o Basically the same as NEC3 ECC but with changed terms for subcontractors and contractor.
• Engineering and Construction Short Contract (ECSC)
o Abbreviated version of the ECC contract and most suitable when the contract is considered “low risk” (not necessarily low value) on a project with little change expected.
o The contract is still between the employer and contractor but does not use all of the processes of the ECC making it simpler and easier to manage and administer.
• Engineering and Construction Short Subcontract (ECSS)
o Allows the contractor to sub-let a simpler lower risk contract down the line to a subcontractor.
• Professional Services Contract (PSC)
o For anyone providing a service, rather than doing any physical construction works.
o Most of the clauses within this contract are the same or similar to those in the main ECC contract, so that all contractors, designers and subcontractors have pretty much the same obligations and processes to follow as each other.
• Professional Services Short Contract (PSSC):
o Co-developed with the Association for Project Management
• Framework Contract (FC)
o Parties enter a “framework” of which work packages will then be let during the life of that framework. Any individual projects with then be awarded using of the other contracts within the suit, meaning that the parties follow the headline clauses within the framework contract (which is a fairly slim contract) and then the individual clauses within the chosen contract for that package.
• Term Service Contract (TSC)
o For parties on a project that is operational or maintenance based.
• Supply Contract/Short Supply Contract (SC/SSC):
o This is for a supplier of supplies or goods to a project, and puts extra contractual requirements on them during the procurement/manufacture period.
• Dispute Resolution Services Contract (DRSC) – previously Adjudicators Contract
• Design Build and Operate
• Alliance Contract

Option C was chosen over Option B and D because the scope of works were not fully defined or where the risks anticipated are greater than usual. The option C contract allows the financial risks to be shared between the parties (employer and the Contractor) which motivates the contractor to deliver the works in the most cost efficient way.

28
Q

Finsbury Park - Why Option A? Is it feasible for a design and build contract to be Option A? Is it not too difficult for the contractor/designer to accurately price without a design already in place?

A

Option A is a priced contract with an activity schedule, which relates to a programme where each activity is allocated a price and interim payments are made against the completion of each activity. The contractor largely bears the risk of carrying out the work at the agreed prices.

Advantages:
- Simplifies the administration of the interim payment process. The activity schedule on these types of project is submitted together with a contract programme as part of the tender.

29
Q

What is a CE, What clause, give some examples?

What is an EWN? Can you raise a CE without an EWN?

A

Option A, clause 60.1 contains 19 events as standard. The employer can add further events within the Z clauses.

Administrating compensation events can be segmented into four parts:

  1. Notification
  2. Quotation
  3. Assessment
  4. Implementation

Examples include: change in scope, unforeseen ground conditions.

30
Q

Talk us through the AFP process. How do we pay our contractor and they pay their subcontractors?

A

Contractor submits an application for payment to the Project Manager in a form prescribed in the Works Information not less than 14 days prior to each assessment date. The application states the sum that the Contractor considers to be due to him at the payment due date and the basis on what that sum is calculated.

Amount due is:

  • the Price for Works done to date.
  • plus other amounts to be paid to the contractor.
  • less amounts to be paid by or retained from the contractor.

Any tax which the law requires the Employer to pay the Contractor i included in the amount due.

31
Q

Underpinning PMA - How could they have mitigated the impact without delay? Would they not still have had to partially break out the founadtion?

A

Could have carried out the survey earlier but chose not to on the advice of the designer.

32
Q

Underpinning PMA - Was this on the critical path? Did it extend the project? If so, how were the costs incurred by not opening on time captured? Follow up questions - what are liquidated damages

A

Yes on the critical path.

33
Q

What are the three main financial statements?

A
  1. Cash flow statement - this shows cash inflow and outflow, effectively showing the bank balance of a company.
  2. Profit and loss account (also known as the income statement) - this shows income generated and expenses occurred, showing the profit or loss of a company.
  3. Balance sheet - this shows the values of assets and liabilities, showing the net worth of a company.
34
Q

What does a Act of Parliament (also known as a hybrid bill) involve in the context of planning and consents?

A

Some very large schemes are authorised by an Act of Parliament. The act authorises the promoter (e.g. HS2 Ltd) to carry out the necessary works. Thus the act dis-applies the need to obtain other consents such as local planning, listed building consent or scheduled monument consent, as well as various other requirements where these would be inconsistent with the works authorised by the act. It can also allows the promoter to: compulsorily acquire interests in any land required; affect or change rights of way, including stopping up or diverting highways and waterways (permanently or temporarily); and modify infrastructure belonging to other organisations (e.g. utility companies).

Whilst being a highly political process, it is likely to be easier than obtaining local planning permission from each council the project affects, especially when some might be against the project. The Act generally also includes the requisite funding for the scheme.

35
Q

What are the three main financial statements?

A
  1. Cash flow statement - this shows cash inflow and outflow, effectively showing the bank balance of a company.
  2. Profit and loss account (also known as the income statement) - this shows income generated and expenses occurred, showing the profit or loss of a company.
  3. Balance sheet - this shows the values of assets and liabilities, showing the net worth of a company.
36
Q

What do the Public Contracts Regulations and OJEU rules for contracts relate to?

A

The Official Journal of the European Union (OJEU) is the publication in which all tenders from the public sector which are valued above a certain financial threshold are published. The aim of this is to open up the public procurement market and ensure the free movement of supplies, services and works within the EU. In most cases they require competition. They also have various other requirements that can make the tender process longer and more costly, although in theory also provide better value for money.

The current thresholds above which OJEU rules apply for Public Contracts are:
• Supply, Services and Design Contracts - Central Government £122,976, Other Contracting Authorities £189,330, Small Lots £70,778
• Works Contracts (e.g. infrastructure) - Central Government and Other Contracting Authorities £4,733,252, Small Lots £884,720
• Social and Other Specific Services - Central Government and Other Contracting Authorities £663,540, Small Lots n/a.

‘Small Lots’ are where a contract is split into different packages. This in encouraged to promote the use of small and medium sized enterprises (SME). For a contract to be classes a ‘Small Lot’, the value cannot exceed 20% of the aggregated value of the combined contracts.

37
Q

What is the role of the Employer in the NEC contract?

A

’ • Picks the contract type and sets the Works Information.
• Is a Party to the contract.
• Plays very little part in the administration of the contract.
• Appoints Agents – E.g. Project Manager and Supervisor.
• Gets involved in Termination.
• Pays the Contractor.

38
Q

What do the following mean: current assets, fixed assets, current liabilities, long-term liabilities and working capital.

A
  • Current (short-term) assets - these are assets that are cash, or are easily convertible into cash without affecting the operation of the business (e.g. stock).
    • Fixed assets (long-term) - these are assets that you need to have to help you in the everyday operation of a business (e.g. machinery or offices).
    • Current liabilities (short-term) - this is money that a company owes in the short term (within 12 months).
    • Long-term liabilities - this is money that a company owes in the long term (over 12 months), even if repayments are regular.
    • Working capital - this is the ability of a company to pay off current liabilities, calculated by: current assets - current liabilities.
39
Q

Why is it important to pay Subcontractors on time?

A

Subcontractors are likely to have less cash reserves and are thus more vulnerable to insolvency and bankruptcy if payments are delayed. They are also likely to have higher debt to revenue ratios and less working capital.

40
Q

What is a Pay Less Notice?

A

A pay less notice is issued by a client to formally state why they are paying less than the amount in the application for payment/payment notice. It must clearly set out how the client has arrived at the reduced figure. This a requirement under the Housing Grants, Construction and Regeneration Act.

41
Q

What is depreciation and amortisation?

A
  • Depreciation is the value lost over time of a tangible fixed asset item. For example, each year the value of a car will depreciate.
    • Amortisation is similar to depreciation but relates to intangible assets (e.g. intellectual property). It is also shown as a cost.

Both appear as a cost in the profit and loss account (although wouldn’t affect operating or net profit as they are ‘under the line’). The reduced value of the item would also show in a balance sheet, but neither would be presented in a cash flow statement as nothing was paid.

42
Q

What are the different kinds of “profit” and what do they represent?

A
  • Gross profit is sales minus the cost of goods sold.
    • Operating profit is gross profit minus operating expenses (selling, general, admin).
    • Net profit is the income left over after all expenses, including taxes and interest, have been paid.

EBITDA is another common metric and stands for earnings before interest, taxes, depreciation and amortization. It is similar to operating profit.

43
Q

What is an accrual?

A

An accrual is the act of making a provisional record for:
• income that been earned but not paid, or
• expenses that have been incurred but have not yet been paid.

There are used to accurately represent profit/loss in a reporting period.

44
Q

Discuss the main methods of project procurement used in Construction?

A
  • Traditional procurement – The Client procures a design from a Consultant. The Client then tenders separately for a Contractor to build the design.
    • Management contracting – a single Contractor manages the design and build on behalf of the Client across various consultants and sub-contractors, who do the actual works.
    • Design and build – the same Contractor designs and builds, generally sub-contacting the design to a Consultant that they manage. This allows a single point of contact for Client and an overlapping design and construction programme.
    • Joint venturing/partnering – the Client and Contractor work together, sharing objectives, risks and rewards.
45
Q

What is a Tender?

A

Tendering is the process whereby a party invites bids within a finite deadline for goods or services they require.

46
Q

BSCU - Why was Option C applicable to this project?

A

Target cost contracts can be beneficial where the scope of work is not fully defined or where the risks anticipated are greater than usual.

47
Q

What are Key Programme dates? Who pays for delays to these dates?

A

Key dates are covered in ECC Clause 31.2 – Programme Requirements. The key dates provision is applicable when the Employer requires specific milestones or conditions to be completed or met by a certain date.

It defines a key date as:

‘…the date on which work is to meet the Conditions stated. The key date is the key date stated in the Contract Data and the Condition is the condition stated in the Contract Data unless later changed in accordance with this contract.’

Under sectional completion, the Employer must take over the works not later than two weeks after completion, whereas key dates simply require that the contractor meets defined conditions before the key date. An example of a key date could be the requirement for a subcontractor to have completed a section of works so that an electrical contractor can begin their work.

Key dates are contained in Contract Data (P1) and should be identified at the tender stage unless it has been agreed that they will be added mid-contract.

48
Q

Fit Out: What was the tender process? How many companies do you need to go out to as a minimum?

What was the split in scoring between technical and commercial?

A

Climate issues out Invitation to Tender to a pre-selected list of contractors (typically from a database).

49
Q

Finsbury Park: Tender value engineering: Did LU get charged for their rework?

A

The design work was required and as such had to instruct change to build to new designs.

ICE CPR (14 decks)

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