Construction Revision Flashcards
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What is a compensation event?
A single assessment that deals with the entire effect of an event on time and money in NEC contracts
What is a Loss and Expense claim?
A claim a contractor can make as a result of the progress of the works being materially affected by relevant matters for which the client is responsible. (JCT Contracts)
What is an Extension of Time?
A delay to the works, caused by a relevant event (Not the contractors fault) JCT Contracts
What is a Relevant event? Give an examples
Delay on a project affecting completion date. Examples: Variations, Exceptionally Adverse Weather Conditions, Terrorism, Failure to Provide Information, Delay in giving contractor access to site, delay in supply of materials and goods by the client
What is a Relevant Matter? Give examples
Does not necessarily result in delay to the construction project but could entitle the contractor to a Loss and Expense claim. E.g. Failure to give the contractor possession of site, delay in giving contractor access, delay in receiving instruction, discrepancies in contract documents, disruption caused by client, instructions relating to variations and expenditure of provisional sums
What is repudiation?
Where one party to a contract has no intention of carrying out their obligations or if a breach is so serious that they clearly had no intention of carrying out their obligations that can lead to immediate termination of contract.
Termination by frustration?
The termination of a contract without fault of either party but due to unforeseen event
Retention Bond
A retention bond is a security, usually 5% of the amount certified as due to the contractor on an interim certificate, that is retained by the client.
Advance Payment Bond
If the client agrees to make an advance payment bond to the contractor (e.g. to cover high up-front costs) a bond may be required to secure the payment against default by the contractor.
Performance Bond
Commonly used as a means of insuring the client against non-performance or contractor failing to fulfil contractual obligations (Typically set at 10% of the contract value). This compensation can allow the client to appoint another contractor to complete the works.
Bond
Protection provided by a financial institution to the client. Although the cost of a bond is borne by the contractor, it is usually passed on to the client in the tender price.
Conditional Bond
Requires the client to provide evidence that the contractor has not performed their obligations under the contract, and that they have suffered loss as a consequence before the bond is paid.
Unconditional or On-Demand Bond
The Bondsman or Financial Institution pays out an amount set out in a bond immediately without needing for evidence (Rarely used in UK).
Parent Company Guarantee
Form of security that may be required by clients to protect them against the default of a contractor that is controlled by a Parent Company (or Holding Company). Typically the default would be insolvency by a contractor.
What is insolvency?
Describes the inability of a debtor to pay its debts
What is insurance?
Financial backing and protection against losses and liabilities. Legal liability cover.
What is an Indemnity?
A clause in a contract that allocates risk for claims or for loss and damage between parties to a contract. A contractual obligation of one party to compensate the loss occurred to the other party. E.g. the client may insert an indemnity clause requiring the contractor to indemnify the client against the expense, liability, loss or claim in respect of personal injury or death arising from the works.
What is Liability Insurance?
Insures a party for their liabilities and will pay out to 3rd party for any loss to 3rd party caused by insured
What is Loss Insurance?
Provides legal liability cover and covers any losses incurred by the insured.
Public Liability Insurance
Covers against claims by members of the public visiting the the business of the insured, customers, clients, independent sub-contractors.
What is Professional Indemnity Insurance?
Provides insurance cover against claims of negligence & cover of cost of defending against a claim. Once a practice has come to an end, the practitioner should maintain run-off cover to cover any historic claims made. Run-off premiums will normally reduce annually to reflect diminishing chances of claim.
What are Collateral Warranties?
Agreements associated with another ‘primary contract’. They provide for a duty of care to be extended by one of the contracting parties to a third party who is not party to the original contract. E.g. Architect owes duty of care to occupier. May be an obligation of a main contractor to obtain collateral warranties from sub-contractors. Without collateral warranty, economic loss is not recoverable in tort.
What is reasonable skill and care?
Phrase given to describe minimum standard of work expected from a professional. A performance obligation/duty to perform to the level of skill and care expected of another reasonably competent member of the profession.
What is Fitness for Purpose?
Works/Services must be good enough to do the job they were intended to do.
What is the Base Date?
The date usually set at 10 days before the tender submission used as a date to cross check differences in prices, inflation, changes to the contract sum and changes to regulation/legislation.
What are Liquidated and Ascertained Damages? (LADs)
Clause in contract for the contractor to pay liquidated damages to the client in the event that the contract is breached.
In building contracts they usually relate to the contractor failing to achieve the practical completion date. They are often calculated on a daily or weekly basis.
What may be included in calculations for Liquidated and Ascertained Damages?
Loss of rent, Loss of Income, Fees, Storage Costs, Rental Costs, Fees and Fines Imposed by Third Parties, Finance Costs.
What is Practical Completion?
Contract Administrator certifies Practical Completion when all the works described in the contract have been carried out.
When Practical Completion has been certified, what effect does it have?
1) Releasing half of retention
2) Ending contractors liability for Liquidated Damages
3) Signifying the beginning of the Defects Liability Period
What are Articles in a Contract?
Articles set out what is agreed between the parties
What are Contract Particulars?
Set out the aspects of the contract that are particular to the project to which the contract relates to. It is a schedule for the variables in agreement and conditions. E.g. The contract sum, the retention %, the interim payment period, 3rd party rights for collateral warranties, amount of liquidated damages, length of defects liability period etc.
What are some of the contract administrators’ duties?
Inviting and processing tenders, preparing contract docs for execution, Administrating change control procedures, Seeking instructions from client in relation to the contract, Issuing instructions such as variations/or relating to prime cost sums/making good defects, Considering claims, chairing construction progress meetings, Issuing practical completion and interim certificates, issuing a certificate of making good defects, issuing the final certificate.
How is the Bill of Quantities used under NEC contracts?
Used as a comparison mechanism during tender process
How is the Bill of Quantities used under JCT contracts?
To provide detailed measures and quantities needed for the project. Also provides a schedule of rates for work to be carried out and used for valuations and variations.
What is contractors’ design portion?
This is associated with JCT contracts where there is an agreement for the contractor to design a specific parts of the works. They may in turn sub-contract this work to specialist subcontractors.
What is the difference between an Activity Schedule and Bills of Quantities, under NEC4?
An activity schedule is used where each activity is allocated a price and interim payments are made against the completion of each activity. It’s advantage is that it simplifies the admin of the interim payment process. Bills of Quants, under NEC4, are used simply as a comparison mechanism in the tender process.
The tradition approach to managing change in construction projects is normally dealt within 3 separate elements. How does JCT deal with these?
1) Instruction for Change - variations valued on rates basis
2) Extension of Time
3) Loss/Expense claim
NEC4 Option C and D are described as Target Contracts. What are the advantages of such a contract compared to Option E: Cost Reimbursable
Target cost contracts incentivise the contractor to work efficiently and at a low cost, which allows them to keep a % of the pre agreed amount if under budget. Whereas a cost reimbursable contract does not incentivise the contractor to work efficiently and be cost effective, as they know they will be repaid their costs regardless.
Describe how ‘pain/gain’ contracts work, and how this is incorporated into the NEC4 contract.
Parties agree to share ‘pain’ and gain ‘benefits of project. E.g. Sharing profits/losses in a Target cost contract.
Explain the difference between a contract under hand and a contract as a Deed
A contract under hand is a normal contract signed by 2 parties and has a limitation period of 6 years
A contract under deed is usually witnessed, does not have to be supported by valuable consideration and has a limitation period of 12 years.
What is the difference between a condition and a warranty in a contract? Give an example
A condition is a parties’ obligation in the contract.
Warranty may be used to provide assurance from one party to another that goods and/or services will meet certain expectations e.g. fit for purpose, being free from defects, complying with statutory and other regulations and specifications.
