Contract Admin Flashcards
What were the Main updates to the RIBA plan of works from 2013 to 2020 version?
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What if the client tells you the LDs are to be £100,000 per week?
Check that they do believe that they are a genuine pre-estimate of likely loss
Explain the dangers that they might be construed to be a penalty
What if the liquidated damages are construed to be a penalty?
They will not be enforceable
The employer will have to sue for any actual direct loss that can be proved
What are the benefits of liquidated damages to the contractor?
The contractor knows the consequences of delay from the outset
What are extensions of time?
Adjusts the completion date and relieves the contractor’s liability to pay liquidated
damages for the period of the extension
What are liquidated damages?
A genuine pre-estimate of the likely loss incurred by the employer should the
completion date not be met
What must be in place before LDs can be deducted?
A non completion certificate
A withholding notice
What if the employer actually suffered no loss / damage?
It doesn’t matter
They can still deduct the liquidated damages stated in the contract
What are the benefits of being able to grant an extension of time?
It relieves the contractor’s liability for liquidated damages for a delay that they did
not cause
It enables another completion date to be set, which maintains the employer’s
ability to take liquidated damages if another delay occurs
What happens when ‘time is at large’?
There is no set completion date
The contractor only has the obligation to complete the works in a ‘reasonable
time’
Liquidated damages cannot be claimed (no date to take them from)
The employer would have to try and prove that the contractor had not completed
in a reasonable time
What is the procedure for claiming an extension of time?
As soon as it is reasonable apparent that a delay is or is likely to occur they
should write to the architect to notify them
This should identify the cause of the delay and if any of the causes are a
Relevant
Event, and give an indication of the extent of the likely delay
They should give any other further information requested by the architect
The architect must notify the contractor in writing of their decision
What are the time periods related to granting extensions of time?
The architect has 12 weeks from notification to decide on an extension of time
If there is less than 12 weeks to PC, they should endeavour to decide before PC
The architect has up to 12 weeks after PC to review any previous EOTs
previously given or to award further EOTs
What are Relevant Events?
The events that entitle the contractor to an extension of time
What are the relevant events?
Suspension by the contractor for non-payment
The carrying out of work by statutory authorities
Impediment, prevention or default by the employer
Loss or damages occasioned by the Specified Perils (fire, flood etc)
Exceptionally adverse weather conditions
Strike or lock out
Civil commotion or terrorism
The exercise of any statutory power after the base date by the UK gov
Force majeure
Variations
Instructions
Execution of an approx quantity that is not a reasonably accurate forecast
Deferment of possession of the site
If work is delayed due to two or more competing causes of delay,
one the fault of the contractor and one the fault of the employer, is
there an entitlement to an EOT/loss and expense?
No clear rule on which delay takes precedence where a number of delays occur
Each case has to be judged on its merits
Have to make efforts to identify all causes and effects
Who owns programme float?
No clear rule – generally it belongs to the contractor
The contractor normally includes float in his programme to accommodate his risk
items and also provide time for correcting mistakes
Therefore the actual impact of the delay should be considered
When there is a delay at the middle of the project, would you
consider the actual delay or the delay for the whole period?
The actual delay caused by the item in question.
It is not fair to offset against any float time the contractor may have built up
through good progress.
What is the purpose of a valuation?
To provide advice to the certifier on value to allow them to issue their interim
certificate
How is the Construction Act relevant?
It contains statutory requirements relating to interval and procedure for contracts
that have a duration of over 45 days
What are the standard provisions under JCT?
The first interim certificate must be issued within one month of the date of
possession
The contractor can apply for payment no later than 7 days before the end of the
relevant period
An interim certificate should be issued 7 days after application – payment
becomes due
The employer has 14 days before the date for final payment
If they wish to withhold payment they have to issue a notice no later than 5 days
before the final date
An interim certificate must be issued within one month of practical completion
Interim certificates should be issued ‘as and when’ monies become due to the
contractor after PC
What are the main elements of a valuation / what do you expect to
be included in a valuation?
Preliminaries Measured work Variations Materials on site Materials off site Loss and expense Retention
What needs to be in place for you to include payments for
materials on site?
The materials should be for the works, adequately protected, delivered to
programme and in a reasonable quantity
What needs to be in place for you to include payments for
materials off site?
Proof that ownership will transfer to the employer on payment (vesting certificate)
Insurance until materials arrive at site
Materials are clearly labelled as for the site and set apart from other materials
A materials off site bond has been provided if required
What is a retention of title clause?
Where the sub contractor or supplier retains ownership of materials until they are
paid for them by the contractor
This is why vesting certificates are important – otherwise the employer may pay
for materials that are not owned by the contractor
Can lead to disputes in the event of insolvency
General wisdom is materials that have been incorporated in the works belong to
the employer BUT less clear if they haven’t
How do you evaluate interim valuations?
Go to site and conduct valuation
Check work done, materials on site, materials off site
Value preliminaries, agreed variations and any claims
Valuation amount is gross valuation, less retention, less previous payment.
Then send recommendation to A/CA.
When might advance payments be used?
This is dealt with under clause 4.8
It allows the contractor to receive lump sum payment in advance
The payments, values and dates should be set out in the contract particulars
They may be used where the contractor incurs high costs at the start of a project
E.g. items with long lead times or the need to purchase specialist plant for
manufacturing
JCT provides an advance payment bond to cover the employer financially
What are the disadvantages of advance payments?
May reduce the incentive of the contractor
Bad for the employer’s cashflow
Concerns over why the contractor can’t fund the expenditure – insolvency
worries
What would you do if the contractor claims for paint in their 1st
application for payment?
During the visit to site I would assess if they had actually done any painting
Would also consider if they were likely to in the near future – for materials on site
If a contractor’s work has been certified and paid in an interim
valuation, can it be devalued in a later certificate?
Payment in an interim certificate is a payment on account of the final sum
It is always open to the architect to certify a sum that is devalued in a later
certificate
What is retention?
It is a percentage of each interim certificate deducted and retained by the
employer from each interim payment to the contractor
What is the purpose of retention?
It provides an incentive for the contractor to complete the works promptly
It provides some financial cushion to the employer in the event of contractor
default
What items do not have retention taken on them?
Loss and/or expense amounts Statutory fees and charges Some additional insurance premiums Opening up and testing costs Fluctuations Options A and B
What should the client do with retention interest if requested by the contractor?
Place it in a separate bank account
Label the account as being held in trust
Provide the contractor with statements showing the payments and amount of
money
in there
This should ensure that the money is available to the contractor in event of
employer insolvency
Who gets the interest accruing on retention money?
The employer
When is the retention released to the contractor?
Half of the retention is released in the interim certificate after PC
The remaining retention is released in the final certificate – after the Certificate of
Making Good
When is the base date set?
Usually 10 days before the tender return date
What is the date for completion?
The date fixed and stated in the contract particulars
What is practical completion?
When the employer takes back possession of the works
What is the recourse if the contractor disagrees with the architect
that the works are not completed?
Adjudication
Can the PC certificate be rescinded once issued?
No
What is partial possession?
Where the employer requests and the contractor consents to the employer taking
possession of the works / part of the works before the date for practical /
sectional completion
What is the rectification period?
The contractor has an obligation to make good any defects, shrinkages or other
faults that arise during this period of time
How long is a rectification period?
The default position is 6 months
BUT it is common to amend this to 12 months – so the building is observed in all
seasons
How can the architect get the contractor to fix the defects that
arise during the rectification period?
No later than 14 days after the end of the Rectification Period the architect must
issue a written statement to the contractor detailed all of the defects that have
arisen and need to be made good
What is the certificate of making good?
Issued by the architect to certify that all of the defects that have been required to
be made good by the contractor have been so
What are the consequences of the issue of the certificate of making good?
The remaining retention is released
What is a non-completion certificate?
Issued by the architect to certify that the works / section have not been
completed by the relevant completion date
What are the consequences of a non-completion certificate?
The employer has the right to withhold liquidated damages, as long as a
withholding notice has been given
What are the three ways that benefits can be transferred under JCT
contracts?
Collateral warranties
Third party rights
Assignment
What are collateral warranties?
Create contractual relationships between parties where there would otherwise
not have been any. They are alongside another agreement
Where are collateral warranties used?
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
Who might want a collateral warranty?
Any third party with a financial institution in a project but not party to the main
contract
E.g. funding institution, future tenants / purchasers
The employer may want a collateral warranty 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 etc
What is novation and how does this differ from assignment?
A new contract that transfers the rights and obligations of one contractual party to
a new third party – assignment is only rights
Give a common example of assignment and novation
Assignment of the rights under a collateral warranty to a different tenant /
purchaser
Novation of the design team under a design and build contract
How does novation affect the employer’s rights?
They lose all contractual relations with the novated party and therefore the right
to take action for a breach
It is therefore common for there to be a collateral warranty between the employer
and novated party
What is a limitation clause?
Clauses that limit a party’s liability for loss
Give some examples
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
Why would you use CW instead of The Contracts (Rights of Third
Parties) Act?
The Contracts (Rights of Third Parties) Act 1999 is generally avoided due to its openness. The CW is used mainly due to familiarity and security. The CW will specifically define what rights and obligations are provided and to whom.
What is reasonable skill and care?
The ordinary skill and care expected of an ordinary competent man carrying out
that particular act
What are the main sources of guarantee that can be sought in
construction?
Bond
Parent company guarantee
What is a bond?
A surety bond is a guarantee from the surety in favour of the
employer/beneficiary that the contractual obligation of the principal will be
fulfilled. Effectively, bonds are agreements between three parties for the benefit
of one of them: the employer.
The bond only provides financial compensation up to a stated value. It does not
guarantee the completion of the works.
What is a guarantee?
A guarantee is the promise of a third party to honor the obligation of a party to a
contract should that party be unable or unwilling to do so (usually a guarantee is
limited to an obligation to pay a debt).
What is a parent company guarantee?
An arrangement where the contractual performance of one company in a
corporate group is underwritten by the other members of that corporate group.
This means that it must complete the works itself if it can or pay the financial
equivalent. It often extent until the end of the contractor’s liability for latent
defects.
Which is the most common type of bond in the construction industry?
Performance bond
What are the different forms of JCT contract and what are the value
limits applied to each contract?
Although some contracts have limits, such as the Minor Works which
recommends less than £100k for it use, I believe that this should not be used as
the factor in determining the contract used. Rather we should consider other
issues such clients appetite for risk, nature of works, size of project.
What are the two main types of insurance?
Liability and loss insurance
What is liability insurance?
Financial cover for the legal liabilities that the insured party owes to others
What is loss insurance?
Financial cover for losses that fall directly on the insured party
If the contractor fails to take out the insurance, what can the
Employer do?
The contractor has to provide documentary evidence that the insurance has been
taken out and the amount of premiums if requested
If they haven’t taken out the insurance the employer can take out insurance to
cover their liabilities and charge the contractor the premium
If the LAD’s are left blank at the outset of the contract, can they be
amended later on if the project is not finished on time?
The employer loses the right to claim liquidated damages if the provision is left
blank & the contract is delivered late. The client may be able to amend the
provision through agreement with the contractor.
What is the difference between liquidated & unliquidated
damages?
“Liquidated damages are a genuine pre-estimate of the loss incurred & are
therefore known & predicted at the outset of the contract & do not need to be
proven (provided not a penalty).
Unliquidated damages is actual loss incurred as a result of the breach & must be
proven (does not include consequential loss). May be more or less than LADs”
What factors do you consider when calculating LAD’s?
When calculating LD’s must take into consideration the project type:
For public sector works;
1. notional interest on capital employed
2. additional supervision/ administration costs
3. additional accommodation costs
What is Letter of intent? what would be included within that?
“A letter of intent is a parties intention to enter into a contract with the other party
at some point in the future. A LOI should include
1) Scope
2) Duration / completion date
3) Value of works & payment terms
4) Termination clause
5) Law
6) How works to be reconciled with main contract
7) Lock out clause to prevent negotiations with others
8) Copyright”
What is quantum merit?
Reasonable payment for work done
What is the final account?
Detailed statement of all the adjustments to the contract sum and therefore the
total amount that the employer is liable to pay, together with the basis on which it
was calculated
When must the final certificate be issued?
Two months from the later of:
End of the Rectification Period
Issue of the Certificate of Making Good
When the architect gives the contractor a detailed statement (final account)
