Contract Administration

Question 1

What is the difference between a contract administrator and employer’s agent?

Answer 1

CA is the role in traditional forms of contract
EA is the role in Design and Build
EA’s normally start their appointment earlier and work on behalf of the client

Question 2

What is the legal basis for this difference?

Answer 2

EA’s the contract administration role within design and build contracts whereas the Contract Administrator performs the same contract administration role in traditional forms of contract

Question 3

What are the key duties of the contract administrator under the form of contract?

Answer 3

1. Administering the contract
2. Chair Meeting
3. Issuing relevant certificates
4. Administrating change control procedures
5. Issuing certificates interim certificates for payment.
6. Issuing practical completion certificates.
7. Collating and issuing schedules of defects.
8. Issuing the certificate of making good defects.
9. Issuing the final certificate.
10. Consider EOT claims

Question 4

Can anyone else undertake any of these duties?

Answer 4

Yes the QS under the contract can undertake some of these duties

Question 5

What duties does the contract administrator usually have, which are additional to those set out in the contract?

Answer 5

Preparing and issuing construction progress reports.

Question 6

How is an extension of time calculated?

Answer 6

1. Review facts and relevant event
2. Compare as planned versus as built
3. Critical path analysis

Question 7

What is the process for determining whether completion has been achieved?

Answer 7

Are works substantially complete, employer can use the building excluding snags and minor defects.

Question 8

What is the role of the contract administrator following completion?

Answer 8

Following completion the CA must record a list of snags, issue a final completion certificate and agree final account. 12 months later it must review the snagging works and issue a making good certificate.

Question 9

What current challenges is Covid and/or Brexit bringing to Contract Administration?

Question 10

What is a bond?

Answer 10

A bond is a promise (usually by deed) whereby the person giving the promise (the bondsman) promises to pay another person (the employer) a sum of money.

Question 11

What are the different types of bond in the industry?

Answer 11

Advance Payment Bond
Retention Bond
Performance Bond

Question 12

What is a performance bond?

Answer 12

Requested by the employer, and required from the contractor, who in turn obtains it from a bank or insurance company. The bond is usually 10% of the contract sum payable to the employer if the contract fails to complete the work in accordance with the building contract.

Question 13

What are the two different types of bonds?

Answer 13

1. On-demand bond
2. Default bond

Question 14

What is the difference between the two types of bonds?

Answer 14

The essential difference is an employer does not have to prove a default has occurred under a ‘on demand’ bond. Where as with a default bond the employer must prove the conditions necessary.

Question 15

What must the employer prove with a default bond?

Answer 15

1. That a breach under the primary contract has occurred
2. The level of damage suffered by him/her as a result of that breach

Question 16

What is an on-demand bond?

Answer 16

Employer can call on the money even if a breach has not occurred.

If the contractor is wise they would factor this into their contract price, but contractors should resist this type of bond.

Question 17

How can an on-demand bond be prevented?

Answer 17

1. Fraud
2. Bad faith

Question 18

What is a collateral warranty?

Answer 18

A collateral warranty is a contract which is ancillary to the principal contract and creates a contractual relationship that would not otherwise exist.

Question 19

Why do we have collateral warranties?

Answer 19

Under current law if there is no contract between party A and party B, the ‘necessary’ damage suffered must equate to a physical injury or damage to a property other than the property which is negligent. Therefore pure economic loss is irrecoverable in tort which is why collateral warranties exist.

Question 20

What is included in a collateral warranty?

Answer 20

1. Duty of Care
2. Copyright
3. Prohibited materials
4. Professional indemnity insurance
5. Assignment
6. Step-in rights

Question 21

What does a consultant promise under a collateral warranty?

Answer 21

They have performed their services in accordance with their appointment, exercising the requisite level of skill and care.

Question 22

What does a contractor promise under a collateral warranty?

Answer 22

They have carried out work in accordance with the contract in a proper and workmanlike manner (in accordance with clause 2.1 of JCT SBC 2016)

Question 23

Why does a collateral warranty include copyright?

Answer 23

1. To ensure only a beneficiary license in granted (and not assignment of the copyright)
2. An exclusive license is not given to the first beneficiary of a collateral warranty
3. Include limitations to ensure the design is not used for the extension of that development or for a new development

Question 24

Why include PII?

Answer 24

1. To ensure warrantor is protected against breach
2. The warrantor must confirm level of PI insurance, and confirm they will have it for a minimum of 12 years
3. PII must also be on a ‘each and every’ claim basis

Question 25

Why do collateral warranties have step-in rights?

Answer 25

To allow a third party to enter into the contract and act as the employer if the first employer is unable to continue its duties under the contractor.

Question 26

What are common amendments to collateral warranties?

Answer 26

1. Net contribution 2. No greater liability 3. Cap on liability

Question 27

What is net contribution?

Answer 27

The warrantor is only liable for loss from their services and not third parties.

Question 28

What is cap on liability?

Answer 28

A warrantor will cap its liability usually to the level of their PII.

Question 29

What are third party rights?

Answer 29

The act provides an alternative to collateral warranties, and enable third party beneficiaries to enforce a term of a contract. The third party is given rights at the execution of the contract, tenants for example even if the names are unknown at the time.

Question 30

Why has uptake on third party rights been slow?

Answer 30

1. Beneficiaries preference of physical warranty signed by the warrantor 2. The warrantors reluctance to grant rights to unknown beneficiaries

Question 31

What is the advantages of third party rights over collateral warranties?

Answer 31

1. Save time and money wasted drafting other contracts and chasing these up

Question 32

What is a parent company guarantee?

Answer 32

A guarantee provided by the contractor's ultimate parent or holding company to answer for the debt, default or miscarriage of the contractor.

Question 33

What is the difference between a bond and a PCG?

Answer 33

A bond will protect a financial guarantee, where a PCG may be a performance guarantee or both.

Question 34

Why may a employer ask for a PGM?

Answer 34

When an employer is concerned by the financial viability, so a PCG provides an assurance. This may be requested if the company is new.

Question 35

What does a PGM guarantee?

Answer 35

1. The contractor will performs its obligations, and failing to do so, the parent company will ensure the contract is completed. 2. That it will protect the employers financial interests by promising to pay sums due under the contract if the contractor is unable to meet them.

Question 36

What happens to a PCG if their is a variation to the main contract?

Answer 36

Employer should ensure they can amend the contract without the consent of the PC, as if they do without this agreed the PC can no longer be liable for its obligations.

Question 37

When does a PCG liability finish?

Answer 37

If no date is specified the date is generally 12 years after PC.

Question 38

How does the liability time differ between performance bonds and PCG?

Answer 38

Performance bonds typically expire at practical completion or the certificate of making good. Whereas PCG will last to the end of the contract liability period.

Question 39

Does adjudication apply to PCG?

Answer 39

No, as it is not recognised as a construction contract.

Question 40

What contractual conditions must be met for Liquidated Damages to be deducted?

Answer 40

- The CA must issue a non completion certificate - The employer must notify the contractor of its intention to deduct liquidated damages before the date of the final certificate - The employer must serve a notice to withhold payment no later than 5 days before the final date for payment

Question 41

What are the implications of writing £nil on the clause for liquidated damages?

Answer 41

If the liquidated damaged clause is not deleted itself but only £nil is inserted, the employer waives his rights to liquidated and unliquidated damages.

Question 42

What are the implications of inserting 'N/A' in the Liquidated damages clause?

Answer 42

Liquidated damages no longer apply to the contract, however, a claim for general damages could still be brought.

Question 43

What are the implications of removing relevant events with regard to Liquidated Damages?

Answer 43

If there is no mechanism for a contractor to apply for an Extension of Time, the 'prevention principle' applies and the employer will lose its right to apply liquidated damages.

Question 44

What are the benefits of liquidated damages?

Answer 44

1. Certainty 2. Limitation of liability 3. Saves time and expense 4. Incentive

Question 45

How do you calculate Liquidated Damages?

Answer 45

They must be a predetermined estimate of financial loss suffered by the innocent part if the event the contractor breached the contract by not completing on time. This can be: 1. Loss of capital 2. Direct loss 3. Extended financing costs