Contract Administration

Question 1

What is a LAD

Answer 1

LAD- Liquidated Ascertained Damages

Question 2

What if the client tells you the LADs are to be £100,000 per week?

Answer 2

• I would check that the LAD figure is based on a genuine pre-estimate of financial loss and explain that
  in the event LAD’s are to be applied, they would need to substantiate this figure.
• I would also explain that if the figure inserted into the contract is shown to be punitive and not based
  on genuine financial loss it is not likely to be enforceable.
• In this scenario the employer will have to pursue the Main Contractor for any actual direct loss that can
  be substantiated through a formal dispute resolution procedure.

Question 3

What are extensions of time?

Answer 3

• Extensions of time adjust the completion date and relieves the contractor’s liability to pay liquidated
  damages for the period of the extension.

Question 4

What are liquidated damages?

Answer 4

• A genuine pre-estimate of the likely loss incurred by the employer should the completion date not be
  met.

Question 5

What if the employer actually suffered no loss or damage? (LD’s)

Answer 5

• It doesn’t matter.
• The damages can still be deducted at the value stated in the contract.

Question 6

What are the benefits of being able to grant an extension of time?

Answer 6

• 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 deduct
  liquidated damages if another delay occurs.

Question 7

What must be in place before LDs can be deducted?

Answer 7

• A non-completion certificate.
• A withholding notice.

Question 8

What happens when ‘time is at large’?

Answer 8

• 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 as there is no date to take them from.
• The employer would have to try and prove that the contractor had not completed in a reasonable time.

Question 9

What are Relevant Events in a JCT form of Contract?

Answer 9

• They are events that entitle the contractor to an extension of time.

Question 10

What are the relevant events?

Answer 10

o Variations.
o Instructions.
o Execution of an approx. quantity that is not a reasonably accurate forecast.
o Deferment of possession of the site.
o Suspension by the contractor for non-payment.
o The carrying out of work by statutory authorities.
o Impediment, prevention or default by the employer.
o Loss or damages occasioned by the Specified Perils.
o Exceptionally adverse weather conditions.
o Strike or lock out.
o Civil commotion or terrorism.
o The exercise of any statutory power after the base date by the UK gov.
o Force majeure.

Question 11

What are the main elements you would include within an interim
valuation?

Answer 11

• Preliminaries.
• Measured work.
• Variations.
• Materials on site.
• Materials off site.
• Loss and expense.
• Retention.

Question 12

What needs to be in place for you to include payments for materials on
site?

Answer 12

• The materials should be for the works.
• They should be adequately protected.
• Delivered to programme.
• In a reasonable quantity.

Question 13

What needs to be in place for you to include payments for materials
off site?

Answer 13

• Proof that ownership will transfer to the employer upon 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.

Question 14

What is a retention of title clause?

Answer 14

• Where the sub-contractor or supplier retains ownership of materials until they are paid for them by the
  contractor.
• This highlights the importance of vesting certificates as the employer may subsequently pay for
  materials that are not owned by the contractor.
• This legal principle can lead to disputes in the event of insolvency.

Question 15

How do you evaluate interim valuations?

Answer 15

• Go to site and inspect the works to form a view on the percentage of works undertaken.
• Check for materials on site and materials off site.
• Value time related and fixed preliminaries items undertaken.
• Value any agreed variations and claims.
• The valuation amount is presented as the gross valuation, less previous payment made and retention.
• Finally I would send my recommendation to the Architect or Contract Administrator for them to
  prepare the payment certificate.

Question 16

How do stage payments work?

Answer 16

• The stages and their values are set out in the contract particulars.
• The stages are usually related to the completion of significant design items for example completion of
  the substructure or achieving a water tight structure.

Question 17

What is the interim certificate conclusive of?

Answer 17

• Interim certificates are not conclusive.
• They carry no contractual significance to state that the quality of materials or workmanship is
  satisfactory.
• It is only the final certificate that is conclusive.

Question 18

What is retention?

Answer 18

• It is a percentage of each interim certificate deducted and retained by the employer from each interim
  payment to the contractor.

Question 19

What is the purpose of retention?

Answer 19

• It provides an incentive for the contractor to rectify any defects within the contract defects liability
  period.
• It provides some financial security to the employer in the event of a contractor default.

Question 20

When is the retention released to the contractor?

Answer 20

• Half of the retention is released in the interim certificate after Practical Completion.
• The remaining retention is released in the final certificate after the certificate of making good defects is
  issued.

Question 21

What is a typical retention percentage under JCT contracts?

Answer 21

• Usually retention is between 3% or 5% depending on the form in use.

Question 22

What is a retention bond?

Answer 22

• This is a bond provided by the contractor in lieu of taking retention from interim payments.
• It should be equal to the same value as the retention deducted.
• The requirement for the bond should be stated in the contract particulars.
• A standard form is provided in the JCT contract schedules.

Question 23

What happens if the contractor does not maintain the retention bond?

Answer 23

• The employer can deduct retention from interim payments.
• If the bond is subsequently taken out, the retention deducted must be repaid to the contractor.

Question 24

Why might a retention bond be used?

Answer 24

• It may be used in difficult market conditions to aid the contractor’s cashflow.

Question 25

What are the disadvantages of a retention bond?

Answer 25

• The employer would have to pay the premium for taking out the bond.
• It may reduce the contractor’s incentive to complete making good defects promptly.
• It reduces the employer’s cashflow.
• The employer would not get the interest accruing on the amount of the retention bond.

Question 26

What are the main forms of JCT contract you know?

Question 27

What kinds of works would be included within the contractor’s design portion of a contract and why?

Answer 27

• It is used when the contactor has agreed to design specific parts of the works. They will usually sub-contract the works
  whereby a specialist installer or manufacturer is required. Ensures buildability and other factors are taken into account. The contractor is responsible for the procurement and must adhere to the programme.
• Specialist works can include; installation of services, roof replacement etc.
• Takes the liability of the design off the client and design team.

Question 28

What are the responsibilities of a contract administrator

Answer 28

• They are not a party to the contract and therefore must remain impartial at all times. Simply there to administer the contract.
• Chair pre contract meeting.
• Issue contract instructions.
• Deal with payment provisions.
• Manage change procedures – design changes etc.
• Involve with dispute avoidance.
• Issue certificates.
• Deal with completion/possession issues.

Question 29

Explain the valuation process and the responsibilities of a contract administrator for a JC intermediate Contract / JCT Minor works contract?

Answer 29

1. Contractor must issue application for payment no later than the valuation date.
2. Valuation date occurs (stated in contract particulars – will change to closest business day).
3. Due date (date at which the CA values the works) is 7 days after the valuation date.
4. Contract administrator must issue a certificate for payment (interim cert) within 5 days after the due date – the cert = the
   amount they deem should be paid at the due date.
5. Final date for payment in standard contract is 14 days from the due date.
6. If the employer intends to withhold any amount from the sum certified, the they must provide written notice of their intention no later than 5 days before the final date for payment.

Note: The contract gives the contractor the right to submit its own payment application - they are not required to and the CA can undertake the valuation without it.

Note: If the CA doesn’t issue a payment certificate within 5 days after the due date, if the contractor issued an application for payment this becomes a payment notice and acts as the cert, otherwise a contractor can send a payment notice to the CA.

Question 30

How does the valuation process differ with regards to the JCT Design and Build Contract?

Answer 30

Essentially the same as the JCT intermediate contract BUT – Due dates can change.

If the contractor submits their application for payment before the valuation date, then the due date is still 7 days from valuation date, but if received after the valuation date then the due date is 7 days from the day of receipt of the AFP.

Question 31

How could an employer take part of a site back quickly?

Answer 31

• By doing sectional completion.
• Early possession – note: when early possession utilised the works or section of are deemed to be at practical completion
  regardless.

-Acceleration.

Question 32

What is practical completion? What happens contractually once PC is certified?

Answer 32

There is no definitive definition for the term Practical Completion. It is when the works are complete to the satisfaction of the Contract Administrator and the contractor has abided with their duties under the CDM regulations. The CA cannot certify PC where there are outstanding works or patent defects, but they also cannot withhold PC for minor outstanding defects.

HW Nevill (Sunblest) Ltd v William Press & Son Ltd [1981] (the flexible test) – PC will not be prevented where the works have been completed free from patent defects, other than ones to be ignored as diminimus or trifling (very minor in nature).

What is deemed diminmus or trifling will be different for each project / the intended end use – swimming pool analogy.

Once PC is certified:

Start of rectification period.

Liquidated damages cannot be claimed.

Release of half the retention.

Client then claims back possession of the site – insures it etc.

Question 35

What is partial possession?

Answer 35

Mechanism to allow employer to take early possession of a site.

Contract might have provision for sectional completion to allow partial possession.

Effect of partial possession:

 Any part of the works which partial possession is given is deemed to achieve practical completion.
 Half retention must therefore be released.
 Defects liability begin for that part of the works.
 Liquidated damages reduce?
 Client is responsible for that part of the works and will need to use its own insurances.

Contractor not obliged to give partial possession but can’t unreasonably withhold it.

Contactor may not wish to give partial possession due to occupants / other contractors on the site holding up works – may
lead to an extension of time application.

Question 36

What is the difference between a contract being executed as a deed or underhand?What is the difference between a contract being executed as a deed or underhand?

Answer 36

The Latent Damage Act 1986 stipulates the limitation period of building contract is (period for which a claimant can bring proceedings against a contractor):

6 years from completion for contracts signed underhand.

12 years for those executed as a deed.

The act prevents claimants bringing old cases against contractors and encourages them to do so without delay.

Question 37

What contractual processes need to occur with regards to an extension of time?

Answer 37

The contractor is required to notify the CA whenever it becomes reasonably apparent that the progress of the works or any section of the works is likely to be delayed by a relevant event.

The contractors notification should be in writing and should identify the relevant event that has caused the delay, request that an extension of time should be granted and then provide details and evidence of causation of the relevant event. They should also state whether the delay will impact the completion date and if so the amount of delay anticipated.

Contractually the contractor is also required to mitigate the delay even though it isn’t a result of their actions.

CA then analyses the contractors’ request for extension of time and to determine whether the identified relevant event has indeed caused the delay. If this is found to be the case they must then grant the extension of time and agree a new contractual completion date.

Question 38

What are the two broad groups of relevant events? Give some examples of relevant events

Answer 38

Relevant events caused by the employer / relevant events caused by neutral events.

Relevant events caused by the employer: variations and instructions, delays handing over possession of the site, suspension of the contract due to non-payment.

Relevant events caused by neutral events: Force majeure - act of god (war, natural catastrophes), adverse weather conditions, specified perils (fire, floods), civil commotion (acts of terrorism, strikes etc).

Question 39

What is single stage tendering?

Answer 39

Single stage tendering is a tendering procedure whereby a number of pre-selected contractors submit tenders on a competitive basis.

Each contractor provides a single cost for the whole of the construction works within a predetermined tender period.

Tenders are then analysed in terms of cost and quality before a single contractor is declared the preferred contractor and enters into a building contract with the client.