Contract Administration

Question 1

What if a client tells you liquidated ascertained damages are to be £100,000 per week?

Answer 1

• I would ask if the LADs figure is based on a genuine pre-estimate of financial loss and explain that in the event that LADs are 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 a genuine financial loss, it is likely to not be enforceable.
• In this scenario, the employer will need to pursue the
  main contractor for any direct loss that can be substantiated through a formal dispute resolution procedure.

Question 2

What are extensions of time?

Answer 2

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

Question 3

What must be in place before LDs can be deducted?

Answer 3

• A non-completion certificate.
• A pay less notice.

Question 4

What if the employer actually hasn’t suffered a loss or damage?

Answer 4

• It doesn’t matter
• Damages can still be deducted at the value stated on the contract.

Question 5

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

Answer 5

• It mean the contractor does not have liquidated damages deducted for a delay that they did not cause.
• It allows another completion date to be set, allows the employers to deduct liquidated damages at that stage if required.

Question 6

What happens when ‘time is at large’?

Answer 6

• There is no set completion date.
• The contractor only has the obligation to complete works within a reasonable time.
• No LDs can be deducted as their is no completion date.
• For LDS to be applied, the employer would have to prove that the contractor hasn’t completed the works within a reasonable time.

Question 7

What are Relevant Events in an SBCC form of contract?

Answer 7

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

Question 8

What are examples of relevant events?

Answer 8

There are 13 relevant events in SBCC contracts including:
- Variations.
- Instructions.
- Deferment of possession of site.
- Execution of an approx. quantity that is not a reasonably accurate forecast.
- Suspension of the works by the contractor due to non-payment.
- The carrying out of works by statutory authorities.
- Impediment, prevention of default by the employer.
- Force majure.
- Civil commotion or terrorism.

Question 9

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

Answer 9

• Preliminaries.
• Measured works.
• Variations.
• Materials on-site.
• Less retention.

Question 10

How do you evaluate interim valuations?

Answer 10

1. Go to site and inspect the works to form a view of the extent of works undertaken.
2. Check materials stored on-site.
3. Value both time related and fixed preliminary items claimed against.
4. The interim valuation amount is presented as the gross valuation, less the previous payment made, less retention.
5. Finally, as CA, I would prepare and issue the Payment Certificate.

Question 11

What is the interim certificate conclusive of?

Answer 11

• the interim payment certificate is not conclusive.
• They carry no contractual significance in terms of stating that the quality of materials or workmanship is satisfactory.
• Only the final payment certificate is conclusive.

Question 12

What is retention?

Answer 12

• It is a percentage of each interim certificate that is deducted and retained from each interim payment to the contractor.
• Retention provides the client with some security that the contractor/sub-contractor will return to correct any defects during the defects defects liability period.

Retention also provides the client with security in the event of the contractor defaulting/ liquidating.

Question 13

If a non-completion certificate is is not issued when works continue beyond the completion date what is the consequence?

Answer 13

Time is at large.

Question 14

When is retention released to the principal contractor?

Answer 14

• Half of retention is released in the interim payment following practical completion being achieved.
• The remaining retention is released in the final payment certificate after the certificate of making good defects is issued.

Question 15

What is a typical retention percentage under SBCC contracts?

Answer 15

Retention is usually between 3%-5%.

Question 16

What is a retention bond?

Answer 16

• This is where a bond is provided in lieu of taking retention from interim payments.
• It should be equal to the same value as retention deducted.
• The requirement for the bond should be stated in the contract particulars.
• There is a standard form for retention bonds provided in SBCC contracts.

Question 17

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

Answer 17

• Retention can be deducted from interim payments by the employer.
• If the bond is subsequently taken out then retention moneys taken can be paid thereafter.

Question 18

What is acceleration?

Answer 18

• Acceleration is the completion of works in a shorter time period than that anticipated at tender stage or;
• The act of programme recovery following a delay caused by the contractor if they have caused a delay.

Question 19

What options may be considered to achieve acceleration?

Answer 19

• Re-sequencing the programme of works to make consequential activities be undertaken in parallel.
• Increasing the time working time by increasing working hours.
• Increasing the numbers of personnel on-site.
• Increasing incentives (i.e bonuses).

Question 20

What are the most and least effective means of acceleration?

Answer 20

• Re-sequencing works can be the most cost effective and efficient.
• Increasing either working hours or the number of personnel on-site are the least efficient means.

Question 21

What is the date for completion?

Answer 21

• The date for completion is the date stated and fixed in the contract particulars

Question 22

What is the difference between the date for completion and the completion date?

Answer 22

• The completion date is the date for completion that may have been adjusted to take into account any Extension of Time.

Question 23

What does it mean when time is at large?

Answer 23

• It means there is no fixed completion date but the contractor has an obligation to complete the works within a reasonable time.
• No liquidated damaged can be charged.

Question 24

What is practical completion?

Answer 24

• When the works are ‘substantially complete’ with only minor defects remaining.
• The employer then takes beneficial possession of the development.
• Half of retention is released.
• The employer can no longer apply liquidated damages.
• The employer takes back possession of the works and is then responsible for arranging insurance.

Question 25

What is sectional completion?

Answer 25

This is the completion and handover of the site in agreed stages.

Question 26

Do the works have to be totally complete before practical or sectional completion is granted?

Answer 26

• Practical completion is a vague term.
• It is not defined in the SBCC contract suite.
• It is reliant upon the CA’s opinion.
• It should not be conditional.
• It is best practice to award PC when the works are ‘substantially complete’ with a limited number of minor defects or no omissions which prevent the employer from taking beneficial occupation.

Question 27

What is partial possession?

Answer 27

Where the employer requests, and the contractor accepts, for the employer to occupation of the works or an area of the works prior to practical completion or sectional completion.

Question 28

What is the difference between partial possession and sectional completion?

Answer 28

Sectional completion is a contractual obligation to handover the section of works at the stated date whereas Partial possession relies on the contractors consent - although this cannot be unreasonably withheld.

Question 29

What does the CA have to do when partial possession is accepted by the contractor?

Answer 29

Issue a statement to the contractor listing the relevant part and stating the relevant date.

Question 30

What is the rectification period?

Answer 30

The period in which the contractor has an obligation to make good any defects or other faults that arise in the works undertaken during this period.

Question 31

How long is the rectification period?

Answer 31

It depends on the contract but this is typically 12 months to allow for the works to be observed across all seasons.

Question 32

What is a non-completion certificate

Answer 32

It is issued by the CA to the contractor where practical completion has not been achieved by the completion date.

Question 33

What are the consequences of a non-completion certificate?

Answer 33

The employer has the right to deduct liquidated damages from interim payments if a pay less notice is also issued.

Question 34

What are the different certificates that you are aware of under the SBCC forms of contract?

Answer 34

• Interim payment certificate
• Final payment certificate
• Completion certificate.
• Certificate for making good defects.
• Non-completion certificate.

Question 35

What are the three ways that benefits can be transferred to a third party under SBCC contracts?

Answer 35

1. Collateral warranties.
2. Assignation.
3. Third party rights.

Question 36

What are collateral warranties?

Answer 36

They create contractual relationships between the main parties of a contract and a third party.

The contractual relationship with the third party would otherwise not exist due to privacy of contract.

Question 37

Why are collateral warranties used?

Answer 37

Due to the principle of privacy of contract, the rights and obligations under a contract can only be enforced by parties of that contract.

Collateral warranties give remedies to external third parties that, due to privacy of contract, would not otherwise have them.

Question 38

What is assignment?

Answer 38

Where the contractual rights of one contractual party are transferred to a third party.

Question 39

What is novation and how does this differ from assignment?

Answer 39

• Novation is where a new contract transfers the rights and obligations of one contracted party to a new third party.
• Assignment is the transfer of contracted rights or contracted benefits only as burdens cannot be assigned.

Question 40

What is the key issue after a design team has been novated?

Answer 40

• Whether the new party has the right to take action against the novated party for breaches that occurred prior to the novation.

Question 41

How does novation affect the employers rights?

Answer 41

• They lose all contractual relations with the novated party and therefor, the right to take action for a breach.
• It is therefor common for there to be a collateral warranty between the employer and a novated party.

Question 42

What is available to protect clients from sub-contractors failing?

Answer 42

• Collateral warranties can be used as a direct link between the employer and sub-contractor.
• Performance bonds can also be used.

Question 43

Documents required from the contractor at PC?

Answer 43

• Certificates (PC ETC).
• Operation and maintenance manual
• Health and safety plan.