Contract Administration

Question 1

When would there be a requirement for a performance bond and what does it mean?

Answer 1

Performance bonds and guarantees are commonly used to ensure that contractors fulfil their obligations, offering a level of protection against risk and uncertainties.

The bond typically covers a percentage of the contract value. It is a common requirement for most major construction contracts, especially for public sector projects, as it provides reassurance to the project developer that the contractor can fulfil its contractual obligations.

Question 2

What is a collateral warranty and how does it work?

Answer 2

A collateral warranty creates a contractual relationship between two parties that are not linked via the contract.

They are used as a supporting document to a primary contract where an agreement needs to be put in place with a third party outside of the primary contract.

It can also provide the third-party contractual rights enabling it to claim for losses which would not otherwise be recoverable.

Question 3

Can you please expand on what the role of a Contract Administrator is?

Answer 3

Their responsibility is to administer construction contract between client and contractor, and carry out activities such as site visits, reports, variations, issue instructions, valuations and certificates etc.

Question 4

Can you expand on your knowledge of the JCT Intermediate contract?

Answer 4

The intermediate contract allows for a number of additional elements in comparison to the JCT MW including:
Clerk or works
Sectional completion
Partial possession
The use of bonds.
Nominated sub-contractors

Question 5

Can you expand on your knowledge of the JCT Standard Building Contract?

Answer 5

The JCT SBC allows for additional elements to the intermediate contract such as:

Employers representative, listed sub contractors, retention bonds, variation and acceleration quotations, third party rights.

Question 6

What contract allow for sectional completion and named sub contractors ?

Answer 6

Intermediate and standard building contract.

Question 7

What JCT contracts allow for a clerk of works ?

Answer 7

JCT Standard building contract
JCT Intermediate Contract
Not JCT MW

Question 8

What is a traditional lump sum contract ?

Answer 8

A lump sum contract is the traditional means of procuring construction, and involves a single ‘lump sum’ price for all the works being agreed before the works begin.

This means that the contractor is able to accurately price the works they are being asked to carry out.

Question 9

What is a contract instruction and how would you deal with it ?

Answer 9

In simple terms, a contract variation occurs when the parties agree to do something differently from the way they originally agreed, whilst the remainder of the contract otherwise operates unchanged.

Such an agreement, if valid, would amount to a variation of the existing contract.

Question 10

What is a letter of intent?

Answer 10

A letter of intent is a document outlining the understanding between two or more parties which they intend to formalise in a legally binding agreement.

Question 11

Under JCT MW does the programme form part of the contract?

Answer 11

No however the contract promotes the use of one for reference generally.

Question 12

What is the base date?

Answer 12

Base date: the base date is usually set at around the time of return of tenders.

It is a reference date from which changes in conditions can be assessed.

Question 13

Does JCT MW make reference to a possession date?

Answer 13

MW16 does not refer to the contractor being given ‘possession’ of the site, but states simply that ‘The Works may be commenced’ on the date stated in the contract

Question 14

What are the grounds for termination?

Answer 14

Insolvency
CDM breaches
Corruption of the contractor
Contractor failing to proceed regularly and diligently
Employer failing to pay amounts

Either party can terminate if the works are suspended for a period of more than one month due to neutral events

Question 15

Does JCT MW require a contract programme?

Answer 15

MW16 does not require the contractor to produce a programme.

Although there would be nothing to prevent such a requirement being included in the specification; a programme might be very useful to the contract administrator, particularly when monitoring progress and assessing extensions of time.

Question 16

Why is it important to define a completion date?

Answer 16

The significance of having a completion date is that it provides a fixed point from which damages may be payable in the event of non-completion.

Generally in construction contracts the damages are ‘liquidated’, and usually expressed as a rate per week of overrun.

Question 17

What is the reason for an extension of time?

Answer 17

One important reason for an extension of time clause is to preserve the employer’s right to liquidated damages in the event that the contractor fails to complete on time due wholly or in part to some action for which the employer is responsible.

Question 18

When must a contractor give written notice regarding an extension of time ?

Answer 18

Under MW16 the contractor must give written notice to the contract administrator - ‘If it becomes apparent that the Works will not be completed by the Date for Completion’ (cl 2.7)

The notice must be given regardless of the reason for the delay, i.e. whether it is caused by the employer, by a neutral event (such as bad weather) or by the contractor itself.

Question 19

When would you issue a certificate of non completion?

Answer 19

If the completion date is not achieved, under JCT MW the certificate is not required but this failure should be recorded and circulated to all.

Question 20

What triggers practical completion?

Answer 20

Under clause 2.9 the contract administrator is obliged to certify the date at which, in the contract administrator’s opinion, works have reached practical completion and the contractor has complied sufficiently with clause 3.9 (its CDM obligations, for example the supply of information required for the health and safety file).

It is implied that it will be a fair and reasonable exercise of professional judgment.

However, the contract administrator can certify practical completion where there are very minor items of work left incomplete, on de minimis principles.

Question 21

What does practical completion trigger?

Answer 21

Start of the rectification period.
release of half of the retention.
Employer takes responsibility of the site.
liability for liquidated damages ends.

Question 22

What is culpable delay ?

Answer 22

Culpable delay (sometimes referred to as ‘contractor delay’) on the other hand is a delay that is entirely the fault of the contractor. Where the contractor is culpable for a delay, they have no entitlement to an extension of time or loss and expense.

Question 23

How and where would you process liquidated damages ?

Answer 23

May deduct damages from the amount due under the next certificate or reclaim the sum as a debt.

Under MW16 the contract administrator is not required to certify non-completion, but it may be prudent to record the failure in a letter to both the employer and the contractor.

Once the date for completion has passed, the contractor is said to be in ‘culpable delay’.

Question 24

What notice would you need to submit if you are planning to recoup liquidated damages form a payment?

Answer 24

A pay less notice.

Question 25

What are the key powers of the contract administrator JCT MW?

Answer 25

Agree variations
Issue a pay less notice on behalf of the client
issue certificates
certify practical completion making good defects

Question 26

At what point can you no longer issue variations under the contract?

Answer 26

Following practical completion/Final account.

Question 27

How long does the contract administrator have to notify the contractor of the existence defects?

Answer 27

MW16 requires the contract administrator to notify the contractor of the existence of defects within 14 days of the end of the rectification period.

Question 28

What are prolongation costs?

Answer 28

Prolongation costs are the additional costs that a contractor has incurred as a result of the completion of the works being delayed by an event that is the responsibility of the other party (usually the Employer). Such events might include; failing to give the contractor possession of the site on the date specified in the contract; delays in giving instructions, and so on.

Question 29

Does JCT MW allow for advanced payments?

Answer 29

No, the contract would have to be amended to suite.

Question 30

What does a valuation include?

Answer 30

The value of the work properly executed and the value of materials and goods properly brought onto site.

Question 31

Can you allow for defective work to remain?

Answer 31

The contract administrator should obtain both parties’ agreement, and ensure that its proposed adjustment to the contract price is agreed and confirmed in writing.

The rates and prices for that work as set out in the contract can be used as a starting point for negotiation, but are not the only matters to be taken into consideration.

The contractor may prefer to correct the work, especially if the proposed reduction in the contract price is significant, and in general it cannot be denied the opportunity to do so.

Question 32

What risks are attached with including materials on site within interim payments?

Answer 32

The employer could be at risk, however, where materials have not yet been built in, even where the materials have been certified and paid for. The contractor might not actually own the materials paid for because of a retention of title clause in the sale of materials contract.

Question 33

What is a payment notice?

Answer 33

When the CA has not produced a payment certificate the contractor can produce a payment notice.

Question 34

What is direct loss and/or expense?

Answer 34

They are the additional costs or losses incurred by one of the parties, due to a default of the other party. In construction, this is normally the contractor claiming following a relevant matter that materially effects the progress of the works.

The contractor is entitled to recover that loss and expense in order to put him or herself back in the financial position that he or she would otherwise have been in.

Question 35

Why did you advise the client that time delays following receipt of tenders could result in contractors claiming increased costs?

Answer 35

Tenders generally come with a tender acceptance period, which can vary. Contractors may be willing to hold their price for an extended period.

However if a contractor is not appointed within the tender acceptance period, the client may face additional costs such as a percentage increase.

This was very common during covid, when costs of labour and materials were very volatile.

Question 36

What is the Construction Industy Scheme (CIS)?

Answer 36

The Construction Industry Scheme, or CIS, is a UK tax deduction scheme. It was designed to stop tax evasion among self-employed construction workers.

Question 37

What happens if a certificate is not paid, and a pay less notice is not served?

Answer 37

Interest - Interest accrues from the final date of payment, until payment is made. It is worked out as 5% over the Bank of England interest rate and can be recovered as a debt.

If payment is not made in line with the terms of the contract, the contractor can terminate the contract, after serving a default notice and waiting for a further failed payment window.

Question 38

Explain the the insurance provision 5.4A

Answer 38

5.4A refers to a joint names policy that is taken out by the contractor to cover all risks for the full reinstatement value of the works.

For use with new buildings.

Question 39

Explain the the insurance provision 5.4B and any issues you are aware of with this type of policy.

Answer 39

5.4B refers to a joint names policy taken out by the employer, to cover full costs of reinstatement, repair or replacement.

It is in respect of existing structures, contents and new works.

5.4B.1 Covers the existing structure and contents. - The employer essentially extends their existing policy to cover the contrator against any specific losses.

5.4B.2 Covers the works.

It can be difficult for employers to obtain insurance cover for 5.4B.1, especially if they are not the freeholder.

Question 40

Explain the the insurance provision 5.4C

Answer 40

5.4C is used when A or B are not suitable and parties agree to their own insurance policies.

It can be used for new and existing structures.

Question 41

Why is it important to include reference to Alternative 1 or 2?

Answer 41

It is a provision that prevents unofficial discussions in which people make agreements that provide both sides with advantages.

Question 42

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

Answer 42

I would check the LAD figure is based on a genuine pre-estimate of financial loss and explain this would need to be substansiated.

I would explain that if the figure is not based on genuine financial loss, it is not likely to be enforced.

Question 43

What must have been in place before LD’s can be deducted?

Answer 43

A non-completion certificate.

A witholding notice.

Question 44

What happens when ‘time is at large’?

Answer 44

There is no set completion date and the contractor only has a duty to complete the works in a ‘reasonable time’.

LD’s cannot be claimed.

Question 45

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

Answer 45

The materials should be for the works.

They should be adequately protected.

Delivered to programme.

In a reasonable quantity.

Question 46

What is a retension of title clause?

Answer 46

Where the sub-contractor or supplier retains ownership of materials until they have been paid for.

Question 47

What is a fluctuating price contract?

Answer 47

Where the contract sum is adjusted for changes in the costs of materials and labour, as well as statutory contributions and taxes.

Question 48

What is the date for completion?

Answer 48

The date fixed and stated in the contract particulars.

Question 49

How is the date for completion, different to the completion date?

Answer 49

The completion date can be adjusted to take into account an EOT. The date for completion is the date mentioned in the contract.

Question 50

What is the difference between partial possession and sectional completion?

Answer 50

Sectional completion is a contractural obligation to hand over the section at the stated date, partial possession relies on the contractors consent to the employer to take possession of part of the works before practical or sectional completion.

Question 51

What are the consequences of a non-completion certificate?

Answer 51

The employer has the right to withold liquidated damages, as long as a witholding notice has been given.

Question 52

What are the different certificates you are aware of under the JCT contract?

Answer 52

Interim certificates.

Practical completion / sectional completion certificates.

Non completion certificates.

Certification of making good.

Final certificate.

Question 53

What are three ways that benefits can be transferred under JCT contracts?

Answer 53

Collateral warranties
Third party rights
Assignment

Question 54

What is assignment in contracts?

Answer 54

Where the rights and benefits of one contractural party are transferred to a third party.

Question 55

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

Answer 55

Collateral warranties can:

Provide a direct link between the employer and subcontractor.

Give the employer a contractural remedy if subcontractors breach the contract.

Question 56

What is a bond?

Answer 56

A construction bond is a type of surety bond that protects against financial loss or disruptions that may occur if a contractor fails to complete a construction project or meet its specifications.

The three main types of construction bonds are bid, performance, and payment.

Question 57

What is insurance?

Answer 57

The transfer of risk in exchange for a premium.

Question 58

What does an LOI need to be legally binding?

Answer 58

It must have the basis of a simple contract (offer, acceptance and consideration) and both parties must intend to create legal relations.

Question 59

If an instruction was issued during the contract which involved the fabrication of a substantial amount of materials off site, would you pay for them as off site materials within the valuation?

Answer 59

There is no obligation for the client to pay for materials off site, unless it is identified in the contract.

However, in the scenario where the client wishes to pay for them, I would check with the client before including them in a certificate.

Question 60

What is your understanding of latent defects and what contractural issues are associated with them?

Answer 60

Latent defects are defects that are not readily identifiable upon inspection and only come to fruition some time after building completion, maybe years.

A claim for latent defects can only be brought if it is within the limitation period (so depends on how the contract was executed).

Question 61

What should the CA do if latent defects are discovered?

Answer 61

Issue an instruction as necessary to instruct the contractor what to do.

This can include compliance with a third party or opening up works to identify the defect.

Question 62

If the works or materials are found not to be in accordance with the contract, what options does the CA have available?

Answer 62

They can:

Instruct the contractor to remove all defective work, materials and goods at their own expense.

Notify the contrcator that the works and or materials can remain, subject to an appropriate deduction being made from the contract sum.

Issue instructions for variations that are necessary. If they are necessary, there should be no additional cost or extension of time given.

Instruct the contractor to open up and test further work to determine the extent of any non-compliance.

Question 63

What is a contractors deemed to have allowed for on the inclusion of a defined provisional sum?

Answer 63

Proper allowances for carrying out the work in their programme and preliminaries.

So are therefore not entitled to an EOT or extra prelims for carrying out the work.

Question 64

What is an undefined provisional sum?

Answer 64

As um included for work, where there is minimal of no information at the time of contract agreement.

Question 65

How can a provisional sum be expended?

Answer 65

The CA must issue an instruction for its expenditure.

Question 66

What is the event that does not allow a contractor to claim loss & expense?

Answer 66

If adverse weather delays the project, the contractor is usually entitled to an extension of time but not loss and expense.