Contract Administration Level 1 Flashcards
Define a contract.
A contract is a legally binding promise by one party to fulfil an obligation to another party in return for consideration
Who are typically the two parties to a main building contract?
- Client / employer - this party requires the work to be carried out
- Principal / Main contractor - the party carries out the work for an agreed fee
What is a contract administrator?
The CA is NOT party to the principle building contract
They simply administer it on the clients behalf
They must remain impartial at all times and apply the ‘rules’ of the contract rather than favouring either party
What are some of the common contractual agreements and what are your views of them?
verbal agreement - unprofessional, risky with no evidence of agreement, often used on smaller projects, should be avoided at all costs
exchanging of letters - commonly used but inadequate with regards to agreement and control mechanisms, to be avoided at all costs
letters of intent - used as an interim contract to proceed before full contract is signed, can be used to provide an early start but ensure they contain all relevant info linked to the form of contract used
written form of contract - as produced by JCT or NEC for example, preferred method to form any building contract regardless of size or value
What are the main duties of the contract administrator?
Chairing the pre-contract meeting
Issuing instructions
Dealing with payment provisions
Managing change procedures
Involvement with dispute avoidance
Dealing with completion and possession issues
Issuing certificates
What are the key aspects of contract documentation?
The contract (agreement, conditions, name of parties and contract sum)
Drawings
Specification
Schedule of work
BOQ (or employers requirements and contractors proposals under D&B)
What are the key aspects which determine selection of a contract and why?
Value of work - higher value projects present more financial risk and require greater cost control measures such as a BOQ
Timescale - a longer contract period may create unavoidable changes affecting both parties e.g. legislation for the client and inflation for the contractor
Complexity of work - simplistic work (like decoration) requires limited specification and monitoring whereas complex work (like construction of a high spec new build property) requires far more design, planning and control on site
Specialist subcontractor work - subcontractors are likely to be required on most projects and the more complex projects will require detailed provisions for appointing and managing them
What are JCT contracts?
JCT is a standard form of contract; Joint Contracts Tribunal
There are 12 contracts within the JCT family, examples include:
Minor Works Building Contract
Standard Building Contract
Intermediate Building Contract
Design & Build Contract
When would you use a JCT Minor Works Contract?
Smaller, basic construction projects where works are of a simple nature
Where the procurement route is traditional
Where the client is responsible for design, however if the contractor is responsible for designing elements of the works then MWBC with contractors design should be used
When would you use the JCT Standard Building Contract?
Designed for large or complex projects where detailed contractual provisions are required
Where projects are procured via the traditional procurement route
Where the employer is carrying out the design, however there are provisions for ‘Contractors Designed Portion’
Works being carried out in sections
When would you use the JCT Intermediate Contract?
Construction projects involving all recognised industry trades / skills
Detailed contractual provisions are required but without complex building services or specialist work
Suitable for projects following the traditional procurement route
What are the NEC ECC contracts?
New Engineering Contracts - Engineering and Construction Contract
Suitable for any construction based contract between employer and contractor
Intended to be suitable to any sector within industry
PM assumes full responsibility on behalf of the employer and controls time and cost as an administrative function
Programme is a key contract document
Based on mutual trust and co-operation
Focuses on pro-active risk management
What are the 6 main options o NEC ECC?
A - priced contract with activity schedule
B - priced contract with BOQ
C - target contract with activity schedule
D - target contract with BOQ
E - cost-reimbursable contract
F - Management contract
Provide an overview of NEC Option A
Lump sum contract
payments are made against completion of activities on the activity schedule
suitable for traditional and D&B procurement routes
risk of carrying out the work at the agreed price is with the contractor
Provide an overview of NEC Option B?
Priced contract with BOQ
contractor is entitled to payment via interim payments as a % of each BOQ line with the contract payment schedule
Risk of carrying out work at the agreed price is with the contractor
Provide an overview of NEC Option C?
target cost contract with activity schedule
financial risk is shared between employer and contractor at an agreed proportion
motivates contractor to deliver works in the most cost-efficient way
Provide an overview of NEC Option D
Target cost set by BOQ
Financial risks are shared at an agreed proportion between client and contractor
Provide an overview of NEC Option E
Reimbursable contract, often referred to as cost plus
Employer largely takes on the financial risk as the contractor is reimbursed their actual costs plus an agreed OH&P %
Might be used where the scope of works cannot be defined at the outset such as emergency work
Provide an overview of NEC Option F
Cost reimbursable / cost plus contract
Suited to the MC procurement route so the works are designed and construction by multiple subcontractors who are contracted to the management contractor
MC is responsible for the work and paid a fee
Risk is largely taken by the client
Under JCT, who takes on the role of contract administrator?
Historically and traditionally been the architect
The JCT form refers to ‘architect / contract administrator’
The scope of who can be the CA has widened to include building surveyors, quantity surveyors, management surveyors and engineers’
Under NEC, who takes on the role of the contract administrator?
NEC does not refer to a contract administrator as the project manager is the focal point of the project
Essentially, the PM controls the contract as an administrative function
Under FIDIC, who takes on the role of the contract administrator?
The Engineer
With reference to JCT MW Contract, provide an overview of the contract booklet.
Articles of agreement - identifies the key parties to the contract and other stakeholders
Contract particulars - contains all important contract clauses covering items such as carrying out the works, control of the works, payment, injury, damage and insurance, termination and disputes
Section 2: Carrying out the works - contractors obligations, possession of site, errors, discrepancies and divergencies, extensions of time, practical completion, liquidated damages, defects, certificate of making good and contractors programme
Section 3: control of the works - person in charge, assignment / sub-letting, CA instructions, provisional sum, CDM regs, contract instructions
Section 4: payment - Contract sum, payment certificates, retention, payment terms
Section 5: injury, damage and insurance - outlines contractors liabilities re insurance provisions during contract period
Section 6: termination - covers conditions under which each party can terminate the contract due to specific breaches including insolvency / default by the client
Section 7: settlement of disputes - outlines process available for dealing with disputes such as mediation, arbitration and adjudication
Under JCT MW, what does the contractors obligations clause cover?
contractor is required to carry out the specified works to the requisite quality within the agreed timescale
CA responsibility to check quality of work completed during regular site progress inspections
Under JCT MW, what does the possession of site clause cover?
the site must be made fully available to the contractor by the client by the agreed date for the contractor to mobilise operations and commence work to meet agreed programme of work
Failure could constitute a breach of contract and justify an EOT
Under JCT MW, what does the errors, discrepancies and divergencies clause cover?
Errors with the design documentation are often discovered once contractor has started on site
this section covers how they are dealt with
Under JCT MW, what does the extension of time clause cover?
allows for the CA to extend or fix a new completion date, therefore postponing the clients rights to recover liquidates damages
contractor will apply
CA decision to approve or decline
Only issued if a relevant event
Under JCT MW, what does the practical completion clause cover?
PC is the point at which the contractor has completed the project and hands over to client
‘practical’ means fit for purpose and nothing remains outstanding which prevents the client from using the works
CA will often face pressure from the contractor to agree PC as it triggers: final months payment, release of contractor insurance obligations, exemption of the contractors liability to pay liquidated damages and start of the rectification period
Under JCT MW, what does the defects clause cover?
Legal term for work not completed to agreed specification or work that failed whilst under the contract
Under JCT MW, what is the certificate of making good?
this certificate needs to be completed by the CA following rectification / failure to rectify defects
It certifies their rectification or otherwise
Will trigger final payment or result in withholding any money until rectified
Under JCT MW, what is the purpose of the contractors construction programme?
includes the PC date
CA has responsibility of assessing validity of the programme and monitoring contractors progress against it
Under JCT MW, what are instructions?
A request, order or command from the CA on behalf of the employer
A legally binding document would should be issued formally as follows: in writing name the parties involved include the project name specify the date provide an issue number circulate to all necessary parties quantify the financial implication
Under JCT MW, what might the content of instructions include?
variation of works
removal of work not in accordance with the contract
expenditure of provisional sums
opening up the works for inspection / testing
Under JCT, if the CA believes completed work is not in accordance with the contract, what can they do to clarify?
Issue an instruction for the opening up and inspection of covered work, materials or goods
Or issue an instruction for the testing of work, materials and goods
Both to determine if they are in accordance
Under JCT, who bears the cost of opening and testing?
The cost is added to the contract sum unless the work is not in accordance
Under JCT, what is a contract sum?
the agreed lump sum the client will pay the contractor for the work
figure will often be subject to change and will then become the Final Account figure
Under JCT, why are certificates used?
1. To record an event. Eg: PC making good of defects partial possession non-completion
- A financial statement - as in the case of interim certificates, payment notices and pay less notices
Under JCT, what is a non-completion certificate?
Issued by the CA to certify that works / section has not been completed by the PC date
What are the consequences of a non-completion certificate?
Certificate of non-completion is required
Employer to issue pay less notice
The employer has the right to withhold liquidated damages (a pay less notice is also required)
When the PC certificate is issued, what happens?
Agreed retention % is released
Defect period begins
Client needs to start insuring and securing the building
the ability to impose LDs is ceased
What are payment certificates?
Effectively a formal instruction to pay the contractor within a certain time period
Interim payments are issued on monthly basis
Penultimate payment is at PC
Final payment is at the rectification period
CA checks the validity of the contractors invoice against programme and design info
What is retention?
A % of payment held back as an incentive to complete project on time and to rectify defects
CA deducts from monthly payments
Typically 5% and then
- 5% released at PC
- 5% released at end of rectification period
What are payment terms?
They specify the frequency and dates by which a client must pay contractor for work carried out
Under JCT MW, what does Section 5 injury, damage and insurances cover?
outlines contractors liabilities regarding insurance provision during contract period
evidence of insurance will need to be produced at or prior to the pre-contract meeting
Under JCT MW, what does Section 6 termination cover?
covers conditions under which each party can terminate the contract due to specific breaches
For example, insolvency and default by the client
Under JCT MW, what does Section 7 settlement of disputes cover?
outlines processes available for dealing with disputes such as arbitration, adjudication and mediation
What is the purpose of an interim payment?
Relieve the contractor of the burden of financing the whole works until completion
What is the purpose of an interim valuation?
Provides advice to the certifier for the issue of interim certificates and payment notices
How is the value for an interim payment to be determined?
RICS Interim Valuations and Payment Guidance Note advises:
the value is to be found by reference to the BOQ, paying for what the contractor has done plus a proportion of the prelims
This usually involves visiting site and checking that the work has been carried out by visual inspection and measurement
What is the relevance of the Housing Grants, Construction and Regeneration Act 1996 to interim valuations and payments?
States that a party to a construction contract more than 45 days in duration is entitled to an interim payment
Construction contracts of 45 days or less are referred to as ‘non-qualifying contracts’
What is the relevance of the Scheme for Construction Contracts Regulations 1998 to interim valuations and payments?
sets out the payment provisions for cases where parties have entered into a written contract but the contract provisions do not provide an adequate mechanism for determining what payments become due or when they become due
Under JCT, what are the roles in respect of valuations and payments?
Employer - payer
Contractor - payee
Contract administrator - certifier
QS - validator / valuer
What is a pay less notice?
Can be issued by employer or contractor
To provide a method of notifying the contractor that the employer intends to pay less than the sum stated on the payment notice
Or so the contractor can notify the employer they are demanding a lesser sum than stated on the interim payment notice
What are the implications of over or under valuing work?
Under - creates financial problems for the contractor
Over - creates risk of employer paying for sums which he or she obtains no benefit
What do you know about FIDIC?
French suite of contracts
Suited to various types of engineering work
Rainbow suite of contracts
Different contract forms are selected based on risk allocation approach Eg.
Red Book - employer tasks on design risk
Yellow Book - most commonly used
What is the relevance of the Local Democracy, Economic Development and Construction Act 2009?
Caused changes to the operation of construction contracts which had a knock on to the Housing Grants, Construction and Regeneration Act 1996:
- Section 109 - a party’s entitlement to stage / periodic payment s and instalments
- Section 110 - ensures every contract provides adequate mechanisms for payment due dates
- Section 111 - means payment cannot be with held without notice
- Makes both written and oral contracts subject to the Act
What are some of the main causes to a change to the contract sum?
Contract provisions make allowances for the following causes of adjustment to the contract sum:
- adjustment of provisional sums
- adjustment of prime cost sums
- variations to design or specifications
- additions or reductions to the scope of works
- increases or decreases in the cost of labour or materials
What do you know about JCT SBC Without Quantities?
For projects not complex enough to require a BOQ
Employer provides drawings / specification for tendering stages
Price / payment structure is a lump sum contract with monthly interim payments
Can be used within a framework agreement
Under JCT SBC what happens if a contractor does not make a payment application?
The CA is obliged by the contract conditions to request the QS to undertake an interim valuation
What are the payment timelines under JCT?
contractor to submit interim application to QS no less than 7 days before the due date
Work is valued up to the due date
5 calendar days after the due date is the last day for issue of payment certificate
Pay less notice must be issued 5 calendar days before final date for payment
Then final date for payment is 14 days after the due date - this prescribed period can be changed when creating the contract
What do JCT contracts say about interim payments up to PC?
They will be monthly dates specified in the contract particulars
What do JCT contracts say about interim payments on and after PC?
The contract conditions state that this will be a specific date at 2 month intervals
Option to agree an other interval
What must an interim application include?
Must state the gross valuations along with the relevant deductions and the net amount considered to be due
Contract conditions stipulate that details must be provided of how the sum has been calculated
What happens if the employer fails to pay the sums due to the contractor as per the notice?
The employer must pay interest at the interest rate for the period of final date for payment to when the payment was made
What are the 5 categories that variations fall into?
- Additions . omissions, alterations and substitutions to design, quality or quality
- Provision of information, procedural or clarifying instructions for works to be carried out
- Changes in the timing, sequence or method of working
- Expenditure for sums (PC or Prov)
- Actions in relation to work found thought not to be in accordance with the contract
What are bonds?
The client may ask a contractor to pay a bond as protection
Essentially the contractor pays a fee to a financial backer who promises to pay the client up to an agreed sum if the contractor defaults
The financial backer is called a ‘surety’
What is a retention bond?
Agreement between employer and third party (surety provider)
Essentially in return for the employer not holding retention, the surety will pay the employer up to the amount it would have had in retention if the contractor fail to carry out works / remedy defects
What is the difference between a contract administrator and employers agent?
CA - appointed by the employer to administer the contract from a neutral viewpoint
Employer’s Agent - acts exclusively for the employer under D&B
What do you know about the JCT Standard Building Sub-Contract?
For use when:
- one of the main contracts is a SBC
- where the appointed sub-contractor is not appointed to design
- works carried out in sections
- provisions included for collaborative working, sustainability and bonds
