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RICS APC > Contract Administration Level 1 > Flashcards

Contract Administration Level 1 Flashcards

1
Q

Define a contract.

A

A contract is a legally binding promise by one party to fulfil an obligation to another party in return for consideration

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2
Q

Who are typically the two parties to a main building contract?

A
  1. Client / employer - this party requires the work to be carried out
  2. Principal / Main contractor - the party carries out the work for an agreed fee
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3
Q

What is a contract administrator?

A

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

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4
Q

What are some of the common contractual agreements and what are your views of them?

A

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

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5
Q

What are the main duties of the contract administrator?

A

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

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6
Q

What are the key aspects of contract documentation?

A

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)

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7
Q

What are the key aspects which determine selection of a contract and why?

A

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

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8
Q

What are JCT contracts?

A

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

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9
Q

When would you use a JCT Minor Works Contract?

A

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

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10
Q

When would you use the JCT Standard Building Contract?

A

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

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11
Q

When would you use the JCT Intermediate Contract?

A

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

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12
Q

What are the NEC ECC contracts?

A

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

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13
Q

What are the 6 main options o NEC ECC?

A

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

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14
Q

Provide an overview of NEC Option A

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

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15
Q

Provide an overview of NEC Option B?

A

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

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16
Q

Provide an overview of NEC Option C?

A

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

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17
Q

Provide an overview of NEC Option D

A

Target cost set by BOQ

Financial risks are shared at an agreed proportion between client and contractor

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18
Q

Provide an overview of NEC Option E

A

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

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19
Q

Provide an overview of NEC Option F

A

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

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20
Q

Under JCT, who takes on the role of contract administrator?

A

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’

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21
Q

Under NEC, who takes on the role of the contract administrator?

A

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

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22
Q

Under FIDIC, who takes on the role of the contract administrator?

A

The Engineer

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23
Q

With reference to JCT MW Contract, provide an overview of the contract booklet.

A

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

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24
Q

Under JCT MW, what does the contractors obligations clause cover?

A

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

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25
Q

Under JCT MW, what does the possession of site clause cover?

A

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

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26
Q

Under JCT MW, what does the errors, discrepancies and divergencies clause cover?

A

Errors with the design documentation are often discovered once contractor has started on site

this section covers how they are dealt with

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27
Q

Under JCT MW, what does the extension of time clause cover?

A

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

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28
Q

Under JCT MW, what does the practical completion clause cover?

A

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

29
Q

Under JCT MW, what does the defects clause cover?

A

Legal term for work not completed to agreed specification or work that failed whilst under the contract

30
Q

Under JCT MW, what is the certificate of making good?

A

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

31
Q

Under JCT MW, what is the purpose of the contractors construction programme?

A

includes the PC date

CA has responsibility of assessing validity of the programme and monitoring contractors progress against it

32
Q

Under JCT MW, what are instructions?

A

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
33
Q

Under JCT MW, what might the content of instructions include?

A

variation of works

removal of work not in accordance with the contract

expenditure of provisional sums

opening up the works for inspection / testing

34
Q

Under JCT, if the CA believes completed work is not in accordance with the contract, what can they do to clarify?

A

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

35
Q

Under JCT, who bears the cost of opening and testing?

A

The cost is added to the contract sum unless the work is not in accordance

36
Q

Under JCT, what is a contract sum?

A

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

37
Q

Under JCT, why are certificates used?

A 
1. To record an event. Eg:
PC
making good of defects
partial possession
non-completion
  1. A financial statement - as in the case of interim certificates, payment notices and pay less notices
38
Q

Under JCT, what is a non-completion certificate?

A

Issued by the CA to certify that works / section has not been completed by the PC date

39
Q

What are the consequences of a non-completion certificate?

A

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)

40
Q

When the PC certificate is issued, what happens?

A

Agreed retention % is released

Defect period begins

Client needs to start insuring and securing the building

the ability to impose LDs is ceased

41
Q

What are payment certificates?

A

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

42
Q

What is retention?

A

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

  1. 5% released at PC
  2. 5% released at end of rectification period
43
Q

What are payment terms?

A

They specify the frequency and dates by which a client must pay contractor for work carried out

44
Q

Under JCT MW, what does Section 5 injury, damage and insurances cover?

A

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

45
Q

Under JCT MW, what does Section 6 termination cover?

A

covers conditions under which each party can terminate the contract due to specific breaches

For example, insolvency and default by the client

46
Q

Under JCT MW, what does Section 7 settlement of disputes cover?

A

outlines processes available for dealing with disputes such as arbitration, adjudication and mediation

47
Q

What is the purpose of an interim payment?

A

Relieve the contractor of the burden of financing the whole works until completion

48
Q

What is the purpose of an interim valuation?

A

Provides advice to the certifier for the issue of interim certificates and payment notices

49
Q

How is the value for an interim payment to be determined?

A

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

50
Q

What is the relevance of the Housing Grants, Construction and Regeneration Act 1996 to interim valuations and payments?

A

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’

51
Q

What is the relevance of the Scheme for Construction Contracts Regulations 1998 to interim valuations and payments?

A

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

52
Q

Under JCT, what are the roles in respect of valuations and payments?

A

Employer - payer
Contractor - payee
Contract administrator - certifier
QS - validator / valuer

53
Q

What is a pay less notice?

A

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

54
Q

What are the implications of over or under valuing work?

A

Under - creates financial problems for the contractor

Over - creates risk of employer paying for sums which he or she obtains no benefit

55
Q

What do you know about FIDIC?

A

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

56
Q

What is the relevance of the Local Democracy, Economic Development and Construction Act 2009?

A

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
57
Q

What are some of the main causes to a change to the contract sum?

A

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
58
Q

What do you know about JCT SBC Without Quantities?

A

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

59
Q

Under JCT SBC what happens if a contractor does not make a payment application?

A

The CA is obliged by the contract conditions to request the QS to undertake an interim valuation

60
Q

What are the payment timelines under JCT?

A

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

61
Q

What do JCT contracts say about interim payments up to PC?

A

They will be monthly dates specified in the contract particulars

62
Q

What do JCT contracts say about interim payments on and after PC?

A

The contract conditions state that this will be a specific date at 2 month intervals

Option to agree an other interval

63
Q

What must an interim application include?

A

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

64
Q

What happens if the employer fails to pay the sums due to the contractor as per the notice?

A

The employer must pay interest at the interest rate for the period of final date for payment to when the payment was made

65
Q

What are the 5 categories that variations fall into?

A
  1. Additions . omissions, alterations and substitutions to design, quality or quality
  2. Provision of information, procedural or clarifying instructions for works to be carried out
  3. Changes in the timing, sequence or method of working
  4. Expenditure for sums (PC or Prov)
  5. Actions in relation to work found thought not to be in accordance with the contract
66
Q

What are bonds?

A

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’

67
Q

What is a retention bond?

A

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

68
Q

What is the difference between a contract administrator and employers agent?

A

CA - appointed by the employer to administer the contract from a neutral viewpoint

Employer’s Agent - acts exclusively for the employer under D&B

69
Q

What do you know about the JCT Standard Building Sub-Contract?

A

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

RICS APC (34 decks)

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