Contract administration Level 1 Flashcards
What forms a contract?
offer, acceptance, consideration and intent to create legal relations.
What is offer and acceptance?
An offer:
An offer is actually a promise for another partys specific performance requirements.
An offer must have definite terms.
The offer needs to be communicated with the other party, of whom must have a chance to either accpt or reject. A person cannot accept an offer about which they are unaware.
Acceptance:
Acceptance is an agreement to the terms of an offer by the other party
Acceptance can be communicated through various means, including orally, in writing, or by conduct, depending on the circumstances.
What are key project characteristics which influence which JCT contract is used?
- Size, value and type of project
- Need for contract design
- Final cost certainty
- Appetite for risk ownership and risk transfer
- Employer experience
- Programme requirements
What are the different certificates you are aware of under JCT forms of contract?
- Interim certificate
- Practical completion / sectional -
- Completion certificates
- Non completion certificates
- Certificate of making good
- Final certificate
What is Tort?
Tort is a branch of civil law that deals with civil wrongs or wrongful acts, whether intentional or accidental, that result in harm or injury to another person.
The purpose of tort law is to provide relief to the injured party for the harms caused by others, to impose liability on those responsible for the harm, and to deter others from committing similar acts.
Negligence is the most common type of tort. It occurs when an individual fails to exercise reasonable care, resulting in harm to another person. To establish negligence, the plaintiff must prove that the defendant owed a duty of care, breached that duty, and caused damages as a result.
What are the categories of Tort?
Negligence (Most common)
Nuisance
Trespass
What is a Collateral Warranty
A ‘Collateral Warranty’ is a formal contractual agreement which runs alongside another primary contractual agreement
its purpose is to create a contractual relationship between two parties where one would not otherwise exist due to Privity of Contract
Privity of Contract provides that you cannot enforce either the benefits or liabilities of a contract to which you are not a party
Therefore a Collateral Warranty provides for a duty of care to be extended by one of the contracting parties to a third party who is not party to the original contract
What is the Duration of Collateral Warranties?
Usually duration of limitation period of contract (6 or 12 years)
What are the main parts of the JCT contracts?
There are 7 Main section to JCT contract.
- The agreements; includes details of company number and adresss and teh date.
- Recitals; Includes the nature and location of the works, contract proposal, contract sum and rfers to contract documents
- Artcles of agreement; provide obligations of both parties, contract sum, details of EA , deatails of PD and Princiap contractor, adjudication and arbitration information.
- Contract Particulars; provides various recital options and options; named subconrtactors; supplementary provisions; date of completion and posession; Liability insurance; LADS; Rectification priod; Fluctations; Insurance; retention ; PI;
- Attestation - Execution of works (under hand or deed) (signing)
- Conditions (divided into 9 sections, 7 for minor works)
6.1 Definitition & interpretation
6.2 Crrying out the works; Contractor obligations; Materials, goods and workmanship, posession;Documents; discrepencies and divergences; compltion dates ADdjustments; relecent events; PC; LADS;Defects
6.3 Control of th works; Instructions; testing; cdm;
6.4 payment; notics; loss and expense; relevant matter
6.5 changes; valuation rules
6.6 injury damage insurance
6.7 Assignment, performance bonds, guarante, third party rights, collatral warranty
6.8 Termination
6.9 Settlement of disputes
7.Schedules (cover procedures and options that add to the operation of the conditions - the supplement condition in contract particulars chosen
Name the 9 sections of the conditions in a JCT Contract
(9 sections of the conditions in a JCT contract)
1. Definition and Interpretation
2. Carrying out the works
3. Control of the works
4. Payment
5. Variations
6. Injury, damage and insurance
7. Assignment, Third Part Rights and Collateral Warranties
8. Termination
9. Settlement of disputes
How is a contract under hand different from a deed?
A deed is signed by a witness & traditionally authenticated by a seal.
The limitation period of under hand is 6 years whereas a deed is 12 years.
Execution: A contract under hand is typically signed by the parties involved and may require witnesses, while a deed must be signed, witnessed, and delivered with the intention of it being immediately binding.
Consideration: A contract under hand requires consideration (something of value exchanged), but a deed does not require consideration to be enforceable.
Formality: Deeds generally require more formalities, such as being written on parchment, and must clearly state that they are intended to be a deed.
Limitation Period: The time limit for bringing a claim under a contract under hand is usually 6 years, whereas for a deed, it is 12 years.
In essence, deeds are more formal and have a longer limitation period for enforcement than contracts under hand. They are often used for significant transactions where no consideration is passed or where a longer enforcement period is desired.
What is Execution as a deed?
Execution as a Deed – is when the contract must be in writing and clear that the contract is a deed. Liability period is 12 years and signatory is:
* signature of director and company secretary or two directors.
* Affixing the company’s common seal in the presence of a director and company secretary or 2 directors.
What is Execution Under Hand
Can come into effect orally and no requirements to sign (however it is good practice to execute and signify acceptance to prevent future disagreement).
Liability period is 6 years
Signatory is: Single Director in the presence of a witness who attests (confirms) the signature.
What is a contract?
A legally binding document (between two parties) to provide goods and services with a
What is a Parent Company Guarantee?
Parent Company Guarantee is an arrangement where the contractual performance of one company in a corporate group is underwritten by the other members of the corporate group. This means that is must complete the works itself if it can or pay the financial equivalent.
What is the most common type (most common parent company guarantee) in the construction
A performance bond.
What are common contract documents?
The contract (with any amendments)
Preliminaries
Contract Sum Analysis/ Pricing schedule
Drawings
Specification
What are the main contract suites?
JCT -joint Contract Tribunal
NEC – New Engineering Contract
FIDIC - International federation of Consulting Engineers
What are Liquidated Damages?
Liquidated Damages are a genuine pre-estimate of the likely loss incurred by the employer should the completion date not be met.
A non-completion certificate and a withholding notice must be in place before LDs can be deducted.
What must be in place before LDs can be deducted?
A non-completion certificate and a withholding notice must be in place before LDs can be deducted.
What is novation?
Novation is a mechanism whereby one party can transfer all its obligations under a contract and all benefits arising
What are third party rights?
Third Party Rights – The Contracts (Rights of Third Parties) Act 1999 in the UK allows third parties to enforce terms of contracts that they are not a party to, but which benefit them in some way. This act provides an alternative to collateral warranties.
What is Performance specified works?
A performance specification is a document that provides details about functionality and other important technical information. This is produced before
What are the provisions under the Construction Act? (HGCRA 96)
o The right to be paid in interim, periodic or stage payments.
o The right to be informed of the amount due, or any amounts to be withheld.
o The right to suspend performance for non-payment.
o The right to adjudication.
o Disallowing pay when paid clauses.
What are the different valuation types?
Activity schedule in terms of percentage achieved or completion of the activity.
Milestones reached on a pre-agreed programme.
Measurement against a bill of quantities.
Stage payments against calendar dates.
What are the NEC options?
Option A: Priced contract with activity schedule
Option B: Priced contract with bill of quantities
Option C: Target contract with activity schedule
Option D: Target contract with bill of quantities
Option E: Cost-reimbursable contract
Option F: Management contract
What is a bond?
Bonds are undertakings given by one party - a bondsman - to another to pay money if a third party defaults
What are construction security methods?
Parent company guarantee
Bonds
Collateral warranties
Third party rights
Direct agreements
Payment security methods
When are on demand bonds used?
Advance payments - used when the employer makes an advance payment to cover the contractor’s costs for for a particular part of the project
Tender bond - would entitle the employer to payment if they have incurred substantial costs in a tender process and the contractor withdraws their tender
What are collateral warranties?
Collateral warranties are agreements which are associated with another ‘primary’ contract. They provide for a duty of care to be extended by one of the contracting parties to a third party who is not party to the original contract.
What were the benefits of a PCG over performance bond?
Under a PCG it is certain that the parent company will take over if the contractor defaults. This means that there is no delay to find a new contractor as there would under a performance bond.
What are the JCT payment provisions?
IVD - when the contractor is due to send their application
Due date - 7 days after contractor submits their application
Payment notice date - 5 days after due date
Pay less date - at least 5 days before payment date
Payment date- 14 days after due date
What must a contractor do if a relevant event occurs?
The contractor must give notice if and whenever it becomes reasonably apparent that the progress of the works is being or is likely to be delayed. The notice must set out the material circumstances including cause or causes of the delay and must identify any event that is considered a relevant event.
What are the conditions of a JCT DB contract?
1) Interpretations and definitions
2) Carrying out the works
3) Control of the works
4) Payment
5) Variations/Changes
6) Injury, damage and insurance
7) Assignment, 3rd party rights and warranties
8) Termination
9) Settlement of disputes
What is a Payless Notice?
A notice which must be issued (under the Construction act 1996) by the client if they are intending to pay less than what the contractor invoiced, or if they are deducting liquidated damages.
Within the JCT form of contract what insurances are there within the contract?
Construction all risk insurance
Option A – New building taken out by contractor
Option B – New building taken out by employer
Option C – Existing building taken out by employer
Contractor will need to take out public liability and employers liability.
What are the consequences of a Practical Completion Statement
Releasing half of the retention
Ending the contractor’s liability for liquidated damages
Signifying the beginning of the defects liability period.
Insurances liabilities move from contractor to client
Client takes possessions for occupation
What is an extension of time?
A mechanism in the contract that allows an employer to extend the time in the contract by which the contractor is required to complete works.
Can you name the Relevant events?
Variations
Exeptionally adverse weather
Force Majure
Delays in possession of the site
Civil commotion or terrosism
Strikes or Lockouts
Statutory undertakers works
Failure to provide infromation
Changes in statutory requirements
What is the JCT insurance option A
For new works
The contractor takes out the insurance policy
It is in joint names
It should be maintained under PC
The contractor will only receive the value paid out by the insurers for reinstatement, if the cost is greater than that they bear the loss
What is the JCT insurance option B
For new works
The employer takes out the policy in joint names
It may be used by frequent developers who may have a lower premium than the contractor
Any reinstatement works are treated as a variation, and the employer has to pay the actual value, if that is more than the insurance policy they bear the loss
What is the JCT insurance option C
For works to existing structures
Taken out by the employer in joint names
The new works have to be insured for all risks and specified perils
The existing structure only has to be insured for specified perils
What is the joint fire code?
Sets out a series of standards and procedures to be followed to minimise the occurrence of accidental or malicious fires
To reduce the incidence of fires in construction realted work. By designing out, taking simple precautions and adopting safe working practices it argues that the majority of fires can be prevented
Who often requires the joint fire codes inclusion in a contract?
The Insurer
What must the contractor provide if the joint fire code applies?
Handbells, whistles, portable fire extinguishers, fire doors, fire stopping to voids and lift shafts, fire marshalls ETC
What is a bespoke contract?
Contract conditions that are drafted specifically for a particular project
What the advantages of standard forms over bespoke contracts?
a) Written by legal experts
b) Rights and obligations of each party are clearly set out to the required level of detail
c) Risks should have been allocated equitably between the parties
d) Parties should be familiar with the provisions in the form – greater consistently in application and fewer unforeseen anomalies
e) The time and expense of preparing a fresh document for each occasion is avoided
f) Case law is built up over time – provides good source of knowledge and clarity of terms
Name the main types of JCT contract
a) Minor works
b) Intermediate
c) Standard building contract
d) Major Projects
e) Design and Build
f) Prime cost contract
g) Measured Term contract
h) Construction Management Agreement
i) Management Contract
j) Framework Agreement
When would you use JCT Minor Works?
Projects that are short in duration, small and simple
Guidance is for a value up to £150,000
It is a short, easy to follow contract
It is a lump sum form; design should be completed prior to execution
Not as comprehensive as others – limited claims provisions, no fluctuations
When would you use JCT Intermediate Contract?
Recommended for project that do not exceed one year’s duration
For projects that are simple in content, require only basic skills and trades and where services are not complex and where the works are already designed
When would you use JCT Standard with quantities?
Work has already been designed
Where there is a bill of quantities
It is a lump sum form
The contractor’s risk is limited to price only
The employer takes the risk of errors in the bill
When would you use JCT Standard without quantities?
Work has been designed prior to contract but there is no bill
Contract documents will include drawings, specification and schedule of rates
It is a lump sum form of contract
The contractor’s risk includes both price and quantity
When would you use JCT Standard with approximate quantities?
This is a remeasurement form of contract
There is no contract sum
Used where the design is not completed at time of execution
An approximate bill of quantities has been prepared
Construction is wished to commence prior to the design being completed
When would you use JCT Major Works?
Projects that are significant in both size and quantity
Generally for clients that have their own in house contractual procedures
When would you use JCT DB?
When the contractor is responsible for design and construction
Similar in complexity to the standard building contracts
The contactor’s proposals form the basis of the contract
There is no mention of an architect or QS
When would you use the prime cost contract?
Broadly based on the provisions of standard building contract
The contractor is paid the cost of carrying out the work plus a fee to cover OH&P
Might be used if another contractor is hired to complete the works after an insolvency
The employer bears the majority of the financial risk
The total cost is not known until completion
When would you use a JCT Measured Term Contract?
Where the employer requires maintenance / minor works to be undertaken on a regular basis over a defined period of time on a defined list of properties
Contract agreed on a schedule of rates for carrying out certain types of work
Can be let on a fixed or fluctuating price basis
Contains a break provision for terminating the contract early
When would you use JCT Construction Management Agreement
When the construction management procurement route is picked
When the employer wants an early start on site etc
Construction Management Trade Contract also used as the standard form for the agreements between employer and trade contractors
What key things happen when the PCC is issued?
Possession of site will transfer back to client
Responsibility to insure/protect site goes on to the client
Casement of liability for delay damages or LD’s
Passes risk of damage to site on to the client
Commencement of defects liability period
Trigger milestone payments
Release of (some) retention monies
Can effect third party agreements such as performance securities
What is ‘partial possession’?
It’s a mechanism whereby the contractor can give possession of completed parts of the works before practical completion of the whole works. - Consent cannot be unreasonably withheld, but PP requires contractor consent.
What is the effect of granting partial possession?
The rate of liquidated damages is reduced in proportion to the value of the relevant parts;
Half the retention is released for the relevant parts; and
The contractor’s obligation to insure the relevant parts ceases.
What is ‘sectional completion’?
It’s a mechanism whereby the works are divided into distinct sections which may have different dates of completion.
What is the Contracts (Rights of Third Parties) Act 1999?
Legislation that reforms the principle of privity of contract.
Why was the Contracts (Rights of Third Parties) Act 1999 introduced?
The doctrine of privity of contract led to the proliferation of collateral warranties which included
significant expense and legal paperwork. This legislation aims to avoid that.
What is the JCT position on the Contracts (Rights of Third Parties) Act 1999?
The JCT default position is that the legislation will not apply.
This act can be opted out of if the contract states so
If the employer wanted to make use of the Contracts (Rights of Third Parties) Act 1999, what information would he need to provide?
The employer would need to enter the name, class and description of the beneficiary, i.e. purchaser, tenant or funder within the contract particulars.
What’s a ‘collateral warranty’?
It’s a mechanism which creates a legal relationship between parties where otherwise one would
not exist. They opporate allongside another agreement.
Under JCT, what ways can benefits be transfered?
a) Collateral warranties
b) Third party rights
c) Assignment
Why are collateral warrenties used?
Due to the principle of privity of contract, the rights and obligations under a contract can only be enforced by a party to that contract
Collateral warranties give remedies to parties that due to privity of contract would not otherwise have them
What is a bond?
A type of security that provides a beneficiary a pre-detemined/calculated financial compenstation
A glorified “i owe you” - a contract that can be similar to insurance
What is a guarantee?
A contract involving a third party who guarantees the obligations of one party to the beneficiary
A contract with a guarantor
In a construction contract, what is a parent company guarantee?
A guarentee that guarantees the obligations of a contractor by the parent company
Particually usefull if a contractor is part of a group with many assets
What is a performance bond?
A type of bond that can be called if a contractor defualts on their obligations
monetery remuniation - the bond is a payout only
What is assignment?
When a party of a contract assigns their rights under a contract to a third party
What is novation?
Novation is where both contractual rights and obligations are transfered to a third party?
Original contract breaks and a new one is formed
Does novation require agreement of all party’s?
Yes - it is a three way agreement
What is the difference between novation and assignment?
Assignment: transfer of rights
Novation: transfer of rights and obligations
