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RICS APC Preparation > Contract Practice > Flashcards

Contract Practice Flashcards

1
Q

What does NEC say about retention?

A

Optional clause X16. Retention % identified in Contract Data pt 1.

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2
Q

What is a contract?

A

A legally binding agreement that recognises and governs the rights and duties of the parties to the agreement

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3
Q

What’s a bilateral agreement?

A

a set of promises that each party has made to the other

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4
Q

What’s a unilateral agreement?

A

only one party will make a promise to do something if the other party actually does something stipulated by the former

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5
Q

What are the 6 principles of contract law?

A
  • Offer
  • Acceptance
  • Intent
  • Consideration
  • Capacity
  • Legality
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6
Q

What is NEC3 for?

A

Used for the appointment of a contractor for engineering and construction work, including any level of design responsibility.

It is a suite of construction contracts intended to promote partnering and collaboration.

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7
Q

What are the options under NEC?

A

I have never used NEC however know the options are:

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.

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8
Q

What are the contract documents required under NEC?

A
  • The form of agreement.
  • Conditions of contract.
  • Contract data
  • Prices, activities schedules and bill of quantities.
  • Works information (describing what is to be done on the site).
  • Site information
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9
Q

What are the core clauses under NEC?

A
  1. General terms.
  2. Contractor’s main responsibilities.
  3. Time.
  4. Testing and Defects.
  5. Payment.
  6. Compensation events.
  7. Title.
  8. Risk and insurance.
  9. Termination.
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10
Q

What are Z clauses?

A

Used to amend standard form NEC contracts. They can be inserted into NEC contracts as a means of adding conditions or amending wording.

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11
Q

Are you aware of any other forms of contract aside from JCT/NEC?

A
  • FIDIC
  • ACA
  • Complex Projects Contract 2013’ or ‘CPC 2013’.
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12
Q

What are the different FIDIC contract suites?

A
  • FIDIC Red Book (Conditions of Contract for Construction)
  • FIDIC Yellow Book (Conditions of contract for Plant & Design-Build)
  • FIDIC Silver Book (Conditions of Contract for EPC Turnkey Projects)
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13
Q

What are the main differences between NEC3 and NEC4?

A

Changes in terminology (WI to Scope and Employer to Client)
Updated payment provisions to ensure contractors submit payment applications opposed to PM making assessments.
Introduction of an optional 4 week dispute negotiation phase prior to formal proceedings.

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14
Q

What guidance note does RICS public on payment timelines?

A

RICS Interim Valuations and Payments 2015

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15
Q

What is the payment cycle in NEC3?

A

21 days if no period stated in the contract data.

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16
Q

What guidance is published on contract selection?

A

Formerly appropriate contract selection. Currently under revision

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17
Q

What’s the difference between contract particulars and amendments?

A

Contract Particulars “fill the blanks”. The Contract, clauses are already fixed.

Amendments change the clauses, fundamentally changing the contract

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18
Q

Why are contracts amended?

A

To suit clients needs, many clients have amendments they use on all projects

To change the balance of risk to the benefit of the client or contractor

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19
Q

What’s the structure to an NEC contract?

A 
Form of Agreement
core clauses
main option clauses
secondary option clauses
Dispute resolution clauses
Z clauses
Works Information
Site information
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20
Q

What are the sections in Core clauses?

A 
1 General
2 Contractor's responsibilities
3 Time
4 Testing and defects
5 Payment
6 CE's
7 Title
8 Risks and insurance
9 Termination
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21
Q

What are the insurance options in NEC3?

A

Identified in the insurance table at clause 84 and/or those identified to be provided by the contractor in the contract data.

Standard:
Contractor’s all risk - covers damage to the works
Employer’s liability - covers death or injury to employees
Public/third party liability - covers the same for third parties
PI - covers negligence/breach of duty in design.

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22
Q

What are recitals in a Contract?

A
  • Introductory statements at the begining of a contract
  • First Recital - name of project + address
  • Scene setting, explanatory in nature
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23
Q

What do Contract Particulars in a Contract do?

A
  • Sets out aspects of Contract that are particular to the project, fills in the blanks
    e. g. where the ERs/CPs/CSA can be found, drawing references, key dates, sections, payment method, insurance option.
  • It is a schedule of variables for the agreement and conditions
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24
Q

What is Attestation in a Contract?

A

The attestation is the process of confirming that something is correct or genuine or that a particular requirement has been met. It may be completed:

  • Under seal (signed by both parties, witnessed & made clear it is executed as a deed)
  • Under hand (just signed by both parties)
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25
Q

Why are insurances joint name?

A

Insured parties are unable to claim against one another in respect of an insured loss, as they are considered to be one-and-the-same for the purposes of the insurance.

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26
Q

What are the advantages of joint name insurances?

A
  • neither party needs to take out its own insurance policy, which can lead to dual insurance, unnecessarily increasing the project’s total insurance cost
  • it can help avoid costly litigation between the jointly-insured parties who may otherwise try to claim against the other
  • The insurer has no rights of subrogation
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27
Q

What’s subrogation?

A

When an insurance company pursues a third party for damages, it is said to “step into the shoes of the policyholder,” and thus will have the same rights and legal standing as the policyholder when seeking compensation for losses.

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28
Q

What are the implications of waivering the rights to subrogation in an insurance policy?

A
  • No fault claims, so sub-contractor can claim on insurance and the main contractor won’t be sued by sub-contractor’s insurer
  • Higher insurance cost
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29
Q

Who would advise client on making amendments?

A
  • Ideally no amendments will be made, contracts are designed to be balanced in terms of risk for their procurement route
  • Client’s may have their own
  • Amendments must go through Lawyers
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30
Q

Do you advise on LDs/insurances?

A

No

  • LDs are based on employer’s loss of income/expense in delay, I do not know what that is
  • Insurance company to advise on insurances
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31
Q

What are LDs?

A

Liquidated Damages

Not a penalty. If the contractor does not complete works by agreed PC date, they are to compensate the Employer based on the actual loss of income the Employer would experience.

Generally £X/week

32
Q

What’s sectional completion?

A

When a project has different completion dates for different sections of the works. PRE AGREED.

This is common in large projects.

33
Q

What considerations should you make when incorporating sectional completion into a contract?

A
  • Liquidated damages must be specific to each section
  • Retention/retention release must be specific to each section
  • EoT clarifications required, i.e. if EoT is required on section 2 will it impact section 3?
  • Sectional completion must be specified in EXPRESSED TERMS in the Contract
34
Q

What happens with regards to commissioning and O&M manuals at the end of a sectional completion?

A

These items may be left outstanding until practical completion of the whole site.

35
Q

What are the key considerations for a Contractor for sectional completion?

A
  • Logistics
  • Protection of completion sections
  • Insurance for all sections at all times
  • H&S measures dealing with the risk of construction adjacent to occupied areas
36
Q

What are the three main types of sub-contractor?

A
  • Domestic sub-contractor
  • Nominated sub-contractor
  • Named sub-contractor
37
Q

What is partial possession?

A

Handing over part of the site before official completion. NOT PRE AGREED

38
Q

Why would partial possession of the site be given?

A
  • If the client wishes to occupy part of the site
  • When there is no sectional completion in the Contract
  • When part of the site is deemed to have achieved practical completion
39
Q

What are the implications for retention, LDs and DLP when partial possession of the site is given?

A
  • Half retention for that section of works is released
  • The Defects Liability Period (DLP) begins for that part of the site
  • Liquidated Damages are reduced proportionally.
40
Q

What do contractor’s proposals include?

A

Requirements described in ERs. On my project incl:

  • Design drawings
  • Specifications
  • Method statement
  • Programme
  • CSA
  • Detail of insurances
  • CV of staff + relevant experience
41
Q

What is retention?

A

Retention is a percentage of the amount certified as due to the contractor on an interim certificate, that is deducted from the amount due and retained by the client.

42
Q

How would you determine retention amount?

A

On a case my case basis. If it’s a riskier project/contractor you may apply higher %age.

43
Q

Do you think retention is good?

A

I think it serves a purpose in protecting the client which is good from the client’s perspective

Bad for Contractors cash flow, can cause issues for client if contractor goes bust due to poor cash flow so overall possibly bad

44
Q

What do you think of the future of retention?

A

Lots of discussion around ending retention

Instead could use performance bonds

Will add an extra premium to project

Following Carrilion collapse in 2018 - Build UK, the Civil Engineering Contractors Association and the Construction Products Association provided a joint submission to the ongoing government consultation, stating that; ‘The industry is fully committed to achieving zero cash retention and we believe that government must introduce legislation to ensure there is zero cash retention within the industry by no later than 2025.’

45
Q

How are contracts executed?

A
  • Under seal (signed by both parties, witnessed & made clear it is executed as a deed)
  • Under hand (just signed by both parties) (simple contract)
46
Q

What’s the difference between a simple contract and a contract signed under seal?

A

Simple contracts and contracts under seal have different limitation periods.

An action founded on simple contract cannot be brought after six years from the date on which the cause of the action accrued. The limitation period for a contract under seal is 12 years.

47
Q

What insurances may you come across in construction?

A 
Employers Liability Insurance
Public Liability Insurance
All Risk Insurance (to works + contents)
Professional Indemnity Insurance
Terrorism Cover
48
Q

What’s Pool Re Cover?

A

Loss or damage to work executed and Site Materials caused by or resulting from terrorism as is from time to time generally available from insurers who are members of the Pool Reinsurance Company Limited Scheme

49
Q

What happens at Completion?

A
  • PM certifies Completion when all works have been completed
  • Half retention is released
  • End of Contractor’s liability for LDs
  • DLP begins
  • Various documents may be released to client such as O&M manual, H&S file.
  • Client takes possession
50
Q

When does the Contractor’s obligation to insure the works come to an end?

A

At PC????????

51
Q

When is PC?

A

when Contractor has done all the work stated in Works Information by the Completion Date and completed any defects that would prevent employer from using the works.

52
Q

What were your amendments in the xxx project?

A

Interim Valuation must be submitted by Contractor 7 days prior to assessment date

53
Q

What is a Collateral Warranty?

A

A way of forming a direct contractual link between two parties with otherwise wouldn’t have a link, such as between a sub-contractor and a client.

54
Q

What is a performance bond?

A

A means of insuring the client against the Contractor failing to fulfil their contractual obligation

55
Q

What is novation?

A
  • The process whereby both the benefit and the burden of a Contract are transferred from one party to another.
  • Requires consent from all parties, usually parties enter into tripartite novation agreement.
56
Q

What is assignment?

A
  • The benefit of a contract is transferred from one party to another, but the burden of the contract remains with the original party
  • Contrast of Novation
57
Q

What are third party rights?

A

The Contracts (Third Party Rights) Act 1999 enabled third party rights to be created by a contract.

Alternative to collateral warranties

The right is created to enforce a term in a contract, e.g. contractor is required to carry out works to be fit for purpose.

Must expressly state that a third party has specific rights (often excluded)

58
Q

What are the differences between collateral warranties and third party rights?

A
  • Collateral Warranties can be laborious to compile, sometimes expensive
  • CW’s seen as more effective as they mirror building contract
59
Q

What takes precedence over ERs and CPs?

A

CPs supersede ERs so CPs

However always check amendments

60
Q

Who’s responsible for error in CPs?

A

Contractor

61
Q

What do you agree with regards to PI insurance when tendering for a project?

A

Limit of indemnity, i.e. what is the maximum amount we are liable for in the case of negligent advice.

Try to reduce this to protect firm

62
Q

What’s the minimum wording policy on PI referring to?

A

We have to use RICS wording as a minimum in our PI insurance, to ensure key parts are covered as stated in RICS.

63
Q

What are some of the key differences between JCT and NEC forms of contract?

A

a. Programme forms part of the contract
b. Compensation events
c. The JCT Contract contains provisional sums, whilst the NEC Contract does not.

64
Q

How would you establish the validity of a loss and expense claim?

A

Check contract and amendments for relevant matters, ascertain whether it’s a valid claim

65
Q

What is thickening of prelims?

A

a contribution to a claimant’s increased overheads resulting from a client-culpable delay.

66
Q

How do you incorporate amendments into the contract?

A

NEC = Z clauses

67
Q

What would you do if the contractor did not meet PC?

A

Issue non-completion certificate

68
Q

What are the differences between JCT and NEC?

A

Compensation events vs relevant matters/events

Programme forms part of NEC contract

No PM in JCT

No PSUMS in NEC

Instead of different contract suites e.g. DB/MW you build your contract

NEC geared towards partnering. JCT contract there may be some cost scrutiny via the contract sum analysis and tender negotiations but the NEC contract has an open book procedure with the key concepts of defined cost and disallowed cost

69
Q

When is FIDIC generally used?

A

Internationally

70
Q

What are heads of loss/claim?

A
  • inefficient use of labour/plant
  • increases in cost of labour/materials during period of disruption
  • site running costs
  • head office overheads
  • finance charges and interest (on borrowed money)
  • loss of profit
71
Q

What are prolongation and disruption?

A
  • Prolongation and disruption are two separate elements that might result in a claim for loss and expense.
  • Claims for disruption result from the additional cost of adopting inefficient working methods as a result of the disruption
  • The prolongation element is dependent on the completion date being delayed.
72
Q

What costs are easier to quantify - prolongation or disruption?

A

Prolongation

73
Q

Why might a contractor want to terminate a contract?

A
  • Client default on payment
  • Insolvency of employer or client
  • If the suspension of works is over max time in contract
74
Q

What is the HGRCA and what did it do for construction projects?

A

Housing Grants, Regeneration and Construction Act 1996

  • Right to be paid in interim, periodic or stage payments
  • Right to be informed of the amount due, or any amounts to be withheld
  • Right to suspend performance for non-payment
  • The right to adjudication
75
Q

What is the LDEDCA what did it do for construction projects?

A

Local Democracy, Economic Development and Construction Act 2009

  • Includes all Contracts, including those not in writing
  • Withholding notice replaced with pay less notice, altering how the sum to be paid is built up
76
Q

Who does the HGRCA apply to and what’s its general purpose?

A
  • Applies to all Contracts for “Construction Operations” (incl consultants)
  • Intended to ensure payments are made promptly throughout the supply chain and that disputes and resolved swiftly
77
Q

When would you use NEC?

A
  • If the client wanted it
  • If I/consultants/PMs were confident in using it (I would do diligence to ensure I was)
  • For the benefits of partnering/collaborative work

RICS APC Preparation (13 decks)

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