Contract practice

Question 1

What are other key elements should the contract have?

Answer 1

• An offer.
• Acceptance,
• Consideration.
• Intent
• Legality
• Capacity

Question 2

How does a performance bond provide security to the client?

Answer 2

• If the contractor was unable to complete the works the client can claim on the performance bond to ensure the works get completed. Generally, the bond can finance the current contractor, or fund/hire another contractor to finish the works.

Question 3

What are the differences between NEC4 and NEC3?

Answer 3

• Terminology – Employer becomes Client, Works Information becomes ‘scope’
• Early warnings – Risk register renamed to Early warning register to separate it from project risk register
• Default periods for managing early warning I,e the Project Manager prepares a first early warning register within one week of the starting date. Regular early warning meetings are then to be held starting within two weeks of the starting date.
• Programme period- if the client doesn’t reply to the programme submission it is seen as accepted
• Application for payment - Contractors are obliged to apply for payment rather than PM assessing what’s due
• Two new forms of contract , Design Build and operate Contract – Alliance contract
• Dispute resolution – senior representative are set out in the contract before it reaches adjudication.

Question 4

What is a collateral warranty?

Answer 4

• Creates a contractual relationship with a third party that would not otherwise be there due to privity of contract.
• Only the parties of the contract can sue each other to enforce rights and liability and prevents the third party from doing so.

Question 5

What is a The Contracts (Rights of Third Parties) Act?

Answer 5

• It enables a Third party to enforce a term of the contract if the contract expressly provides that he may

Question 6

What is the difference between Collateral warranties and third-party rights?

Answer 6

• Third party right must expressly name in the contract for Third party rights to be enforceable.
• Collateral warranties take longer, and they are heavy administrative
• Collateral warranty is a contract that passes down all the contractual obligations, third party rights you can only enforce a term of contract and not the whole contract itself.

Question 7

Can you list 5 different bonds used on a project?

Answer 7

• Performance bond
• Advance payment bond
• Retention bond
• Offsite material bond
• Tender bond

Question 8

What is a performance bond?

Answer 8

• It is a form of security provided by the contractor to a developer or employer.
• In the event that the contractor doesn’t perform then the performance bond pays for the employer to reinstate a new contractor.

Question 9

Who might need a collateral warranty?

Answer 9

• Employer in a big project might want a collateral warranty with a contractor’s subcontractor if the contractor goes into liquidation and the employer might want the subcontractor to correct any defects.

Question 10

What does CECA stand for?

Answer 10

• Civil Engineering Contractors Association

Question 11

What is a letter of intent?

Answer 11

• It is a letter from an employer to a contractor used that details the employer’s intention to enter into a formal written contract for works described
• It typical asks the contractor to begin those works before the formal contract is executed

Question 12

Why would a letter of intent be used?

Answer 12

• To start works until final contract is agreed

* Long lead materials might be ordered which will benefit the contract

Question 13

What is a parent company guarantee?

Answer 13

• It is when a company ensures the performance of a subsidiary contractor to the client

It is a form of security requested by clients to protect them in the even of default on a contract by a contractor that is controlled by a parent company.
• If such event happens, the parent company is required to remedy the breach, meeting all the contractor’s obligations under the contract.

Question 14

When might the employer want a performance bond?

Answer 14

• If they are new or unapproved
• Public project
• If there is a concern of financial position of the company

Question 15

What is an Alternative to performance bond?

Answer 15

• Parent company guarantees

Question 16

What is a Tender bond?

Answer 16

• Requested by the employer when inviting contractor to bid

* In the event that a successful bidder fails to enter a contract

Question 17

What is a retention bond?

Answer 17

• Retention bonds are way of avoiding problems associated with retention recovery
• Retention money are actually paid, but if there is any defect and the retention money need to be use the bond is triggered

Question 18

What is advance payment bond?

Answer 18

• In the event that a contractor does not provide the materials that he was paid in advance for, the advance payment bond comes in effect and reimburses the client.

Question 19

What is retention?

Answer 19

• A percentage of the sums certified for payment under the construction contract (typical 5%) is held by the employer during the construction phase.
• Payment released when defect period is over

Question 20

What are defects?

Answer 20

• Part of the works that are not according to the works information or the applicable law or the contractors design which the project manager has accepted.

Question 21

What are patent and latent defect?

Answer 21

• Patent – can be seen in reasonable inspection wall cracks

* Latent- cannot be seen in a reasonable inspection – foundations

Question 22

Why is defect period 12 months?

Answer 22

• To allow works to go through all the months of the year.

Question 23

What is professional negligence?

Answer 23

• When a professional fails to perform their responsibilities to the required standard or breaches duty of care
• This leads to financial loss, physical damage, injury to the client or costumer

Question 24

What is Public Liability insurance?

Answer 24

• Public liability insurance protects against liability for injury or damage to third parties and their properties. Ex if a brick falls on someones car and he makes a claim

Question 25

What is Employer Liability Insurance?

Answer 25

• The insurance it for paying compensation amount and legal costs if an employee claims compensation for a work-related illness or injury.

Question 26

What are bonds?

Answer 26

• It is an arrangement where contractual duty owed by one party to another is backed up by a third party.
They are used as protection for example in the event a contractor does not perform, a performance bond will provide money to the client to reinstate a contractor to carry on with the works.

Question 27

Performance bond vs PI insurance?

Answer 27

• A professional Indemnity insurance policy is coverage against errors or omissions done by a professional that resulted in a loss for the client or customer
• A Performance bond is a guarantee of compensation for monetary loss because of the failure of one party to meet his obligations as stipulated in the contract

Question 28

What is on demand and a conditional bond?

Answer 28

• On demand bond is when the bond pays an amount of money set out in the bond immediately on demand in writing without the need to do any checks to assess the contractor’s liability unless the demand is fraudulent.
• Conditional bond is only required to be paid to the contractor if the contractor if certain conditions have been fulfilled

Question 29

What is duty of care?

Answer 29

• It is a legal obligation of an individual to carry out their services in a reasonable standards in order to prevent any sort of harm to others.

Question 30

What is included in the letter of intent?

Answer 30

• Description of the works,
• Date of possession
• Date of completion
• Method of payment
• Expiry date of a letter

Question 31

What are the two types of letters of intent?

Answer 31

• Comfort letter

* Instruction to proceed with consent to spend

Question 32

What is an assignment?

Answer 32

• A process where the benefit of the contract is transferred from one party to another, but the burden stays with the original party.
• A bank getting the benefit of a contract from an employer just in case it goes into financial troubles.

Question 33

What is novation?

Answer 33

• Under design and build contract it is when the designed team that originally put the initial design together for the client are transferred to the contractor for continuity