Contract Practice Flashcards
What constitutes a contact?
Offer Acceptance Consideration Intention Capacity Legality
What are the NEC main options?
There are 6 main options;
A) Priced contract with an activity schedule
B) Priced contract with a bill of quantities
C) Target cost contract with an activity schedule
D) Target cost contract with a bill of quantities
E) Cost reimbursable contract
F) Management contract
What are the clause headings in a JCT Contract?
Recitals Articles Contract Particulars Attestation Conditions of Contract Schedules
What is included in a set of Contract Documents?
Preliminaries Contract Sum Analysis / Pricing Document Scope of Works Specifications Drawings Schedule of Amendments Pre-Construction Information
What are the JCT Payment Provisions?
7 days prior to due date, contractor to submit application for payment
5 days from due date contract administrator shall issue their interim certificate
14 days from due date is the final date for payment
5 days prior to final date for payment employer may issue a pay less notice
Tell me the differences between JCT and NEC contracts?
The NEC uses 6 main options whereas the JCT is a suite of different contract
The NEC is written in layman terms whereas the JCT used legal wording
The NEC does not mention a QS, only a project manager
The NEC uses Compensation Events whereas the JCT used Variations
The programme is a contract document in NEC. 25% of monies can be withheld if a compliant programme is not submitted
Bill rates are binding for Variations under JCT. In NEC they are not, the cost of Compensation Events is built up from first principles
What other types of Contract are you aware of?
ICE - for civil engineering works
GC Works - Government forms of contract
FIDIC - International Federation of Consulting Engineers
What happens at Practical Completion?
Once the Contract Administrator issues the certificate of Practical Completion;
Liquidated Damages cease to be levied
The Defects Rectification Period begins (usually 12 months)
Possession of the site passes to the employer
Insurance of the works passes to the employer (if not already in their name)
Half retention is released (the remaining half is release once the Certificate of Making Good is issued)
What is a Relevant Event?
An event which would entitle the contractor to apply for an Extension of Time (Liquidated damages are not levied for this period).
Variations
Exceptionally adverse weather
Force Majeure
Deferment of possession of the site by the employer
Specified Perils?
What is Loss and Expense?
Construction contracts generally provide for the contractor to claim direct loss and expense.
The works must be materially affected by the relevant matter(s) for which the client is responsible.
Claims are for direct loss and therefore consequential loss is generally excluded.
What is a Relevant Matter?
An event which entitles the contractor to make an application for Loss and Expense.
Deferment of possession of the site by the employer
Suspension of the works
Instructions (around opening up / inspection works / provisional sums)
Delays in receiving instructions
Discrepancies in contract documents
Disruption caused by works carried out by the client
What is the purpose of a Loss and Expense claim?
A claim for Loss and Expense should put a contract back into the position they would have been in, should the Relevant Matter not have occurred.
What are the Heads of Claim for Loss and Expense?
Prolongation
Insufficient use of plant, labour, materials
Increased cost of plant, labour, materials
Loss of Profit
Head office overheads
Finance charges / interest
How is a Loss and Expense claim paid for?
Contractor must give written notice of a claim as soon as it becomes reasonably apparent.
Once the total loss and expense has been ascertained, is should be added to the contract sum and paid on the next interim certificate.
Loss and expense claims are NOT subject to retention.
What are the payment options on a JCT Design & Build Contract?
Alternative A - Stage Payments
Alternative B - Periodic Payments
How does payment option Alternative A in the JCT Design & Build Contract work?
Alternative A is to use stage payments.
Stages are clearly identified in the Contract Particulars. E>G Substructure
Payment for that stage is released upon completion
JCT D&B makes no mention of a QS, so this is a simplified payment option that an Architect could manage
It can incentivise the contractor to complete stages promptly
What is a Specified Peril?
Specified perils tend to be significant events that would cause very significant damage, such as fire, explosions, earthquakes, flooding and so on. All-risks insurance will tend to cover a broader range of risks, albeit it may not cover every possible risk0
How do you agree a Variation?
Variation is a modification to the design, quantity or quality of the work.
1) Use a contract rate - if there is a bill item of a similar nature
2) Use a star rate - this is based on experience of what is fair and reasonable
3) Use dayworks - Prime cost + labour + materials + plant + % additions (% addition for contractor profit is NOT included)
4) Benchmark / market testing
Name the JCT Suite of Contracts.
JCT Standard Building Contract with / without / with approximate quantities
JCT Intermediate Contract
JCT Minor Works Contract
JCT Measured Form Contract
JCT Prime Cost Contract (Cost Reimbursable)
JCT Target Cost Contract
JCT Design and Build Contract
JCT Management Contract
JCT Construction Management Contract
JCT Framework
JCT Construction Excellence for Partnering
What are the drawbacks of a Bespoke Contract?
Costly
Time consuming to produce
Untested in court
What are the benefits of a Bespoke Contract?
Contracts can be made simpler
Contracts can be made easier to administer
Contractor may have input
Risk should have been allocated equitably between parties
Contract can include incentives for contractor to reduce costs
Employer benefits from clear, tailored allocation of risk and responsibilities
Would you recommend a Bespoke Contract?
No. They are untested in court. The principle on Contra Referendum means that an ambiguous clause with be interpreted against the party who wrote it.
Would you help draft a Bespoke Contract?
No.
What do you know about the Housing Grants Construction and Regeneration Act 1996?
Intended to make sure payments are made promptly and to improve cashflow throughout the supply chain. Also intends to make sure disputes are resolved quickly.
Provisions of the act include;
The right to be paid interim, periodic or stage payments
The right to be informed of the amount due or any amounts withheld
The right to suspend performance for non-payment
The right to adjudication
Disallowing pay when paid clauses
Are you aware of the Local Democracy, Economic Development and Construction Act 2009?
The act now applies to contracts that are not in writing
It is no longer allowable to define within a contract who will bear the cost of adjudication + adjudicator can correct clerical error
Closed loophole in pay when paid clauses
What are the Schedules in a JCT SBC?
1 - CDP Procedure 2 - Schedule 2 Variation / Acceleration Quotation Procedure 3 - Insurance Options 4 - Code of Practice 5 - 3rd Party Rights 6 - Forms of Bonds 7 - Fluctuation Options 8 - Supplemental Provisions
What should you do before terminating a contract?
Discuss the situation with the employer and other party
Take note of all relevant clauses for termination
Seek expert assistance
Write and serve notice in accordance with the contract, detailing the breach
Assuming the breach continues and after the requisite time period, dispatch further notice if the contract requires one
Prepare documents, final account, secure site, alternative contractor
What are the timeframes for agreeing a final account?
3 months from receipt of all relevant information
The contractor has 6 months from PC to send relevant information
What is the JCT?
An affiliation of interest groups comprised of 7 member groups, including RICS
They produce standard forms of contract
They use a ‘consensus’ based approach, so views of all parties are taken into account when producing or amending contracts
What types of documents to JCT produce?
Main contracts Sub-contracts Consultancy appointments Collateral warranties Adjudication agreement PCSA
Does the JCT D&B contract include novation provisions?
No. This will need to be added to the contract as an amendment.
Who developed the NEC contracts?
The ICE
What is FIDIC?
International Federation of Consulting Engineers
What dictates contract selection?
The procurement route
Industry sector (JCT or NEC) e.g London commercial sector is familiar with JCT
Size and complexity of the works (Minor Works or SBC)
Risk and Responsibility (any CDP?)
Basis of Contract Sum (with quants, without quants or with approximate quants?)
Why is it preferable to use a familiar form of contract?
Because using an unfamiliar suite would introduce unnecessary risk
A contractor would price this risk in their tender price
You have collated a contract for on of the projects you hsave worked on. How did you do this?
I completed the Contractor & Employer details, parts 1&2 of the Contract Particulars & the relevant information o the Execution pages, Collated documents for inclusion in the contract - indicative programme, drawings, pricing document
Did your client include a schedule of amendments in the contract? If so, why?
Yes, they included their standard schedule of amendments that is drafted by their legal advisor.
These amendments have the following affects;
Alter the project risk allocation (by reducing the number of relevant matters and relevant events)
Insert additional obligations (requirement for contractor to provide bonds, collateral warranties & PCG)
Removing rights (reducing the contractor’s entitlement to object to proposed variation works)
Project specific requirements (contractor obliged to obtain necessary consents - LUL/CRL)
What legislation covers insolvency?
The Insolvency Act 1986 & 2000
Where can you find information on insolvency?
RICS has published a regulation / insolvency sheet which offers advise on regulation issued and the recommended course of action for a chartered surveyor
Companies House also produces a document that provides info on insolvency
What is Corporate Recovery?
It is the process of bringing and actions taken to being an ailing company back to full health
It can involve financial, restructuring, accounts and legal advice
What is a release agreement?
It lays down the terms of termination of contract
It provides a clean unequivocal break for the parties
Important if 1 or more parties are still solvent and wish to continue business unaffected by the termination
What is a letter of intent?
A method of instructing a contractor to proceed with work before a contract is formally entered.
Can lead to complacency and di-interest in signing main contract.
What types of letter of intent are you aware of?
Comfort letters
Instructions to proceed with consent to spend (x)
Letters recognising the existence of a contract
What is assignment?
The transfer of rights and benefits from a contractual party to a 3rd party.
When might assignment be used?
To transfer the rights of a contract from the employer to a party purchasing the building.
What is Novation?
The transfer of benefits and burden in a contract.
What is a Bond?
A tri-partite contract between the employer, contractor and a surety, guaranteeing payment in the event of default.
What types of bonds are there?
Performance bond (usually 10% of contract sum, conditional bond)
Advance payment bond (usually on demand bond)
Materials off site bond (usually on demand bond for value of materials, reduces as materials are brought to site)
Retention bond (used as alternative to retention, reduces after PC)
What types of Bond are included in the JCT Standard Building Contract?
Advance payment bond
Materials off-site bond
Bond in lieu of retention
What is a Guarantee?
A written undertaking to answer for performance of an obligation.
What are step-in rights?
They can be included in a collateral warranty so that the named beneficiary in the warranty can assume a role. For example, where a developer becomes insolvent, the 3rd party (a funder) can assume the role of the developer.
What is a Parent Company Guarantee?
A form of surety required by clients to protect them in the event of default by the contractor that is controlled by a parent company
Default is usually caused by insolvency of the contractor
Parent company is required to remedy breach, meet contractor’s obligations and cover loss and expense incurred by client
What are the advantages of a Parent Company Guarantee over a Performance Bond?
Bonds have limited duration
Bonds do not provide for completion of the contract
However, bonds are more secure (parent companies can become insolvent too!)
What are Collateral Warranties?
A contract between a 3rd party interested in the project and a party involved in the design, construction or management of a project.
It creates a set of rights and obligations in favour of the 3rd party, that would not otherwise exist due to privity of contract.
What are 3rd Party Rights?
The allow a 3rd party to enforce specified term(s) of a contract in the same way as a collateral warranty, without the need for a separate contract.
What is a Latent Defect?
A defect that is not apparent at the time of completion.
What is a Patent Defect?
A defect known at the time of completion.
What are Express Terms?
Terms defined in the contract.
What are Implied Terms?
Terms not specified in the contract but know to exist.
E.G the Sale of Goods Act 1979
What is the De Minimis Principle?
The test of completion for PC.
It means ‘concerned with small things’.
It means certification of completion should not be withheld for only minor defects.
What is Sectional Completion?
Where the employer wishes to one or more sections of works without waiting for the whole of the works to be completed.
When might Sectional Completion be used?
Where a development contains retails units. The employer may wish to take these earlier so that the retail tenants can commence their fit-out.
What is Partial Possession?
Where the client wishes to take control of part of the works but it is not specifically anticipated in the contract.
Partial possession can only be taken with consent of the contractor.
However contractor’s consent cannot be unreasonably refused.
What are Liquidated Damages?
A contract clause which stipulates a specific sum to be payable if a party breaches a specified term.
This is usually used for completion date however in engineering works it is sometimes used where the works are to meet specified performance criteria.
What is Tort?
A civil wrong, which unfairly causes some else to suffer loss or harm resulting in legal liability for the person who commits the act.
How do you decide on an appropriate contract?
It depends upon which procurement route you select
Consult JCT Practice Note - Deciding on the Appropriate JCT Contract
What is OJEU?
Office Journal of EU
Advertise works and services in the public sector
Now replaced by FTS (find a tender service) - similar levels previously set by OJEU
What are the OJEU thresholds?
c. 4.7m for construction contracts
c. 122k for professional services
What is the test for Practical Completion?
The De Minimis Principle.
It means ‘concerned with small things’.
Meaning certification of completion should not be refused due only to very minor defects.
Why use a Schedule of Amendments?
They give the client a more favourable position
