Contract Practice Flashcards
1
Q
JCT 2016- Name Mechanisms to manage the life cycle of a project.
A
- Practical completion
- Letter of Intent
- Extension of time
- Loss and expense
2
Q
When do you issue practical completion certificate?
A
According to RICS guidance note “Defining completion of construction Works” 2011.
3
Q
Practical Completion implications - trigger RICS Guidance Note
A
- Certifying Completion of works
- Certifying payment after the completion of works
- Analysing delay
- Advising on the deduction of delay damages
- Advising on insurance provisions
- ## Advising client of their occupancy options if works are delayed. ,(JCT 2016 Partial Possession)
4
Q
Practical completion - When a project is completed?
A
- Completion is subject to any express provisions in the contract.
- any relevant provision of the specification
- the purpose for which the works are intended
- any statements made by the contractor prior to their appointment, such as specific skills or experience.
5
Q
What triggers Practical completion?
A
- The client takes possession and control of the building.
- Cessation of any further liability for delay damages, whether liquidated or unliquidated.
- Terminates any insurance requirement from the contractor. Insurance passes to the client.
- Commencement of the defects liability, rectification or maintenance period.
- Mile stone payment, or release of retention monies
- Final account to be prepared
- Obligations under third party: funding arrangements, bonds, guarantees, leases, etc.
6
Q
Project Completion difference between NEC and JTC
A
- JTC - Practical completion. If works are not finished the client is not obliged to take possession. But certification of completion should be refused due to minor defects.
- NEC. completion is achieved when all the works required by the “ works information is completed. Defects that doesn’t prevent use wont prevent completion.
7
Q
Sectional completion under JTC vs Partial possession
A
- Included in the contract documents. When the client wishes to take one or more sections of the works without waiting for the whole of the works to be completed. Subject to EoT, liquidated damages etc. Same as PC.
- When the client wish to take possession of part of the works even though this is not specifically anticipated in the contract documents. Only can take place if the contractor agrees.
8
Q
What happens if the contractor or client disagrees with PC date?
A
I the contractor disagrees with the CA’s decision best course will be through adjudication.
9
Q
PC - Works not in accordance with the contract and incomplete works
A
CA has the discretion to certify completion after consultation with the client.
Agreement between client & contractor shoudl be recorded, including additional restrictions to complete the works.
10
Q
Latent and patent defects.
A
- Defects liability period.
- latent defects cannot prevent PC
11
Q
Client using works before completions. I.e moving furniture.
A
This can only happen with the contractor consent.
12
Q
Practical completion L3. Check list.
A
- Building control sign off.
- Risk Liability and insurance. On completion of the works the client becomes liable for any loos or damage.
- Bond and guarantees given to the client often expire once the works have reached completion.
- Also triggers payment to the contractor.
- CA needs to make sure that third parties interests are taken into account.
13
Q
JCT practical completion clause
A
15.4
14
Q
Letter of intend - Types
A
- Comfort letters.
- Instructions to proceed with consent to spend.
- Letters recognising the existence of a binding contract(s).
15
Q
What is a letter of intend?
A
Letters of intent are used in the construction industry as a way of letting procurement, site preparation or indeed construction works commence before the negotiations for the detailed construction contract have been completed.
A letter of intent is a document expressing an intention to enter into a contract at a future date but creates no contractual relationship until that future contract has been entered into. A letter of intent is not an ‘agreement to agree’.
16
Q
Employers agent vs Contract administrator
A
Employers Agent performs the contract administration role within design and build contracts whereas the Contract Administrator performs the same contract administration role in traditional forms of contract.
17
Q
Roles and responsibilities of a contract administrator.
A
1 BUILDING CONTRACT
- 1 General administration
- 2 Records
- 3 Site inspections
- 4 Meetings
- 5 Reporting to the client
- 6 Instructions
- 7 Time
- 8 Contract Instructions / variations
- 9 Contract completion date - EoT - early or partial possession - Practical completion
- 10 Loss and expense
- 11 Adjusted contract sum
- TO THE EMPLOYER
- 1 Terms if appointment
- 2 Overall budget - total project cost
- 3 Compliance with the specification of works
- OTHER CONSIDERATIONS
- 1 Health and Safety
- 2 The construction regulations 2007
- 3 Environmental legislations
- 4 Statutory obligations
- 5 Consents licensces
- 6 Insurance
- 7 LoI
- 8 The Housing Grants, Construction regeneration Act 1996.
18
Q
JCT stands for?
A
Joint Contracts Tribunal
19
Q
What is an EoT?
A
An extension of time defers the contract completion date and thereby gives the contractor a longer period within which to complete the works. In order to decide whether a contractor is entitled to an extension of time, it is necessary to establish the cause of the delay and the period of delay.
20
Q
Process for claiming and EoT
A
Typically, the contractor has a responsibility to notify the Project Manager, when an issue might affect the project schedule. Often, a formal letter should be sent to the contract administrator outlining the request for the extension of time.
The granting of an Extension of Time relieves the contractor from liability of damages such as Liquidated Damages from the original date of contract completion for the period of the claim.
21
Q
Can an EoT be claimed after PC?
A
JCT - yes but is not good practice
NEC s binded by time scales
22
Q
What is loss and expense in a contract? JCT
A
Construction contracts will generally provide for the contractor to claim direct loss and/or expense as a result of the progress of the works being materially affected by relevant matters for which the client is responsible, such as:
- Failure to give the contractor possession of the site.
- Failure to give the contractor access to and from the site.
- Delays in receiving instructions.
- Opening up works or testing works that then prove to have been carried out in accordance with the contract.
- Discrepancies in the contract documents.
- Disruption caused by works being carried out by the client.
- Failure by the client to supply goods or materials.
- Instructions relating to variations and expenditure of provisional sums.
- Inaccurate forecasting of works described by approximate quantities.
- Issues relating to CDM.
Under NEC contains provision for the contractor to claim payment for ‘compensation events’ rather than loss and expense.
23
Q
Bingham Chapel Lane - EoT- which clause in the contract the contractor included in the letter?
A
JCT Design and Build Contract – Relevant Events are under Clause 2.26
24
Q
Bingham Chapel Lane - Contract - Which options were discussed and that was the advise given to the client?
A
It was discussed:
- Traditional vs D&B
Was chose D&B for single point of responsibility. For the quality control design developed up to Stage 4
- Single stage tender to ensure best value for money
25
Coventry - Why you advised to use a traditional procurement approach? What were the risks for the client.
The risks for the client were related to the design and potential delays once the works started. AS only one designer was employed the
Also to minimise time delays once the contractor was appoint prior the works starting the design was reviewed and a sample was produced .
26
Telford - EoT - How did you review the claim? What are the time scales.
The contractor claimed via a formal letter,
27
How did you issue a certificate of non-completion?
The certificate of non-completion gives formal written notice to the contractor that they have failed to complete the works described in the contract by the completion date that was last agreed (the original completion date may have been adjusted during the course of the works
Standard template on RICS web page
28
What are liquidated damages?
Amount the client incur, normally x week, of project delay.
A genuine pre-estimate of the likely loss incurred by the employer should the completion date not
be met
29
What are extensions of time?
Adjusts the completion date and relieves the contractor’s liability to pay liquidated damages for
the period of the extension
30
What must be in place before LDs can be deducted?
A non completion certificate
| A withholding notice
31
What if the employer actually suffered no loss / damage?
It doesn’t matter
They can still deduct the liquidated damages stated in the contract
32
What is the procedure for claiming an extension of time?
As soon as it is reasonable apparent that a delay is or is likely to occur they should write to the architect to notify them
This should identify the cause of the delay and if any of the causes are a Relevant
Event, and give an indication of the extent of the likely delay
They should give any other further information requested by the architect The architect must notify
the contractor in writing of their decision
33
What are the time periods related to granting extensions of time?
The EA has 12 weeks from receiving the particulars to decide on an extension of time
If there is less than 12 weeks to PC, they should endeavour to decide before PC
The EA has up to 12 weeks after PC to review any previous EOTs previously given or to award
further EOTs
34
What are Relevant Events?
The events that entitle the contractor to an extension of time
35
What are the relevant events?
There are 13 relevant events
They are set out in Clause 2.29
1- Variations
2- Instructions
3- Execution of an approx quantity that is not a reasonably accurate forecast
4- Deferment of possession of the site
5- Suspension by the contractor for non-payment
6- The carrying out of work by statutory authorities
7- Impediment, prevention or default by the employer
8- Loss or damages occasioned by the Specified Perils (fire, flood etc)
9- Exceptionally adverse weather conditions
10- Strike or lock out
11- Civil commotion or terrorism
12- The exercise of any statutory power after the base date by the UK gov
13- Force majeure
36
If work is delayed due to two or more competing causes of delay, one the fault of the contractor
and one the fault of the employer, is there an entitlement to an EOT/loss and expense?
No clear rule on which delay takes precedence where a number of delays occur Each case has to be
judged on its merits
Have to make efforts to identify all causes and effects
37
What is the purpose of a valuation?
To provide advice to the certifier on value to allow them to issue their interim certificate
38
How is the Construction Act relevant?
It contains statutory requirements relating to interval and procedure for contracts that have a
duration of over 45 days
39
What happens if a contract does not contain the provisions required by the Act?
The Scheme for Construction Contracts will apply to fill the gaps
40
What are the provisions of the Scheme for Construction Contracts?
Payment becomes due 7 days from the end of a relevant period (28 days)
The final date for payment is 17 days later
A notice should be issued to the contractor 5 days after payment becomes due stating the amount
certifier and the basis on which it was calculated
If money is to withheld, a written notice must be given to the contractor no later than 7 days
before the final date for payment
41
What are the standard provisions for payment under JCT?
The first interim certificate must be issued within one month of the date of possession
The contractor can apply for payment no later than 7 days before the end of the relevant period
An interim certificate should be issued 7 days after application – payment becomes due
The employer has 14 days before the date for final payment
If they wish to withhold payment they have to issue a notice no later than 5 days before the final date
An interim certificate must be issued within one month of practical completion
Interim certificates should be issued ‘as and when’ monies become due to the contractor after PC
42
What are the main elements of a valuation / what do you expect to be included in a valuation?
```
Preliminaries
Measured work
Variations
Materials on site
Materials off site
Loss and expense
Retention
```
43
What needs to be in place for you to include payments for
| materials on site?
The materials should be for the works, adequately protected, delivered to
programme and in a reasonable quantity
44
What needs to be in place for you to include payments for materials off site?
Proof that ownership will transfer to the employer on payment (vesting certificate)
Insurance until materials arrive at site
Materials are clearly labelled as for the site and set apart from other materials
A materials off site bond has been provided if required
45
How do you evaluate interim valuations?
Go to site and conduct valuation
Check work done, materials on site, materials off site
Value preliminaries, agreed variations and any claims
Valuation amount is gross valuation, less retention, less previous payment.
Then send recommendation to A/CA.
46
What are the options for conducting valuations under JCT DB?
Alternative A – stage payments
| Alternative B – periodic payments
47
How do stage payments work?
The stages and their values are set out in the contract particulars
The stages are usually related to the completion of significant design items e.g.
substructure
48
When might advance payments be used?
This is dealt with under clause 4.8
It allows the contractor to receive lump sum payment in advance
The payments, values and dates should be set out in the contract particulars
They may be used where the contractor incurs high costs at the start of a project
E.g. items with long lead times or the need to purchase specialist plant for
manufacturing
JCT provides an advance payment bond to cover the employer financially
49
If a contractor’s work has been certified and paid in an interim valuation, can it be devalued in a later certificate?
Payment in an interim certificate is a payment on account of the final sum
It is always open to the architect to certify a sum that is devalued in a later
certificate
50
What is retention?
It is a percentage of each interim certificate deducted and retained by the employer from each interim payment to the contractor
51
What is the purpose of retention?
It provides an incentive for the contractor to complete the works promptly
It provides some financial cushion to the employer in the event of contractor
default
52
What items do not have retention taken on them?
Loss and/or expense amounts
Statutory fees and charges
Some additional insurance premiums
Opening up and testing costs
53
What is the employer’s interest in retention?
As a trustee for the contractor
54
What should he do with it if requested by the contractor?
Place it in a separate bank account
Label the account as being held in trust
Provide the contractor with statements showing the payments and amount of money in there
This should ensure that the money is available to the contractor in event ofemployer insolvency
55
Who gets the interest accruing on retention money?
The employer
56
When is the retention released to the contractor?
Half of the retention is released in the interim certificate after PC
The remaining retention is released in the final certificate – after the Certificate of
Making Good
57
What is the recommended % of retention under JCT contracts?
3% or 5% depending on the form.
58
What is a retention bond?
Provided by the contractor in lieu of taking retention from interim payments
It should be to the same value as the retention deducted would have been
Requirement should be stated in the contract particulars
A standard form is provided in the JCT contract schedules
59
Why might a retention bond be used?
May be used in difficult market conditions to aid the contractor’s cashflow
60
What are the disadvantages of a retention bond?
Employer would have to pay the premium for taking out the bond
May reduce the contractor’s incentive to complete to standard and promptly
Harms the employer’s cashflow
The employer would not get the interest accruing on the amount of the retention
bond
61
What is acceleration?
Either describes the completion of the works in a shorter time than that
anticipated at tender or the act of recovery by the contractor if they are in delay
62
What options may be considered?
- Re-sequencing the works
- Increasing the working time
- Increasing the resources employed
- Changing the working methods
- Increasing incentives
63
How does acceleration fit under JCT?
There is no provision under JCT contracts for the EA to instruct acceleration
It would have to be a parallel agreement between the employer and contractor
An example of something that may be reimbursed on a ‘quantum meruit’ basis
64
What is a firm price contract?
Where adjustments of the contract sum are limited to changes in statutory contributions, taxes and levies
65
What is a fluctuating price contract?
Where the contract sum is adjusted for changes in the costs of materials and labour as well as statutory contributions, taxes and levies
66
When is the base date set?
Usually 10 days before the tender return date
67
JCT What is the date for completion?
The date fixed and stated in the contract particulars
68
How does date for completion differ from the completion date?
This is the date for completion or any other date that is subsequently fixed (i.e.after an EOT)
69
What does it mean when ‘time is at large’?
There is no fixed completion date
| The contractor must only complete the works in a reasonable time
70
JCT What is practical completion?
When the employer takes back possession of the works
71
What is sectional completion?
The completion and handover of the works to the employer in agreed stages.
Included in the contract
72
Do the works have to be totally completed before practical / sectional completion is achieved?
Practical completion is a vague concept
It is not defined in JCT
It is reliant on the architect’s opinion that the works are complete
It should not be conditional
It is common practice for PC to be granted when the works are substantially complete – i.e. there may be minor defects or omissions BUT nothing that would
prevent the employer taking occupation
73
JCT Can the PC certificate be rescinded once issued?
No
74
What is the recourse if the contractor disagrees with the EA that the works are not completed?
Adjudication
75
What are the consequences of practical / sectional completion?
Half of the retention is released
The Rectification Period begins
The contractor’s responsibility for insuring the works (if applicable) ends
The contractor’s liability for liquidated damages ends
The employer is now responsible for any damages to the works
76
What is partial possession?
Where the employer requests and the contractor consents to the employer taking possession of the works / part of the works before the date for practical /
sectional completion
77
What is the difference between partial possession and sectional completion?
Sectional completion is a contractual obligation to hand over the section at the stated date, partial possession relies on the contractor’s consent
78
What does the EA have to do at partial possession?
Issue to a written statement to the contractor showing the relevant part and stating relevant date
79
What is the rectification period?
The contractor has an obligation to make good any defects, shrinkages or other faults that arise during this period of time
80
How long is the rectification period?
it is common to amend this to 12 months – so the building is observed in all
seasons
81
How can the architect get the contractor to fix the defects that arise during this period?
No later than 14 days after the end of the Rectification Period the architect must issue a written statement to the contractor detailed all of the defects that have
arisen and need to be made good
82
How quickly does the contractor have to fix the defects?
Within a reasonable time
83
What is the certificate of making good?
Issued by the architect to certify that all of the defects that have been required to be made good by the contractor have been so
84
What are the consequences of the issue of the certificate of making good?
The remaining retention is released
85
What is a non-completion certificate?
Issued by the architect to certify that the works / section have not been completed by the relevant completion date
86
What are the consequences of a non-completion certificate?
The employer has the right to withhold liquidated damages, as long as a withholding notice has been given
87
Name different certificates the EA issues under JCT?
```
Interim certificate
Practical completion / sectional completion certificate
Non completion certificate
Certification of Making Good
Final Certificate
```
88
What are the three ways that benefits can be transferred under JCT contracts?
Collateral warranties
Third party rights
Assignment
89
What are collateral warranties?
Create contractual relationships between parties where there would otherwise not have been any. They are alongside another agreement
90
Who did receive collateral warranties in Bingham?
Any third party with a financial institution in a project but not party to the main contract
Lex Leisure
The employer may want a collateral warranty with key subcontractors or suppliers, as if the main contractor were to go into liquidation they would have no
contractual link with them for redress in case of defective workmanship etc
91
Collateral Warranties. How are they requested?
They should be notified to the tenderers at the time of tender
Part 2 7C and D is where the number and nature of the collateral warranties
should be stated
92
What are the common clauses / terms in collateral warranties?
The obligations of the collateral warranties should mirror that of the main agreement
Therefore if a party is in breach of the main agreement they would also be in breach of the warranty
Limitation of liability
Reasonable skill and care v fitness for purpose
Requirements for PI insurance
Assignment rights
Novation rights
93
Name some standard forms of collateral warranty that may be used
JCT has standard forms for collateral warranties
| i.e. JCT standard form of collateral warranty for a funder
94
How has the contract (rights of third parties) act changed the situations regarding rights under contracts?
Applies to All contracts made after the 11 May 2000
JCT now includes provisions to allow third party rights to be granted
Details to be included in Part 2 of the contract particulars
95
Why might third party rights be used instead of collateral
| warranties?
If a lot of warranties are required it involves a lot of administration and cost – easier for third party rights
96
What is assignment?
Where the rights and benefits of one contractual party are transferred to a third party
97
What is novation and how does this differ from assignment?
A new contract that transfers the rights and obligations of one contractual party to a new third party – assignment is only rights
Give a common example of assignment and novation
Assignment of the rights under a collateral warranty to a different tenant /purchaser
Novation of the design team under a design and build contract
98
What is the key issue after a design team has been novated?
Whether the new party has the right to take action against the novated party for breaches that occurred before novation
99
What act is relevant for novation failures?
Unfair Contract Terms Act 1977
100
What are CW’s?
Collateral Warranties are a bi-lateral contract that sits alongside an existing
contract.
The CW gives a party rights to another contract that would not otherwise be
possible (Employer and subcontractor). Used in the event that a party to a
contract goes into liquidation.
101
Why would you use CW instead of The Contracts (Rights of Third Parties) Act?
The Contracts (Rights of Third Parties) Act 1999 is generally avoided due to its openness. The CW is used mainly due to familiarity and security. The CW will specifically define what rights and obligations are provided and to whom.
102
When would a collateral warranty typically be used?
Between client and subcontractor, particularly when the subcontractor is responsible for design.
Can also be required between contractor and funder /
tenant / purchaser
103
What is reasonable skill and care?
The ordinary skill and care expected of an ordinary competent man carrying out that particular act
104
What is fitness for purpose?
The provision of a building that is suitable for the employer’s intended purpose
It is clearly a more onerous obligation that reasonable skill and care
105
How is fitness for purpose dealt with under JCT DB / CDP?
It is excluded
The obligation of a contractor providing design is stated to be the same as an EA or other independent professional employed by the employer directly
106
What are the main sources of guarantee that can be sought in construction?
Bond
| Parent company guarantee
107
What is a bond?
A surety bond is a guarantee from the surety in favour of the employer/beneficiary that the contractual obligation of the principal will be fulfilled. Effectively, bonds are agreements between three parties for the benefit
of one of them: the employer.
The bond only provides financial compensation up to a stated value. It does not guarantee the completion of the works.
108
What form must a bond be in?
It must be in writing, it is common for it to be a deed
| It will contain a duration (usually until practical completion) and a financial limit
109
What is a guarantee?
A guarantee is the promise of a third party to honour the obligation of a party to a contract should that party be unable or unwilling to do so (usually a guarantee is
limited to an obligation to pay a debt).
110
What is a parent company guarantee?
An arrangement where the contractual performance of one company in a corporate group is underwritten by the other members of that corporate group.
This means that it must complete the works itself if it can or pay the financial equivalent. It often extent until the end of the contractor’s liability for latent defects
111
Which is the most common bond type in the construction industry?
Performance bond.
112
What is a performance bond?
PBs are typically provided by banks or insurance companies. They give the employer a guarantee of payment up to a stated amount of money should they
suffer a loss as a result of the contractor's breach of his contractual obligations.
113
What is the standard value of a performance bond?
10% of the contract value, the premium for taking out the bond is added to the contract sum
114
What standard forms of bond does the JCT standard form provide?
Retention bond (not in B&B, ICF or MW)
Advance payment bond (not in MW)
Materials off site bond (not in MW)
Schedule 6
115
What about the NEC?
```
Performance bond in clause X13
Advance payment bond in clause X14
Section 7 explains that provision for payment of materials on site or off site should be included in the Works Information.
It recommends the use of section
X13 or X14 as a guarantee
```
116
What is the difference between a Bond and a Guarantee?
"Bond - A tri-partite contract between the Employer, the Contractor and the surety,
guaranteeing payment in the event of default.
Guarantee - Written or other undertaking to answer for the performance of an obligation. (Performance or payment)"
117
What is a Parent Company Guarantee?
An undertaking by a parent company (or holding company) to guarantee the
proper performance of a contract by one of its subsidiaries, and can only be
given where the contractor is owned by a parent company or is the subsidiary of
a larger group.
Not as secure as a Bond.
Advantage that do not need to be paid for.
118
NEC3 ECC. How do the standard forms cater for bonds and PCG's?
Secondary Option Clause X4 - Parent Company Guarantee.
Secondary Option Clause X13 - Performance Bond.
Contractor provides bond for sum stated in Contract Data and the form in the Works Information.
Secondary Option Clause X14.2 - Advanced Payment to the Contractor.
Contractor provides bond for the amount of advanced payment which has not
been repaid
119
What type of contract did you use in Coventry Project?
