Contract Practice Flashcards
What is a contract?
An agreement between two parties which is intended to be enforceable by law.
What makes a contract valid?
- Offer
- Acceptance
- Consideration
- Mutuality of obligation
- Competency and capacity
Name some types of construction contract you are aware of?
JCT (Joints contract tribunal)
- Standard
- Design and build
- Construction management (CM)
- Minor building works
- Major project works
- Intermediate
NEC4 (New engineering contract)
Framework contract
Purpose of a contract?
- Define & sets out rights and obligations; can be bilateral or unilateral
- Mechanism that allows the transfer of risk
- Reduced uncertainty
- Defines compensations
- Helps to avoid disputes and breaches of responsibility. Ensures that obligations are clear for all parties.
How is a contract executed?
- By hand (6 years)
- By Deed (12 years) – must clearly state that it is being executed by deed, and requires signature by two directors.
They can be Bilateral (Contract) or Unilateral (Deed) - Bilateral = both parties make a promise
- Unilateral = only one party makes a promise
Difference between private & public sector contracts?
Private can be negotiated, public must be competitively bid.
Why use standard forms?
- They’ve been tested
- Well known and used across the industry, therefore faster process & less expensive – the courts will also be familiar which is important if having to deal with dispute resolution.
- Both sides fairly reflected
Why deviate from standard forms?
Complex projects / High risk?
Client may have their own form, which they use on numerous projects.
How do you determine what contract to use on a building project?
There are 5 major factors in the selection of contract:
1. Procurement Route
For example:
- JCT D&B is designed only for use with the D&B procurement route
- JCT SBC is designed for use with the traditional procurement route
- Types of works required and sector
The nature of the required works and the particular sector that the works relate to should influence the choice of contract.
For example:
- Commercial construction market in the UK is very familiar with the JCT, but less so with NEC
- The infrastructure and engineering markets are more familiar with NEC, less so JCT
Therefore, imposing an unfamiliar form of contract on a particular sector may create additional and unnecessary risk, as the parties may not understand the balance of risk and their rights and obligations under the contract - Size, value and complexity of the project
There is a large range of contracts for use in the UK, some are designed for higher value more complex contracts, whereas others are designed for low value, simple projects.
For example, the JCT produces the:
SBC for large value projects where detailed contractual provisions are required;
Intermediate Building contract; and the
Minor Works Building Contract for when projects are relatively simple and low value. - Balance of risk/ risk allocation
For example, Design and Build places a lot of risk on the contractor; while
Management Contracts is considered far riskier for the employer - Design responsibility
Another major influence on the choice of contract is which party will have predominant responsibility for design.
Some form of contracts work with a wide range of design of responsibility like the NEC3, whereas others have been developed with specific allocations of design responsibility e.g. JCT SBC and JCT D&B.
What is a contract sum analysis?
Contract sum analysis is generally prepared by a contractor as part of their tender on D&B Contracts. It breaks down the contractor’s price into a form allowing the client to analyse it and to compare it to other tenders –May be used as a basis for calculating payments due to the contractor as works progress.
Pricing schedule should be issued as part of the tender.
Think Fitzroy Strip Out CSA
What ‘s included in within a contract?
Consists of ‘contract documents’ which set out the obligations & responsibilities of the parties.
Contractor ensures that all works are covered by themselves or a sub-contractor (usually have to be agreed with the contractor).
‘Contract documents’ include:
Article of agreement and conditions of a contract
Working drawings
Works / site information
BoQ / SoR
Specifications
Schedules of work
Tender adjustments or clarifications negotiated and agreed after receipt of tenders.
Legal obligations; performance bonds / collateral warranties from sub-contractors.
When can the contract be terminated?
Contractor substantially fails to comply with obligations & has not corrected them within 4 weeks.
No guarantee has been provided by the contractor
The contractor has assigned or changed any rights & benefits of the contract
Legal ownership of the contractor has changed.
What is required at completion of the works?
- Confirmation that all works are complete
- Final review against works information – certificates issued by all compliance monitoring team confirming that works had been completed in line with works information.
- Agree final account
- Issue PC Cert
- Final Stage payment
- Release of 50% of retention
- Client must ensure that relevant insurances are in place (previously sorted by Contractor).
- Client must ensure site is secured and complies with CDM & H&S obligations.
What is required at completion of defects period?
Issue end of defects certificate (JCT = certificate of making good defect).
Release final 50% of retention
What other methods of redress does the client have for remedying defects after PC?
The Rectification Period (previous called the defects liability period) begins upon certifications of PC and typically lasts 12 months.
During this period, the client reports any defects that arise to the contract administrator who decides whether they are defects (i.e. works that are not in accordance with the contract), or whether they are in fact maintenance issues. If the contract administrator considers they are defects, then they may issue instructions to the contractor to make them good within a reasonable time.
