Contract Practice Flashcards
What must be present for a contract to exist?
Offer
Acceptance
Consideration
Intent
What is an invitation?
inclusion in tender process
What comprises an Offer?
Contractors tender price & programme
omissions,
exclusions
Acceptance?
Acceptance is whereby the client accepts the “offer” of the contractor in exchange for consideration
- Consideration?
Consideration refers to the amount of money that is agreed in exchange for building out the project.
- What is intent?
Intent refers to the party’s intention to create legally binding relations with one another.
For example, the offer to build the project for £1m will be administered under an amended JCT D&B 2016.
- What are the main pricing approaches within the JCT contract?
Lump Sum / Measurement / Cost Reimbursable / D&B / Management / Partnering
- What are the lump sum contracts?
SBC Q – Larger, Complex works, BoQ
SBC xQ – Larger works but not complex (linear/repetitive i.e. warehouse), drawings and specification
IC – Simple works without complex building services, BoQ or drawings and spec., work can be carried out in sections
ICD – as previous but specialist work by contractor
MW – Low value work (sub £1m), Can’t name subcontractor or have sections
MWD - as previous but specialist work by contractor
- What constitutes complex building services?
?
- When would lump sum contracts typically be used?
For buildings when the scope of works can be largely identified pre contract.
- Why would you use a contractor design portion contract option?
Where the contract is traditional in that the client develops the design CDP can pass an element of works for Contractor Design
- When might a CDP be used?
Substucture design,
M&E
- Why might the client want to pass on certain design elements to the contractor?
Works which functional rather than aesthetic e.g. structural loading, heating and electrical performance
- What are the measurement contracts?
SBC AQ – Large works, Approx BoQ (subject to remeasurement)
MTC – Regular maintenance or minor work, Ongoing contract instruction, Contract is defined by Schedule of Rates over say 24 month period
- When would you use a measurement contract?
SBC AQ – Road i.e. scope is known but quantities are remeasured based on actual works
MTC – e.g. university maintenance works or council road repair works
- What are D&B contracts?
Initial design by employer but contractor takes on design liability/responsibility. Employers requirements detail the project requirements where design to be completed by contractor.
- What is Cost Reimbursable?
Contract Sum is only ascertained at final account.
Prime cost of labour, plant, materials and OHP.
- When could it be used?
Works requiring quick start where cost of construction is far outweighed by loss of revenue due to closure e.g. Hotel/Airport repair works – caused by unforeseen event / damage
- Cost Re-imbursable Contracts?
Prime Cost Contract – Early start on site, Drawings and specification,
- what are the types of Management Contracts?
Management Building Contract (MC)
Construction Management Appointment (CM/A)
Construction Management Trade Contract (MC/TC)
MC – Large projects, early start and full design not complete, drawing and spec, MC appoints trade contracts
CM – Varied project size, as MC but client appoints TC’s directly
- Partnering Contract?
JCT Constructing Excellence Contract
JCT Constructing Excellence Contract Project Team Agreement
- What are the NEC contracts?
- Option A – Priced Contract with Activity Schedule
- Option B – Priced Contract with BoQs
- Option C – Target Cost with Activity Schedule
- Option D – Target Cost with BoQs
- Option E – Cost Reimbursable
- Option F – Management Contract
- What are the other contracts?
FIDIC - International Federation of Consulting Engineers
ICC - Infrastructure Conditions of Contract
- Give examples of when certain contract may be best suited?
Lump Sum -Building (Good design)
Measurement - Roads (spec know but not scope)
Also MTC - maintenance / ongoing repair work e.g. roads or estate management
Cost Reimbursable - Quick start but limited design
- What is a typical contract structure?
Contract – Amends – Appendix: CSA, Design, Site Info, Prelims, Warranty, Bond, PCI, TQ, Clarifications)
- What is the main contract?
TBC
- What is the SoA?
Vary the contract as agreed between parties
- Example of a SoA?
Coronavirus event, ER’s take precedent over CP’s
- What is the pricing document?
Provides a clear breakdown of the contract sum
Basis for valuation and variations
- Why are drawings included?
Visually detail the work required
Allow the proposed works to be measured
- What are specifications?
Descripe the work to back up the detailed drawings.
- Why would surveys be included?
e.g. Ground condition to inform foundations
Asbestos – identify areas required to be removed for safety and define scope of work
- What is the pre-construction information?
Identify, eliminate, or control risks.
Produced by Principal Designer
- Give an example? PCI
Winnington – Multiple units creating high site traffic. Designated pedestrian walkways and gate to avoid pedestrians walking onto site.
- What is the preliminaries document?
set out the way in which the works should be done and restrictions and standards that should be complied with
- Example? Prelims
Welfare cabins working hours, PPE requirements, waste disposal, temporary services, security, plant,
- How is the prelims different to project preliminary costs?
Project preliminaries are works required to complete the measured works.
- What are the different types of contract pricing basis and when would these likely be used?
Lump Sum
Re-Measurement
Prime Cost
- What is the implications of the Housing Grants, Construction Regeneration Act 1996 (HGCRA)?
- Interim, periodic or stage payments
- Informed of the amount due or withheld
- Right to suspend works for non-payment
- Right to adjudication
- Disallowing pay when paid clauses
- What is the Local Democracy, Economic Development and Construction Act 2009 (LDEDCA)?
- Payment notice 5 days after due date
- If no payment notice after 5 days, then contractor can issue their own
- Pay less notice
- Adjudication
- What are liquidated damages?
Pre-estimate of ascertained loss to client as a consequence of works completing after the contract completion date.
- What is partial possession?
Post contract variation Contractor cannot unreasonably withhold Detail to clarify extent of area Value of Section must be stipulated Completion requirement Half retention (of ascertained value)
- What is Practical Completion?
What is required?
Implications?
Substantial Completion
H&S file, Testing & Commissioning, O&M, CW’s, Building Control Certificate, Planning Compliance, Structural Warranty, As Built DWGs, Keys.
Implications; Rectification period begins - Half retention released
Client insures - Contractor relinguished from LD liability
Employer must accept building early if it is actually complete
- What is Practical Completion?
Must be confirmed in contract; H&S file, Testing & Commissioning, Work Practically Complete, O&M, CW’s, Building Certificate, Planning Compliance, Structural Warranty, As Built DWGs, Keys.
Implications; Rectification period begins - Half retention released - Client insures - LDs are not applicable
Employer must accept building early if it is actually complete
- What is sectional completion?
As PC but Pro Rata – Value of Section must be stipulated
- What are extensions of time?
EoT provisions are to preserve the employer’s right to liquidated damages should the contractor fail to complete on time due to the employer
- Why did you use NEC4 short form for the demolition project?
Simple work
Lighter administrative requirements for parties.
Short programme (6 months)
Contract value sub £1m
- How did you create the scope?
Description of works
Constraints
Programme
Client pre-commencement
- How did you create the CLOTD?
d
The consolidated list of tender documents is an exhaustive list of info provide
- What is the contractual process for interim valuations?
- Contractor makes Application for Payment at the IVD 7 days before Due date (1st) SBC (D&B Contractor must make application on or before Due Date)
- Due Date is 7 days after (8th)
- Interim Payment Notice (SBC) (D&B -certificate) is issued 5 days after the due date (13th)
- Employer can issue Pay Less Notice 5 days before the final date for payment (17th or 22nd)
- Final Date for Payment is 14 days from due date (22nd) (typically amended to 21 days (29th))
- Why are interim valuations implemented within a contract? Is there any relevant legislation in relation to this?
Contractor is entitled under the HGCRA to interim valuations to aid cashflow
- How would you review a contractors application for payments? b wHY IS IT IMPORTANT OT BE ACCURATE
Take photos
mark up DRAWINGS to review progress so the valuation is as accurate as possible
Bto avoid overpayment because typically, the contractor’s application will be higher than actual site progress.
- What does an interim valuation comprise of?
How did you issue the recommendation for payment?
QS vs CA in Traditional contract
The valuation is a gross valuation, less retention, less previous payments.
Valuations are agreed with the contractor and passed to the contract administrator to be issued as a recommendation for payment to the client.
RFP is only “advice” and the client can choose to pay what they wish.
- How does the valuation process differ on a D&B scheme?
SBC application must be submitted 7 days prior to due date
DB application on or before due date
- What are the implications of late payment by the client?
The contractor can issue a notice of intention to suspend works.
If the client does not pay for 7 days following this notice the contractor can suspend works and the employer becomes liable for loss and expense for the suspension.
- Give an example of a change request you had to assess from the contractor? UPS
Level issue for access door
level had to be increased by creation of a concrete ramp
- How did you deal with the variation? Discussing with the client / project team etc
- Confirmed with CS engineer that level was incorrect
- Agreed cost with contractor
- Informed Client
- Advised CA that instruction would be required
- How did you cost the variation? UPS Steps
- Type 1 (150)
- 5m Sub Base
- Sand
- Block Paviour
- Tactile Paving
- How would you cost a variation if the work was not included in the BoQ?
- Comparable rates from a similar project
- Adjust time and location
- Negotiate with contractor
- Have you ever had value a variation by dayworks?
- Breaking out underground obstructions
- Detail TBC
- Did you receive any variations that were not legitimate?
- Wrexham, - retaining wall (gabion baskets)
- D&B; Contractor takes respobility for design
- Give an example of how you have implemented partial possession?
UPS – Conveyor contractor occupation of segment of site
Expand…
- How would you implement acceleration?
- Request an ‘Acceleration Quotation’
- Contractor either:
- Provide a quotation identifying the time that can be saved,
the amount of the adjustment to the Contract Sum; or - Explain why it would be impracticable for the acceleration
- The Contract Sum will be adjusted and shall include the amount to be paid in respect of Loss and Expense including the cost to compile the quotation.
- The Contractor cannot progress to accelerate the works until a quotation has been agreed.
- The Contractor has up to 21 days to compile the quotation from:
- The date of receipt of the invitation
- The date the Contractor has sufficient information to produce the quotation
-The quotation remains open for 7 days from its receipt for the Employer to make a decision
- If the Employer wishes to progress the quotation then, the Employer needs to instruct the Contractor via a “Confirmed Acceptance” stating:
- Adjustment of the Contract Sum
- Adjustment of the Completion Date of the Works / Section
-NOTE: If the quotation is not accepted by the Employer, then the Contractor is entitled a fair and reasonable amount for compiling the quotation, which will be added to the Contract Sum.
- How would you implement early use?
- The Employer may, with the Contractor’s consent, use or occupy part of the site early for storage or otherwise, before Practical Completion or Sectional Completion
- The Contractor will remain responsible for the area of works in terms of Health and Safety and insurance
- Before the Employer occupies the space, the Contractor or Employer will notify their insurers to obtain confirmation that such occupation can occur.
- If option A applies (Contractor obtains All Risk Insurance) and the insurers’ confirmation is conditional on an additional premium being paid, the Contract shall notify the Employer of the amount. If the Employer continues to occupy the space, then the additional cost will be added to the Contract sum (the Contractor if requested will provide the receipt to the Employer.
- How did you produce the report on advising on which contract to use?
Exec summary Intro Analysis – D&B, Traditional Comparison and Risk allocation Conclusion
- Why did you advise to use D&B over traditional?
Traditional – longer overall programme, cheaper, control of design
D&B – quicker programme, more expensive but balanced by contractor holding the design risk (cost certainty)
Conclusion – For the client whilst traditional could have offered better value D&B offered more cost certainty
- What were the project requirements?
Cost certainty and transfer risk to achieve tenant design to the contractor
- What were the clients priorities?
Cost – The client wished to gain certainty as the development was based on securing costs to tenants upfront
Time – Again, certainty was important. As the client wanted cost certainty they were happy to develop the design sufficiently pre-contract to achieve this so didn’t wish to pursue a two stage strategy that could have allowed a quick start on site where the design could have been developed whilst initial works were being progressed.
Quality – It was important that the design was developed to achieve all of the tenant specifications. The client didn’t need to retain design control once the design was suitably developed.
Risk – The client had made agreements with tenants to let/purchase at a fixed cost and therefore did not want to take on risk to impact his margin. Traditional procurement may resulted in a lower price but the client did not wish to retain the risk for the design and preferred to take the cost certainty that D&B offers.
- Could you have advised on a CM contract?
Client was a regular developer but did not have an in house construction team so this was not considered
- Why did you advise JCT?
JCT is typically used for buildings – both client and prospective contractors are likely to be familiar.
NEC tends to be used on infrastructure projects
- Why did the UPS being an owner occupier make a difference to contract choice?
- Why might D&B have been unsuitable?
As an owner occupier the Client was clear that the delivery of the project was very important to their business and therefore wanted to have maximum control of the design. Utilising the JCT SBC they retained the AECOM design team and were able to review and change design as and when they required albeit incurring additional costs.
- Why might D&B have been unsuitable? UPS
Primarily the Client would not have had a direct contractual relationship with the design team as this would have been passed to the contractor.
The Client would not have had the same control as they could with traditional project delivery.
- How could have been done to create design continuity with D&B?
The client could have chosen to novate the design team to provide continuity for the design team.
However, the contractor would still have the overriding influence over the design team and the Client would be reliant on the design team performing (i.e. standing up against the contractor to uphold their design) rather than directly instructing changes on the design.
- Why was the contract without Quants?
By not compiling a BoQ the client removes the risk of not accurately capturing the scope of work
however this means that the contractor must take the risk and pay for a BoQ to be compiled as part of their tender but this was deemed ok as the works were not complex
- How did you advise that the client should calculate liquidated damages?
What should they not be construed as?
Pre-ascertained estimate of actual loss
NOT a penalty
- Loss of rent
- Finance costs
- Storage costs (if have a date with tenant)
- Rental costs
- What are the implications of not putting a figure? LDs
The client cannot claim LD’s but they preserve their right to pursue actual loss in court.
- What about zero? LDs
If the LD’s are set at zero then the client removes their right to claim liquidated damages.
- How should LD’s be implemented?
PC not achieved
No EoTs
Issue a non completion notice (D&B) certificate (SBC)
Issue pay less notice inc calculation of days due for LDs (5 days of due date)
- Have you given practical advice on the implications of issuing LD’s?
Commercial view vs collaboration
Wrexham LD’s – Contractor showing signs of insolvency.
LD’s best used as a threat of failure to progress.
Deducting LD’s may have pushed the contractor into insolvency (job close to completion)
client would have had to complete works themselves or re-tender.
- What are the signs of contractor becoming insolvent?
a. Significantly reduced site labour / activity
b. Overclaiming on valuations
c. Subcontractors and contractor consultants reporting late or no payment
d. Requests for advance payment
e. Programme delays
f. Difficult to get in contact
g. High staff turnover / reduction in staff
- Why did you advise that the client could make direct payments?
- Late payments had been reported so direct payment would mitigate this
- Continued payment to MC would be at risk if they became insolvent
- What were the risks of this?
A direct payment agreement had to be drawn up to outline that the main contractor accepted that they would not receive payment directly
- What had to happen to facilitate the direct payments?
A direct payment agreement had to be drawn up
- What were the key components of the direct payment agreement?
TBC – see DPA from Wrexham EA
- What amendment should have been included for Covid on the carehome project? why significant
Introduce Covid as a defined event
If not identified then contractor could be entitler to cost and time
- What would the implications be of not including such a provision if there was a Covid outbreak?
What is reasonable for the market circumstances?
Entitled to cost and time rather than just time.
Affording time is reasonable if government instigate restrictions on how work can be undertaken
- What is a key contractual change in the way that Covid impacted on contracts since the pandemic?
Force Majeure – now established occurrence
- What was the biggest risk to a client at this time? Covid
Contractor could have been able to suspend works due to not being able to access site
- What are the pros and cons of early possession?
• Early use would allow the conveyor contractor to setup their compound and store materials which potentially could save 4 weeks.
• The contractor would remain responsible for complying with insurance and risk of loss / damage.
• The contractor would still be liable for liquidated damages to the entire site.
Cons:
• Potential insurance implications.
• The Client would be liable for loss & expense claims from the main contractor.
• Defects arising from the main contractor due to reduced access to part of the site.
- What are the pros and cons of acceleration?
• Exclusive site occupation enables the Contractors’ responsibility for quality to be clearly defined and simplifies the management of defects.
• The Client would not become vulnerable to loss and expense claims from third party disruption.
• A six-week programme gain was potentially possible following discussions with the main contractor.
Cons:
• The expedited completion date would be heavily caveated as there would still be a risk of relevant events giving rise to extensions of time after the date of confirmed acceptance of the acceleration quotation.
• Acceleration is typically costly and any relevant events arising would potentially negate any gains in the programme.
- What are the pros and cons of partial possession?
• Overlapping the programme could achieve the most significant reduction in time as the other two options were primarily reliant on works following on from one another.
• The Client would not be liable for loss and expense claims in relation to the partial possession area after “PC”.
• Minimal contractor conflict as the Client is only required to “PC” the area when satisfied the works by the main contractor were substantially complete.
Cons:
• Programme gains would be reliant on the speed the works to the partial possession area could be certified as substantially complete.
• A shared site would result in responsibility issues arising from the crossover of contractors.
• The main contractor relinquishes their liability for liquidated damages for the portion of the site that is taken up by the partial possession area.
Statute of Limitations 1980
Contract Under Hand (6 years) (Signed by a person (authorised by a company director) and witness & Signed by the contractor and witness) or
By Deed (12 years) (Director and Company Secretary / 2 Directors)
LIQUIDATED DAMAGES?
Pre-ascertained estimate of loss arising from the delay (loss of rent, income, storage/rental/finance costs)
Process – Review outstanding EoT claims - Non-completion notice - Pay Less Notice to contractor prior to due date for final payment (explain the calculation of the deduction).
RETENTION
% deduction for making good, 50% released on completion,
3% SBC & D&B, 5% IC & MW, NEC TBC.
Making good defects certificate issued after rectification period confirming defects have been rectified.
COMPLETION
Rectification period starts, 50% retention released, Client insures building, Claims for LD & LE claims end
Typical Requirements; H&S files, works substantially complete, O&M, Warranties executed, As built DWGs
PARTIAL POSSESSION
Part of the site can be occupied by a third party (like sectional completion but agreed as a post contract variation)
EXTENSION OF TIME
Preserve the right to deploy LD’s,
Contractor Notify; Cause, Relevant Event, Impact Employer;
12weeks to respond
Pay Less Notice
Can be issued 5 days prior to the final payment to identify a reduction to the previously stated interim payment notice. This may be due an error in the notice or as part of implementing LD’s.
Difference between JCT & NEC
COMPS events time and cost
Simple language
Collaborative
Standard Contract Form with Options
RELEVENT EVENT (time)
Change (scope, quality etc), Instruction (early use), Deferment of Possession (start 2 weeks later), Antiquities (archaeology discovered), Suspension (Coronavirus), Act or Omission (UPS HV power), Statutory undertakers (services), Weather (slows/stops work), Loss/damage by a specified peril (civil commotion, riot, fire, lighting, explosion), terrorism, strike, statutory powers, approval delay (e.g. noted in change request response to client), force majeure (Coronavirus) (14 in total)
RELEVENT MATTER (time & cost)
Change (to existing completed work),
Instruction (early use – disruption),
Deferment of possession,
act or omission.
HEADS OF CLAIM
Prolongation, Site overheads increase, disruption, 3rd party claim, loss of profit (Global – collection of all)
CHANGE
Client – QS (estimate) or Direct Instruction – Contractor Quote – Negotiate– EA instruction
NEC4 Contract Structure
Amendments –Core Clauses/Options – Dispute Resolution – Secondary Options – Contract Data
Amendments – Identifies amendment to the standard contract form (Coronavirus event example – RE only)
Core Clauses – Contractor responsibilities – Time – Quality – Payment – Compensation events – Title – Liabilities - Termination
Secondary Options – Inflation – Changes in law – Currencies – PCG – Sectional Completion – delay damages – termination -performance bond – retention
ADR
Negotiation (informal).
Mediation (formal - not binding).
Adjudication (STAT REQ) (formal – binding).
Arbitration (MUST BE OPTION) (legally binding). Litigation (legal judge binding)
Mediation
Does not give opinion/ recommendation. Independent perspective to facilitate settlement. Directs parties to agree on the issue on the basis of what a likely award might be.
Conciliation –
Makes a RECOMMENDATION. NOT usually binding.
Adjudication
Stat requirement under HGCRA or Scheme for Construction Contracts.
Invoked at any time; 5 days notice, appoint Adjudicator.
2 days to confirm availability.
7 days to submit evidence.
Adjudicator decision in 28 days (can be extended with party permission).
Binding until further escalated to Arbitration or Litigation.
Arbitration
Must be option in contract. Private hearing (not in public eye). 28 days to appoint single (14 for 2+).
Short hearing; Inspecting work, materials etc. Written statements. 1-day hearing. Can agree to extend. Award in 1 month.
Documents only; No need for hearing. Submit statement and submit formal reply to each other. Further questioning or hearing may be requested. 1-month decision.
Full Procedure; Comprehensive process used only when previous deemed not sufficient to investigate issue. Cost; Losing party bares costs and Arbitrator can apportion settlement at their own discretion.
JCT Fluctuations
- Option A – allows for adjustments to the contract sum in respect of changes to tax, levies and contributions which the contractor is required to pay. That would cover a change in tax payable on imported goods for example
- Option B – allows for adjustments to the contract sum in respect of changes to the price of labour and material cost. It covers adjustments to the market prices of materials, goods, fuel, gas (and more) which were current at the Base Date.
- Option C – is a formula led adjustment to the contract sum. In this instance, the JCT Formula Rules issued by the Joint Contracts Tribunal will apply depending on the type of work being carried out (and there are a vast range of formulas).
What are the key components of a JCT contract?
- AACS
- Agreement
- Attestation
- Conditions
- Schedules
- Agreement
- RAC
- Recitals; Description of works
- Articles; Contract Sum, Key contacts
- Contract Particulars; Completion, Possession, LD’s, Bond
- Attestation
Execution by hand or Deed
- Conditions
- How contract is implemented e.g. Payment, disputes, termination
- Schedules
- e.g. Form of Bonds
Who wrote the Employer’s Requirements for Oxford Resi?
ER’s were split into Architectural, Structural, M&E, Civil
Who wrote the Preliminaries? Key inclusions
I wrote this:
- Summary of works
- Project parties
- Site information
- Planning conditions
- PCI
- Contract Summary
- Site preliminary requirements
net contribution clause
The amount that can be recovered from one party can be limited by a net contribution clause. This restricts liability to the amount for which the party being pursued is responsible. Other amounts must be recovered from the other parties.
Assignment of Collateral Warranties
- Typically can be assigned up to two times without consent
- Anything over requires consent
