Contract Practice

Question 1

Name some standard forms of Contract

Answer 1

• JCT (Joint Contracts Tribunal)
• NEC (New Engineering Contract)
• FIDIC (International Federation of Consulting Engineers)

Question 2

Name some JCT contract options

Answer 2

• Design & Build
• Standard (Traditional)
• Major Projects
• Minor Works

Question 3

When would you use a Minor Works project

Answer 3

• If the project is lower than £500k in value
• If the project is not complex
• Project no longer than 12 months
• If a bill of quantities is included

Question 4

JCT - Name some examples of a breach of contract

Answer 4

• Drop in Performance (contractor’s unsatisfactory progress constitutes a failure to “proceed regularly and diligently with the performance of his obligations)
• Insolvency
• Failure to comply with contractual obligations

Question 5

JCT - what are the Relevant Events and what do they enable the Contractor

Answer 5

• Changes and any other matters or instructions which under these Conditions are to be treated as, or as requiring, a change
• Employers Instructions
• Except relating to discrepancy or divergence in or between the Contractor’s Proposals and/or other Contractors Design Documents
• Deferment of the giving of possession of the site or any Section under clause 2.4
• Compliance with clause 3.15.1 or with the Employers instructions under clause 3.15.2
• Suspensions by the Contractor under clause 4.11 of the Performance of any or all of his obligations under the Contract
• Any impediment, prevention or default, whether by act or omission, by the Employer or any Employer’s person, except to the extent caused or contributed to by any default, whether by act or omission, of the contractor or any contractors person
• The carrying out of statutory undertaker of work in persuance of its statutory obligations in relation to the works, or the failure to carry out such work
• exceptionally adverse weather
• Force majuere
• loss or damage occasioned by a specified peril
• civil commotion or terrorism
• strike, lock-out.
• the exercise after the Base Date by the UK Gov or any local or Public Authority which directly affects the works
• Delay in receipt of any necessary permission or approval of any statutory body which the contractor has taken all practicable steps to avoid or reduce.

Question 6

JCT - what are the Relevant Matters and what do they enable the Contractor

Answer 6

• 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.

Enables the Contractor to an Extension of Time and Loss and Expense claim

Question 7

JCT - Explain what a Performance Bond is?

Answer 7

Performance bond is a compensation for the Employer should the Contractor breach contract for dropping performance and duties enabling the Employer to an amount of compensation (usually 10% of contract sum) to help get another contractor appointed.
These are usually costed at 1% of 10% of the contract sum, and the contractor takes this bond out. Important standard wording is provided to the contractor to get the bond the employer wants. Two types;
- Standard ABI - has to provide relevant information to evidence the claim.
- On-Demand - doesn’t have to prove performance drop was the reason for breach and will get paid out immediately.

Question 8

NEC - Name the options

Answer 8

Options A - G (7 different options)
A - Priced Contract with Activities Schedule
B - Priced Contract with Bill of Quantities
C - Target Contract with Activity Schedule
D - Target Contract with Bill of Quantities
E - Cost reimbursable
F - Management Contract
G - Term contract (consultant appointment)

Question 9

Letter of Intent risks?

Answer 9

• Full contract is never signed.
• Priorities: The client and the contractor decide that negotiating the full contract is not very important and can wait
• Letter is Good Enough: The client and the contractor may (wrongly) assume that since the letter of intent refers to or incorporates all the provisions of the full contract, it is therefore as good as the full contract.
• No full contract is in place

Question 10

Typical order of Contract Documents?

Answer 10

Appendixes
A - Main Contract + Amendments
B - Employer’s Requirements
C - Contractor’s Proposals

Question 11

What are Liquidated and Ascertained Damages and how are they costed?

Answer 11

True reflection of loss of profit from the Employer and a true reflection of consultant fees for the delay, usually per week

Question 12

Under Hand vs As a deed?

Answer 12

Under hand - 6 years
As a deed - 12 years
This covers for breach of terms of the Contract.
As a deed includes a witness - less chance to deny doc was properly signed

Question 13

How can fluctuations be managed in the JCT?

Answer 13

JCT provides for three approaches to fluctuations, namely
- Option A (which deals only with contribution, levy, and tax payable as an employer)
- Option B (which additionally covers labour and materials costs)
- Option C (formula adjustment using the Formula Rules).

Question 14

Types of Letters of Intent?

Answer 14

• Comfort letters
• Instructions to proceed with consent to spend
• Recognition of the existence of binding contracts

Question 15

Letter of Intent requirements?

Answer 15

• The agreement between the parties, preferably with provision for signature by the parties at the end of the letter.
• The amount to be paid for the works in question.
• What work is to be carried out.

Question 16

Difference between NEC and JCT?

Answer 16

JCT legal written by lawyers vs NEC simple English
JCT EOT & L&E vs Compensation Events
JCT Clause in clause vs NEC no referencing within a clause
JCT Programme is not a contractual document vs NEC it is

Question 17

What is a PCSA?

Answer 17

Pre-Construction Services Agreement (Used in Two Stage Procurement)
- PCSA allows design development
- PCSA can’t involve construction (no provision for insurance or CDM needed for site work - not demo or enabling works
- PCSA is only for one contractor therefore no commercial tension

Question 18

Give some examples of Relevant Events in a JCT?

Answer 18

(Also relevant matters)
- Variations.
- Failure to provide information.
- Delay on the part of a nominated sub-contractor.
- Delay in giving the contractor possession of the site.
- The supply of materials and goods by the client.

• Exceptionally adverse weather.
• Civil commotion or terrorism.
• Statutory undertaker’s work.
• Force majeure (such as a war or an epidemic).
• Loss from a specified peril such as a flood
• National strikes.
• Changes in statutory requirements.
• Delays in receiving permissions that the contractor has taken reasonable steps to avoid.

Question 19

Give some examples of Relevant Matters in a JCT?

Answer 19

• Variations.
• Failure to provide information.
• Delay on the part of a nominated sub-contractor.
• Delay in giving the contractor possession of the site.
• The supply of materials and goods by the client.
• 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.

Enables the Contractor to an Extension of Time and Loss and Expense claim

Question 20

Latent vs Patent Defects?

Answer 20

Latent Defects: A latent defect is one that only an expert would be able to identify, while such a defect would not be apparent to a reasonable person upon inspection of a property. Latent defects to a property may include rising damp, faulty pool pumps or geysers, rusted internal pipes and leaking roofs.

Patent Defects: A patent defect on a property is one that should be able to be identified by a reasonable person on inspection of the property. Patent defects would include wall cracks, sagging gutters, broken windows and missing tiles.

Question 21

Hudson & Emden formula?

Answer 21

Ways of costing Loss and Expense claim
Both pro-rata which don’t work very well, based on office overheads rather than looking at the specific project costs.

Question 22

What does a Loss and Expense claim enable to the Contractor?

Answer 22

Extension of Time - The granting of an Extension of Time relieves the contractor from liability of damages such as liquidated damages from the original completion date for the period of the claim.

Loss and Expense
- prolongation costs
- including site as well as off-site overheads (head office costs)
disruption costs arising from a disturbance
- hindrance or interruption of a contractor’s work progress resulting in lower efficiency or lower productivity than would otherwise be achieved
- loss of profit
- finance charges
- interest.

Question 23

Partial Possession vs Sectional Completion?

Answer 23

Partial Possession - Requires an agreement during the progress of the works. It can be more disruptive for the contractor if it is not planned well in advance.
The contractor must act reasonably and not delay in reaching his decision. He can refuse it if it will interrupt the progress of the works; make the balance of the works more expensive to complete; cause real insurance issues or pose a health and safety risk. The employer can pay these costs to obtain partial possession, but it will often be more expensive than agreeing sectional completion at the outset of a contract.
It is necessary to reach agreement on the liquidated damages to be paid by the contractor if the balance of the works are not completed on time.

Sectional Completion - Sectional Completion and the consequences are agreed up front and provided for in the contract. Once it is in the contract, the contractor has an obligation to achieve the sectional completion date. Liquidated damages are agreed up front should the section be delivered late.

Question 24

What are the consequences for the client for giving PC?

Answer 24

• Project will need to be insured by the client
• Pay back half of retention
• Performance Bond will usually cease

Question 25

What are the termination timescales in a JCT unamended D&B? And what are the different reasons for termination?

Answer 25

Give 14 days notice, and terminate after 21 days after 14 days notice.
Reasons
by Employer
- If Contractor suspend works / lack in performance
- If Contractor fails to comply with instruction
- Insolvency
- Not complying with CDM 2015
- Collusion

By Contractor
- Employer failure to make payment

Question 26

What is the risk differences on a Standard Traditional contract for the following;
- Approximate Quantities
- Fixed Quantities
- No quantities

Answer 26

No Quantities and Approximate means that the price is re-measurable. Approximate means the programme is fixed.
Known quantities means the contractor is taking the risk.

Question 27

What are the differences between;
- Design & Build
- Traditional
- Management Contract

Question 28

What other than project size, duration and cost would dictate which contract to use?

Answer 28

• Client’s appetite for risk and their key drivers. It may be they want to push design risk to the contractor fully, or want design to be fully co-ordinated to Stage 4 before going to tender to get fixed price traditional. Or want the Contractor / Consultant involved early on a complex scheme so wanted a Management or CM solution, with an ‘open box’ nature.

Question 29

What options are there to deal with inflation in an unamended JCT?

Answer 29

A - adjustments to contract sum on basis of changes to tax, levies and contributions which the contractor is required to pay. Eg tax payable for imported goods.

B - adjustments to contract sum in respect of changes to price of labour and material cost. Covers market prices of materials, goods, fuel etc after base date.

C - formula led adjustment to contract sum. JCT formula rules in this instance, issued by joint contracts tribunal depending on the works that are being carried out.

Question 30

Describe the process of valuing materials off site

Answer 30

In first instance, ensure the contract allows for this, these will be listed as a ‘listed item’
Would need a vesting cert. Should visit storage to ensuring goods are correctly labelled, adequately insured and stored correctly.

Question 31

Purpose of extension of time clause?

Answer 31

Allows contractor more time, but no adjustment to the contract sum. LD’s cannot be enforced on original PC date, this would be adjusted to new date on EOT, if agreed