Contract Practice Flashcards
What is the Construction Act?
- The Housing Grants, Construction and Regeneration Act, also known as the ‘Construction Act’, has been an important part of the law affecting the construction industry since it came into force on 1 May 1998.
- The right to be paid in interim, periodic or stage payments.
- The right to be informed of the amount due, or any amounts to be withheld.
- The right to suspend performance for non-payment.
- The right to adjudication.
- Disallowing pay when paid clauses.
Part 8 of the Local Democracy, Economic Development and Construction Act substantially amends the Construction Act. It affects all “construction contracts” in England, Wales and Scotland. The amendments to the Construction Act came into force in relation to construction contracts entered into on or after 1 October 2011 in England and Wales, and 1 November 2011 in Scotland.
The aims of the amendments are:
to increase clarity and certainty as to payment in construction contracts; Not just in writing
to introduce a ‘fairer’ payment regime, and improve rights for contractors to suspend their work in non-payment circumstances; and
to make adjudication more accessible for the resolution of disputes.
What is a “Letter of Intent”, and what information is typically included in a Letter of Intent?
- The letter of intent typically asks the contractor to begin those works before the formal contract is executed.
Information typically included in Letter of Intent: - Detailed description of works to be completed.
- Contract Sum (if agreed)
- Date for possession
- Date for completion
- Insurance provisions required
- Method of payment
- Expiry date of letter
- Typically states employers’ right not to award the main contract for whatever reason
- ADR method
Name three types of LOI
- Letter of comfort
- Instruction to proceed - consent to spend
- Recognition of Contract
What are “Third Party Rights”?
The Contracts (Rights of Third Parties) Act 1999 enables third party rights to be created by a contract. This is seen by some to offer an alternative to collateral warranties.
The overarching purpose of the act is that it allows third parties to enforce terms of contracts that they are not party to, but which benefit them in some way, or which the contract allows them to enforce.
What is are “Collateral Warranties”?
- A collateral warranty is a formal contractual agreement which runs alongside another contractual agreement – its purpose is to create a contractual relationship between two parties where one would not otherwise exist.
- The employer places a contract with a contractor, the contractor then places several subcontracts with its suppliers to actually do the works, the employer has a direct contractual relationship with the contractor, but he has no contractual relationship with any of the subcontractors (this is known as “privity of contract”)
What is a contract?
- A contract is a legally binding promise (written or oral) by one party to fulfil an obligation to another party in return for consideration.
- A basic contract should comprise 4 key elements: offer, acceptance, consideration and intent to create legal relations.
Can you list 5 different bonds which might be used on a project?
- Performance bond.
- Retention bond.
- Off-site materials bond.
- Advance payment bond.
- Tender bond.
What is the typical value of a performance bond?
Usually 10% of the contract sum.
What is a retention bond?
- Typically, an employer could hold up to 5% of the contract value for a period of up to 12 months. The main contractor or subcontractor then must wait for the funds to be returned at the end of the making good of defect period, this can affect business cash-flow.
- A retention bond will provide the employer with the same level of comfort at the retention, but the contractor/subcontractor has the real benefit of retaining the cash in their account.
What is an advanced payment bond?
- An advanced payment bond is required to protect and support payments to contractors by the employer in advance of works being done.
- An advanced payment bond protects the payment being advanced in exchange for a bond underpinned by a suitable guarantor to give peace of mind to both parties.
What is retention?
A percentage of the sums certified for payment under the construction contract (typically 3-5%) is held by the employer during the construction phase.
What is the purpose of retention?
It is used as an assurance of project completion and is intended as a safeguard against subsequent defects that the contractor may fail to remedy.
What are domestic subcontractors?
- Domestic subcontractors are chosen by the contractor to execute a package of works.
- The employer’s consultants (e.g. PM, QS etc) nor the employer themselves influence the appointment or conditions.
What are named subcontractors?
- The employer provides a list of named subcontractors which are pre-approved.
- The contractor selects one form the list through the tendering process.
Once appointed by the contractor, they then become a domestic subcontractor.
What are the advantages of naming subcontractors?
Naming a subcontractor provides the employer with more control to the selection of a subcontractor by the contractor, while still leaving them with the element of choice and the responsibility of monitoring their performance.
