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RICS APC PM > Contract Practice > Flashcards

Contract Practice Flashcards

1
Q

Dangers of inaccurate damages

A

May be construed as a penalty.
They are not enforceable.
Employer will have to sue for any actual direct loss that can be proven.

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2
Q

What are benefits of Liquidated Damages inclusion to the contract?

A

Contractor knows the consequences for delay from the outset.

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3
Q

What are time periods for assessment relating to an Extension of Time?

A

12 Weeks from receipt from notification to decide.
If less than 12 weeks prior to PC CA should endeavor to decide before PC.

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4
Q

What are relevant events?

A

Events that allow a contractor to seek an extension of time.

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5
Q

How many relevant events in the JCT?

A

There are 13. Set out in clause 2.29

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6
Q

Who owns programme float

A

No clear rule, generally it belongs to the contractor.

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7
Q

What is the purpose of a valuation?

A

Provide advice to the certifier on value to allow issue of the interim certificate.

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8
Q

Payment provisions under JCT

A

First interim certificate issued within one month from possession.
Contractor can apply for payment no later than 7 days before end of period.
Interim certificate issued 7 days after application. Payment becomes due.
Employer has 14 days before final date to pay.

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9
Q

Needs to be in place for payments for materials on site?

A

Materials must be for works, adequately protected, delivered to programme.

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10
Q

Needs to be in place for payements for materials off site?

A

Proof that ownership will transfer to employer on payment (vesting certificate)
Insurance until materials are on site
Clearly labelled, stored seperately.

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11
Q

Advance payments - What are they?

A

May be used where contractor incurs high cost at a start of project.
Dealt with under clause 4.8.
JCT provides an advance payment bond to cover Employer financially.
Payments values and dates should be set out in contract particulars.

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12
Q

Disadvantages of advance payments?

A

May reduce incentive of contractor.
Bad for Employers cashflow.
Concerns over why Contractor cannot fund - Insolvency worries.

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13
Q

What is retention?

A

A percentage of each interim certificate deducted and retained by the employer.

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14
Q

Purpose of retention?

A

Provides an incentive for the contractor to complete works promptly.
provides financial aid in event of contractor default.

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15
Q

What do not have retention applied?

A

Loss and expense
Statutory fees
Opening up
fluctuations Options A&B

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16
Q

Employer should do if requested regarding retention monies?

A

Place in separate bank account
provide statements to the contractor
ensures money is available to contractor in event of Employer Insolvency

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17
Q

Who gets the interest accruing on retention monies?

A

The Employer

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18
Q

What is recommended % of retention under JCT?

A

3 or 5% depending on form.

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19
Q

What is a retention bond?

A

Provided by contractor in lieu of taking retention from interim payments.
Requirement should be in contract particulars.
Standard form provided by JCT.
Aides contractors cashflow.

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20
Q

If contractor does not maintain a retention bond?

A

Employer can deduct retention from interim payments.

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21
Q

What are fluctuation options under JCT?

A

Option A: Adjustment for change in statutory contributions levies and taxes.

Option B: Adjustment for changes in labour, materials and statutory costs.

Option C: Adjustment for changes in labour, materials and statutory costs determined by formula.

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22
Q

Retention in context of fluctuation clauses.

A

Options A&B are NOT subject to retention.
Option C IS subject to retention.

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23
Q

Summarise option B fluctuation:

A

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.

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24
Q

Can a PC certificate be rescinded once issued?

A

No it can not.

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25
Q

What is the recourse if the contractor disagrees the works are not practically complete?

A

Adjudication.

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26
Q

Consequences of sectional / practical completion?

A

Half retention is released
Rectification period begins
Employer needs to insure works / space
Liability for LADs ends

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27
Q

What is partial possession?

A

Different to sectional completion
employer requests possession of a the / part of works prior to date of completion.
Is at the contractors discretion.

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28
Q

Consequence of partial possession?

A

For relevant part of works, practical is deemed to have occurred.
Therefore same consequences apply.

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29
Q

How quickly does a contractor need to fix defects during DLP?

A

Within a reasonable timescale.

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30
Q

Three ways benefits can be transferred under JCT

A

Collateral Warranties
Third Party Rights
Assignment

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31
Q

What are collateral warranties?

A

Create contractual relationships between parties where there would have not been.

32
Q

When are collateral warranties used?

A

Rights and obligations can only be enforced by parties to the contract. CWs give remedies to parties that would not otherwise have access.

33
Q

Who might want a collateral warranty?

A

A party with a vested interest to project but not party to the Contract. I.e. a funder, tenant, purchaser.

Employer may want one with key subcontractors in case of Main Contractor insolvency.

34
Q

How are Collateral Warranties requested?

A

Should be requested at tender stage.

35
Q

Standard forms of Collateral Warranty

A

CWa/F - JCT standard for funder.
CWa/P&T - JCT standard for purchaser or tenant.

36
Q

How can third party rights be included in JCT contracts?

A

Complete part 2 of particulars - section 7A and 7B.

37
Q

Where might Third Party Rights be used over Collateral Warranties?

A

Where there are a number of CWs required, it involves cost and administration. TPRs are therefore easier.

38
Q

What is assignment?

A

Rights and benefits of the contract are assigned to a third party.

39
Q

Standard JCT position regarding assignment

A

Twice without consent.
Assignment should be notified in writing.

40
Q

What is novation?

A

New contract - transfers rights and obligations of one contractual party to another.
Common example is novation of design team under design and build.

41
Q

Key issue with Novation?

A

Whether the new party has right to take action for breaches that occured before novation.

42
Q

If contractor takes full responsibility for design what would they want?

A

Ability to take action against consultants for breaches before novation.

43
Q

How does Novation affect Employers rights?

A

They lose contractual relationships and therefore ability to take action for breach. Therefore collateral warranty is sought.

44
Q

Limitation clauses?

A

Clauses that limit a party’s liability for loss.
Cap on PII extent
Limit to a fixed sum
Net contribution clause

45
Q

What is a net contribution clause?

A

Clause that limits a party’s liability proportionate to that which they caused.

46
Q

How can an employer potentially lose out on net contribution clauses?

A

They have to sue each party for their contribution to losses.
If one party is insolvent they will lose out.

47
Q

Relevant legislation to net contribution?

A

Unfair contract terms act 1997.

48
Q

Main sources of guarantee that can be sought?

A

Bond
Parent Company Guarantee

49
Q

What is a bond?

A

An agreement between three parties in favor of the Employer.

Surety bond is a guarantee from the surety that the contractual obligations of the principal will be fulfilled to Employer.

Guarantees financial compensation up to stated value, does not guarantee completion of works.

50
Q

What does a bond contain?

A

Common to be a deed.
Will include a time period (usually up to PC)
A financial limit.

51
Q

Who provides a bond?

A

A bank. For a premium.

52
Q

What is a parent company guarantee?

A

Contractual performance of company within a group underwritten by other members of the group.

Duty to complete works or pay financial equivalent.

53
Q

Most commonly used bond in industry?

A

Performance Bond

54
Q

Tell me about performance bonds?

A

Bond for where employer can recover cost in event of contractor default.

Two types: On demand (cash called up front) or conditional (proven through adjudication)

Usually at 10% of contract value. Premium for taking bond will be added to contract value.

Most commonly used form of Bond.

ABI prepares a standard form.

Usually a time limit applied - Normally up to PC.

Cost of bond typically relates to contractors stability.

55
Q

Tell me types of bonds under JCT

A

Retention Bond
Materials off Site Bond
Advance Payment Bond

56
Q

Tell me about retention bonds

A

Used where retention deducted from interim payments is not preferred. Assists with contractor cashflow.

Bond will be equivalent to retention total (usually 3%)

57
Q

Purpose of an advance payment bond?

A

Used when a contractor is faced with high up front costs.
Guarantee that the contractor will repay the Employer in the event of default.

58
Q

Difference between a bond and a guarantee?

A

Bond - tripartite agreement between employer contractor and surety.

Guarantee - written undertaking to cover performance of an obligation (performance or payment)

59
Q

Would you recommend a PCG or Bond?

A

PCG - Employer pays for bonds. PCG ensures parent company has a vested interest in the project. Bond usually has a limit of 10%.

60
Q

What is the cost of a performance bond?

A

Depends on the contractors stability. Will be added to the contract sum through prelims.

61
Q

Relevant events not entitling contractor to loss and expense?

A

Statutory authorities
Exceptionally adverse weather
Specified perils
Civil commotion / terrorism
Strike action
Exercise of statutory power
Force majeure

62
Q

What is Insurance?

A

The transfer of defined risks in exchange for a premium.

63
Q

Name the Insurances under the JCT

A

Employers Liability (6.4)
Public Liability (6.4)
Non-negligence (6.5) NOT IN MW
Contractors All Risks (6.7)
Terrorism cover (6.10/11) NOT IN MW
Professional indemnity 4 contractors work (6.12)

64
Q

Other insurances that could be recommended to client?

A

Latent defects insurance - to avoid suing contractor or if contractor no longer exists.

65
Q

What are the two main types of insurance?

A

Liability: Cover for legal liability the insured party owes to others.
Loss: Cover for the losses falling directly on the insured party.

66
Q

What does ‘joint names’ mean?

A

Where employer and contractor (including subcontractors) are insured under the same policy.

67
Q

Where are insurance requirements dealt with in JCT standard building contract?

A

Section 6 and schedule 3

68
Q

What does contractor have to indemnify client from?

A

Injury or death to persons on site or passed by it.
Loss or damage caused to property (excluding works)

69
Q

What parts of work are included in the indemnity for damage to property?

A

Works that have achieved practical completion, sectional completion or partial possession.

70
Q

Options for insuring the works under the JCT

A

Three options:

A: NEW WORKS BY CONTRACTOR
B: NEW WORKS BY EMPLOYER
C: WORKS TO EXISTING STRUCTURE BY EMPLOYER

71
Q

Describe JCT insurance option A

A

Contractor takes out insurance policy.
It is joint names.
It is for new works.
contractor takes risk of cost uplift if the reinstatement cost does not cover it.

72
Q

Describe JCT insurance option B

A

Employer takes out insurance policy.
It is in joint names.
It is for new works.
Usually for frequent developers who might benefit for lower premiums.
Employer takes risk of cost uplift if the reinstatement cost does not cover it.

73
Q

Describe JCT insurance option C

A

Employer takes out insurance policy.
It is in joint names.
For works to existing structures.
New works to be insured for all risks and specified perils.
Existing structure only need be insured for specified perils.

74
Q

What risks excluded from all risk insurance?

A

Defective property due to wear and tear
War, invasion or revolution etc.

75
Q

What is terrorism cover?

A

Insurance provided in joints name for physical loss or damage arising out of terrorism.

76
Q

Factors to consider when calculating LADs

A

Loss of rent or delayed profit on sale
Additional financing charges
Additional supervision and administration costs
Rent of alternative premises
Additional professional fees

RICS APC PM (25 decks)

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