Contract Practice

Question 1

What is a contract?

Answer 1

A contract can be simply defined as a “legally binding agreement or bargain between two or more parties”

Question 2

Define “express terms”?

Answer 2

Are those that have been explicitly agreed by both parties and can be oral or in writing

Question 3

Define “implied terms”?

Answer 3

Those terms which are implied by law

Question 4

What 6 conditions need to be met for a contract to be in place?

Answer 4

1. Offer by one party
2. Acceptance by the other party
3. Consideration of the offer
4. Intent to form a contract
5. Legality of contract
6. Capacity to make agreement

Question 5

What is a letter of intent?

Answer 5

A letter of intent is a document expressing an intention to enter into a contract at a future date but creates no contractual relationship until that future contract has been entered into. A letter of intent is not an ‘agreement to agree’.

Question 6

What should a LOI include?

Answer 6

• Client authorisation to the contract administrator to represent them.
• Acceptance of the contractor’s offer and definition of the project.
• The agreed contract sum.
• Reference to the tender documents and subsequent amendments (with dates).
• Instruction to proceed on a certain date.
• Site possession date.
• Contract completion date (including details of any phases).
• A full description of the proposed form of contract, including warranties and performance bonds.
• A fall-back date for signing the contract (this is important, as beyond a certain time in the progress of the works it may no longer be in the interests of the contractor to sign the contract).
• Direction as to whether the contract will be executed by Deed, under seal or under-hand.
• Restriction of the work authorised by the letter of intent, by proceeding with which the contractor has fully accepted the terms of the letter of intent.
• Terms and provisions for cancelling the letter and determining the works at any time prior to signing the full contract - specifically, the terms will limit the client’s liability for costs and exclude claims for loss of profit, opportunity, good will, indirect or consequential losses.
• Provision for the contractor to have access to the site under licence only, with no (tenancy) rights to possession and limited rights described in a separate licence that sets out conditions and the licence period.
• Client and agents access provisions during the licence.
• Insurance provisions and indemnification.
• Agreement that there are no rights to assign the works.
• Disputes resolution procedures.
• Liquidated and ascertained damages to be applied to late completion

Question 7

Process after a letter of intent

Answer 7

• Both parties should agree a formal contract as a matter of urgency.
• Both parties should agree key dates and get regular, perhaps weekly cost updates to ensure limitation periods and monetary caps set out in the letter of intent are not exceeded.
• Employers should not allow work to continue when a letter of intent has expired.
• Contractors should not incur any costs in excess of any financial caps stated in the letter of intent without getting the employers agreement before doing so.

Question 8

What are the advantages of a LOI?

Answer 8

Allows work to commence before the contract is finally agreed (programme benefits)

Question 9

What are the disadvantages of a LOI?

Answer 9

1. May lead to complacency and dis-incentivise them to sign the main contract
2. Less robust than a main contract
3. No protection if contractor becomes insolvent

Question 10

In what circumstances might a LOI be used?

Answer 10

1. Where the employer needs to commence works before a certain date
2. Where there are materials with long lead in times and it would aid the programme

Question 11

Who issues the LOI?

Answer 11

Employer

Question 12

Who signs the LOI?

Answer 12

Both the employer and contractor

Question 13

What are the different types of letters of intent?

Answer 13

1. Comfort letters
2. Instructions to proceed with consent to spend
3. Letters recognising the existence of a binding contract(s).

Question 14

What is a Parent Company Guarantee?

Answer 14

A parent company guarantee is a guarantee by a parent company of a contractor’s performance under its contract with its client, where the contractor is a subsidiary of the parent company

Question 15

What does JCT stand for?

Answer 15

The Joint Contracts Tribunal - suite of contracts is made up of ‘families’ of standard forms, guidance and other documents that are suitable for the majority of construction projects and procurement methods.

Question 16

Name the most common JCT Contracts?

Answer 16

• JCT Standard Building Contract
• JCT Intermediate Building Contract
• JCT Minor Building Contract
• JCT Design & Build Contract
• JCT Management Building Contract
• JCT Construction Management Contract

Question 17

What is the difference between CA & EA

Answer 17

CA = SBC
EA = D&B

Question 18

What are common contract JCT standard documents?

Answer 18

1. Conditions of contract and any amendments to standard forms
2. Preliminaries
3. CSA
4. Drawings & Specifications
5. Existing building information
6. Contractors proposals for CDP work

Question 19

What determines the type of JCT contract to be used?

Answer 19

1. Size, value & type of project
2. Need for contractor design
3. Cost certainty
4. Time constraints
5. Risk ownership

Question 20

When would you use a JCT Minor works?

Answer 20

• Small, simple and short duration projects
• Guidance is for a value up to £150k

Question 21

When would you use a JCT Intermediate contract?

Answer 21

• Where proposed building works are of simple content involving normal, recognised basic trades
• Usually for values between £250k to £1m
• Recommended for projects that do not exceed one year duration

Question 22

When would you use a JCT Standard with quants?

Answer 22

For larger works designed and/or detailed by or on behalf of the employer. Employer is to provide the contractor with drawings and BoQ

• Usually for contracts +£1m
• Work has already been designed

Question 23

When would you use a JCT Standard without Quants?

Answer 23

Larger works designed by the employer. Employer is to provide drawings and specification

• Work has been designed prior to contract but no BoQ
• Lump sum contract
• Contractors risk includes price and quantity

Question 24

When would you use a JCT Standard with approximate quants?

Answer 24

Larger works designed by employer. Employer to provide contractor with spec and drawings with approximate BoQ

• Re-measurement contract
• No Contract Sum

Question 25

When would you use a JCT Major Works?

Answer 25

Usually contracts +£30m
Projects that are significant in both size and quantity

Question 26

When would you use a JCT D&B?

Answer 26

Where detailed contract provisions are necessary and employers requirements have been prepared.
Contractor required to carry out design and works

Question 27

What is acceleration?

Answer 27

Acceleration is the process of speeding up the work of a contractor so that a particular activity, or the project as a whole, can be completed before the date required under the contract.

Question 28

What acceleration techniques are there?

Answer 28

• Working overtime
• Adding new shifts
• Additional labour

Question 29

JCT: What are the employers obligations under the contract?

Answer 29

1. To make payment against certificates when presented
2. To provide possession of the site
3. Not to prevent or hinder the contractors ability to complete the works

Question 30

What is the role of the QS under a traditional contract?

Answer 30

1. Interim valuations
2. Valuing variations
3. Prepare statement of final account
4. Ascertaining loss and expense (if directed)
5. Only use rates in priced document for purposes of the contract
6. The QS has no contractual status in D&B

Question 31

JCT: What is the role of The Clerk of Works under the contract?

Answer 31

Merely to inspect the works

Question 32

JCT: What is the role of the Contractor under the contract?

Answer 32

1. Construct the works in accordance with the contract documents
2. Carry out works regularly and diligently
3. Health & Safety
4. Take out insurance, bonds, warranties as required

Question 33

What is a Relevant Event?

Answer 33

A relevant event is an event that causes a delay to the completion date, which is caused by the client, or a neutral event not caused by either party. The contract should set out what constitutes a relevant event. Relevant events entitle the contractor to claim an extension of time; that is for the completion date to be moved.

Question 34

What are the Relevant Events in the Contract?

Answer 34

1. Variations.
2. Exceptionally adverse weather.
3. Civil commotion or terrorism.
4. Failure to provide information.
5. Delay on the part of a nominated sub-contractor.
6. Statutory undertaker’s work.
7. Delay in giving the contractor possession of the site.
8. Force majeure (such as a war or an epidemic).
9. Loss from a specified peril such as flood.
10. The supply of materials and goods by the client.
11. National strikes.
12. Changes in statutory requirements.
13. Delays in receiving permissions that the contractor has taken reasonable steps to avoid

Question 35

What is Force Majeure?

Answer 35

Unforeseeable circumstances that prevent someone from fulfilling a contract

Question 36

How is a Relevant Event notified?

Answer 36

• The cause of the delay - detail of how and why the delay is occurring or likely to occur (must state one of the relevant events)
• The estimated effect on completion - the contractor should also give an estimate of delay in their notice so the the CA can form their own opinion
• The clauses on which the contractor relies in requesting an EoT
• The contractor is required to prevent or mitigate the delay and any resulting loss, even where the fault is not of their own

Question 37

What happens when a relevant event occurs?

Answer 37

• Upon it becoming reasonable apparent that a delay will occur, the contractor notifies the CA in writing
• CA responds within 12 weeks stating whether a relevant event has occurred. If so, a new completion date is fixed (EOT)

Question 38

What is a Relevant Matter?

Answer 38

A relevant matter is a matter for which the client is responsible that materially effects the progress of the works. This enables the contractor to claim direct loss and / or expense that has been incurred.

Question 39

Can you give some examples of Relevant Matters?

Answer 39

Relevant matters might include:
1. Failure to give the contractor possession of the site.
2. Failure to give the contractor access to and from the site.
3. Delays in receiving instructions.
4. Opening up works or testing works that then prove to have been carried out in accordance with the contract.
5. Discrepancies in the contract documents.
6. Disruption caused by works being carried out by the client.
7. Failure by the client to supply goods or materials.
8. Instructions relating to variations and expenditure of provisional sums.
9. Inaccurate forecasting of works described by approximate quantities.
10. Issues relating to CDM.

Question 40

What is prolongation?

Answer 40

Prolongation costs are those time-related costs incurred by the Contractor as a result of critical delay to the Works (and therefore an extension of the contract period) for which the Contractor is not responsible

Question 41

What is loss and expense?

Answer 41

Term often used to describe the additional costs incurred by a contractor as a result of disturbance to the regular progress of the works caused by matters either within the employer’s control or by breaches of contract by the employer.

Question 42

How would you assess a claim for loss and expense?

Answer 42

1. Prolongation costs (overheads & loss of profit)
2. Finance charges
3. Disruption

Question 43

Once loss and expense if ascertained, how is it added to the contract sum?

Answer 43

1. It should be added to the contract sum immediately and paid in the next interim certificate
2. It is not subject to retention

Question 44

What is a Pre-Construction Services Agreement?

Answer 44

A Contract between the employer and contractor for pre-construction services

• Documents the services that the contractor is to perform before entering into the building contract and identifies the terms and conditions under which these services are to be performed

Question 45

When are pre-construction services usually used?

Answer 45

1. In a two-stage approach to facilitate early contractor involvement
2. They are signed after the first stage and cover the period until completion of the second stage

Question 46

What should be taken into account in the wording of a PCSA?

Answer 46

1. Ensure that the arrangement does not commit the employer to enter into the building contract
2. Ensure that they are only obliged to pay for the documented services and nothing else
3. State the employer may decide at their own discretion whether to appoint the contractor at the end of the second stage or whether they are even to proceed at all