Contract Practice Flashcards
1
Q
What is included within the contract documents for a project?
A
- Building Contract, Articles of Agreement
- Schedule of Amendments
- Design / Drawings
- Employer’s Requirements / Contractor’s Proposals (if relevant – D&B/CDP)
- Contract Sum Analysis
2
Q
Who are the key parties involved in construction contracts?
A
Employer
Contractor
Contract Administrator (Standard Building Contract)
- Expected to maintain impartiality whilst administering
- Contractor must comply with their instructions
Employer’s Agent (Design and Build Contract)
- Contractor must comply with their instructions
Quantity Surveyor
- SBC: Party to the contract
- DB: Not party to the contract but expected to maintain impartiality if involved in administering/
3
Q
What is the role of the QS in construction contracts?
A
- Value variations
- Ascertain loss and/or expense
- Carry out interim valuations
- Prepare the final account
4
Q
What is the Contractor’s obligations in construction contracts?
A
The contractors obligations are identified in clause 2.2 of the JCT SBC and clause 2.1 of the JCT DB contract.
- Complete and carry out the works in a proper and workmanlike manner
- All materials and goods are of the standard described in the specification / Employer’s Requirements.
- Give all notices required by the Statutory Requirements and comply.
5
Q
What is the clients obligations in construction contracts?
A
- Payment of the contractor on time
- Do not disturb the contractor from working with reasonable skill and care.
6
Q
What are the five key elements for contract formation?
A
- Offer
- Acceptance
- Consideration
- Capacity & Competence
- Intention to Create Legal Relations
7
Q
How are construction contracts executed and what are the main differences?
A
- A contract can be executed as a deed or under hand.
- The principle difference is the party’s liability period for breach of contract.
- 12 years if executed as a deed, 6 years if executed under hand.
8
Q
What is a standard form of contract?
A
- Set of formal, pre-determined arrangements and mechanisms that form the basis of agreement between parties.
9
Q
What are the typical amendments made to standard forms of contract?
A
- Transfer risk to the contractor by reducing the list of relevant events / matters
- Final date for payment due to contractor lengthened, from 14 to 28.
- Rectification Period extended from 6 months to 12 months
10
Q
What are the types of contract under traditional procurement?
A
- Lump sum contract, where contractors agree to execute the work for a fixed total sum of money.
- Re-measurement contract, Where the contract sum is not finalised until after completion but is assessed on re-measurement to a previously agreed basis.
- Cost Reimbursement Contract, Where the sum is arrived at on the basis of prime costs of labour, plant and materials to which there is an added amount of OHP.
11
Q
What are the types of contract under design & build procurement?
A
- Turnkey Contract, Where the Client settles on a complete package (ready to move in) to a specification of a commercial firm.
- Design & build contract, Employer’s requirements will be written stating the Contractor’s design obligations for the whole of the works.
12
Q
What is the difference between JCT and NEC contracts?
A
- NEC references compensation events as events which may entitle a Contractor to claim both additional time and additional costs, whereas JCT differentiates Relevant Events and Relevant Matters.
- JCT contains provisional sums whilst the NEC does not.
- The activity schedule is a key contractual document of the NEC and is to be updated regularly.
13
Q
When is the JCT SBC used and who is responsible for administrating the contract?
A
- Designed for use when traditional procurement route has been chosen.
- CA and QS administer the performance of the contractual obligations.
14
Q
What are the types of contract under the SBC?
A
Standard Building Contract with Quantities
- Fixed price lump sum contracts with monthly interim payments.
Standard Building Contract without Quantities
- Contract Sum Analysis completed by Contractor defines the work.
Standard Building Contract with Approximate Quantities
- Re-measurement contracts are used in situations where the design/type of works can be described in reasonable detail but the amount cannot be given
15
Q
What is a SBC with contractors design portion?
A
- Option that allows the employer to require the contractor to design discrete parts of the works but not whole majority (otherwise DB might be more appropriate).
16
Q
When is the JCT Minor Works contract used and who is responsible for administrating the contract?
A
- Designed for use when traditional procurement route has been chosen.
- Used on smaller, lower value, more basic, shorter programme construction projects.
- Architect/CA and QS administer the performance of the contractual obligations.
17
Q
What are the types of contract under the the Minor Works Contract?
A
Minor Works Building Contract
- Fixed price lump sum contract with interim monthly payments
- Employer must provide a pricing document, drawings and specifications to specify the quantity and quality of work
Minor Works Building Contract with Contractor’s Design
- Employer must detail the requirements for the parts of work that contractor is responsible for designing.
18
Q
When is the JCT Design & Build contract used and who is responsible for administrating the contract?
A
- Designed for use when design and build procurement route has been chosen.
- DB projects can vary in scale but are generally suitable where detailed provisions are needed.
- The EA administers the performance of the contractual obligations.
19
Q
What are the Employer’s Requirements in a DB contract?
A
- Details what the employer requires from the completed project and the required level of design responsibility from the contractor.
- Scale of design work can vary: contractor may be required to complete the design produced by a design team or they might be required to carry out all of it.
20
Q
What are the Contractor’s Proposals in a DB contract?
A
- Design prepared in response to employer’s requirements.
- Set out their proposals for designing and constructing the project, along with their price.
21
Q
What is Novation?
A
- Parties may agree that the design team initially engaged by the employer should be transferred from the employer to contractor to complete the design
- DB contract will require amendments as the standard contract does not provide provisions for novation.
22
Q
What are the key differences between standard building contracts and DB contracts?
A
- Full design at tender stage with a SBC, whereas a DB could range from simple set of ER’s to full design.
- Client retains control over design in SBC so quality is perceived to be higher.
- CA in a SBC and EA in DB.
23
Q
What are the Recitals under JCT contract suites?
A
- Recitals contextualise the agreement, giving factual explanations for the basis of the contract.
- The Recitals include:
24
Q
What are the Articles under JCT contract suites?
A
- The Articles set out what is agreed between the parties.
- The Articles include:
25
What are the Contract Particulars under JCT contract suites?
- Sets out the aspects of the contract that are specific to the project.
- For example the retention, completion dates and insurance requirements.
26
What are the Attestation under JCT contract suites?
- The attestation is the process of confirming that something is correct or genuine.
- This is how the contract is executed, either under hand or as a deed.
27
What are the Supplemental Provisions under JCT contract suites?
The Supplemental Provisions ensures the specific project requirements or risks are addressed.
They can include:
28
Who is the contract administrator and what is there role?
- Appointed by the Client to act on their behalf and responsible for administering the construction standard contracts.
- Role can include forming Contract Documents, Managing contract changes and monitoring the progress of works
29
Who is the employers agent and what is there role?
- An employers agent acts on behalf of the client as the contract administrator for design & build contracts.
- Issuing instructions, Managing change control procedures, Reviewing the progress of the works and preparing reports for the client.
30
What is deferment of possession under SBC clause 2.5?
- Stated in the CPs that the Employer may defer giving possession without the consent of the Contractor.
- If possession is deferred, the Contractor may claim an EoT and direct loss and/or expense.
31
what is a letter of intent (LOI)?
- Expression of the intention to enter into a contract at a future date.
- Does not create a contractual relationship but where there are good reasons to start work in advance of formalising the contract.
32
What is early use by the employer under SBC clause 2.6?
- Contractual mechanism whereby the Employer may, with the Contractor’s consent, use or occupy the site/part of the site before the date of issue of the Practical Completion.
33
What is section completion under a SBC?
- Express term of the contract that allows different dates for Practical Completion to allow the Client to take possession of the completed parts of the site whilst construction continues on the others.
34
What is the difference between partial possession and section completion?
- Sectional Completion is stated in the Contract Particulars however partial possession relies on the contractor’s agreement to allow the employer to take possession.
35
What is acceleration?
- To increase the planned or current rate of progress in order to complete the project earlier than would otherwise be the case.
36
What is Extension of Time under SBC clauses 2.27-2.28?
- A mechanism by which a contractor requests a longer period than had been contractually agreed in order to complete the building works.
- The contractor must give written notice to the CA identifying the relevant event that has caused the delay.
37
What are the relevant events?
Situations which entitle the Contractor to an Extension of Time.
- Variations/changes that effect the critical path.
- Deferment of giving possession of the site
- Employers failure to perform his obligations
- Force Majeure
38
What is meant by the term ‘Time at Large’?
- Contractor is no longer obligated to complete the works by a particular date.
- Contractor would be expected to complete the works in a "reasonable timeframe" however what is reasonable is decided on a case by case basis.
39
What are reasons for 'Time at Large’ arising?
- Where clauses describing relevant events do not cover all eventualities.
- For example, Event that is not relevant – miss completion date – time at large – can’t claim LDs as no enforceable completion date.
40
What is the rectification period?
- Time when the contractor may be recalled to rectify defects which appear following practical completion.
- Typically 12 months is stated to encounter all seasons. CPs state that 6 months applies if no other length is stated.
41
What is retention within a contract?
- Percentage of each interim certificate that is deducted to be retained by the employer as a safeguard against defective work or materials provided by the Contractor.
- Provides an incentive for the contractor to complete the works promptly by ensuring defects is rectified.
42
What is the standard retention percentage and when is it released?
- Under a SBC and DB contract the retention is 3% unless otherwise stated.
- Half retention is issued back when a Practical Certificate has been issued.
- The remainder is released when the rectification period or defects liability period has expired, typically 12 months.
43
What is the contract sum?
- Price agreed by the Employer to pay the Contractor to carry out the works.
- Entered into the contract at Article 2.
44
What is the base date within a contract?
- A 'base date' within a contract is a reference date from which changes in conditions can be assessed.
45
What are stage payments (Alternative A) under DB clause 4.7.1?
- Payment of agreed amounts on agreed dates or milestones.
- The Work stages will be identified in the Contract Particulars.
46
What are interim payments (Alternative B) under DB clause 4.7.1?
- Contractor submits an application for payment and the work is valued by the QS based upon the value of work executed by the Contract by that date.
- This is a Default option (DB). Only option (SBC).
47
What are the reasons for interim payment?
Under HGCRA 1996 any contract in excess of 45 days is entitled to interim/stage payments.
- To relieve the Contractor of the burden of financing the whole of the works until completion.
48
What are the timescales for interim payment?
- under a SBC the Interim Valuation Date is stated in the Contract Particulars.
- If no date is stated, the first Interim Valuation Date is one month after the Date of Possession
- Each Interim Valuation Date is the same date in each month or the nearest business day in that month
49
What must the contractors payment application include?
- Gross valuation and net valuation
- Details showing how the sum has been calculated
- Deduction of retention
- Deduction of advanced payments
- Deduction of the sum of previous certificates and any other payments since.
50
What is an interim valuation?
- Total value of the work executed, materials on site and any other amounts payable under the contract.
- Made by the QS to provide advice to the certifier (CA/EA) for the issue of interim certificates and payment notices.
51
Describe the QS assessment process after receiving the contractors interim application?
1. Ascertain works are in accordance with the contract
2. Make a fair assessment of the value of the works carried out.
3. Ascertain valuation ensuring any deductions required are accounted for
4. Check valuation (comp check)
5. Assemble associated documentation (issue letters for the Employer and Contractor)
6. Issue recommendation to CA/EA
52
When conducting a valuation, what are the key areas that are to be assessed within the application?
- Preliminaries
- Main contract works
- Materials on-site
- Materials off-site
- Agreed variations
- Retention
53
What is the due date within a contract?
- Due date is the target date by which the QS must make their interim valuation recommendation
54
What is the interim certificate?
- Provides a mechanism for the client to make payments to the contractor before the works are complete.
- Issued by the CA/EA to both the Contractor and Employer and QS. Must be issued within 5 calendar days from the due date.
55
What is the final date for payment?
- Date by which the Employer must pay the Contractor the amount stated in the Interim Certificate.
- The period of 14 days from the due date for the final date for payment can be amended. This is because it is prescribed by the Contract and not by statute.
56
What is a pay less notice and when might it be issued?
- A method of notifying the other party that they intend to pay less than the sum stated on the interim certificate or interim payment notice.
- can arise if works have not been constructed in accordance with the contract.
57
What are the valuation rules within a contract?
- Valuation rules apply to all works instructed by the CA/EA, all variations and any expenditure of provisional sums
- Works can either be valued based on measurable works or day works dependent on the nature of the variation
58
What are the valuation rules for measurable works?
There are three rules for measurable work:-
- If it is of a similar character, quantity and in the same conditions as existing work, then the bill rates should be used.
- If it is of a similar character, but different quantity or conditions, the bill rates should be used as a basis but a fair allowance should be made to take account of the difference.
- If it is not of a similar character, fair rates and prices should be used.
59
What are the valuation rules for dayworks?
- Used when variations cannot be valued in another way.
- Valued based on the prime cost of carrying out the works at the current base date including any additional percentages as identified in the Contract Particulars
60
What is loss and expense?
- L&E reimburses the contractor for direct loss and/or expense incurred in carrying out additional work or from an employer’s breach of contract.
61
What are Relevant Matters under JCT Forms of Contract?
- Events listed in the Contract that entitle the contractor to loss and/or expense
62
What are the relevant matters?
- Variations.
- Instructions.
- Suspension by the contractor for non-payment.
- Any impediment or default by the employer.
63
What are the common heads of claim in loss and expense applications?
- Prolongation.
- Increasing of preliminaries.
- Increases in labour or material costs
- Loss of profit.
64
What is the final account and who is responsible for it?
- Mechanism for the final payment to be made to the contractor on completion of the works described in the contract.
- Employer’s Quantity Surveyor assesses the final account and recommends a figure to the CA to include within his final certificate.
65
What are the typical headings included in a final account statement?
- Agreed Contract Sum
- Variable costs i.e. provisional sums, daywork
- Contract Instructions.
- Loss and Expense.
- Risk Allowances.
66
What is a breach of contract?
- If the one of the parties to a contract fails to perform as required by the contract, this may constitute a breach of contract.
67
What are the three types of a breach of contract?
Minor Breach = Less serious breach where the innocent party may claim for damages but not consider it is discharged from further obligations under the contract
Material Breach = Serious breach where the innocent party might claim damages and also consider that it is discharged from any further obligation under the contract
Repudiatory Breach = Where one party behaves in such a way that it indicates it no longer intends to accept its obligations under the contract therefore the innocent party can claim damages and terminate the contract
68
What are liquidated Damages (LDs)?
- Genuine pre-estimate of loss suffered by the Employer as a result of non-completion.
69
What are the rules regarding LDs and how are they calculated?
- LD's cannot be punitive (a penalty to the Contractor), must be a realistic pre-determination of the actual loss the Client is likely to incur.
- Generally incurred on a daily or weekly basis.
- QS not qualified or insured to calculate LDs but can inform of what they are and the principles / considerations of their calculation
70
What are the advantages of LDs?
- Limit liability of the Contractor to a known amount and act as an incentive for completion.
71
What are the grounds for termination of a contract by an employer under a SBC?
Default by the Contractor = contractor suspends carrying out the works
Insolvency of the Contractor
Corruption of the Contractor = Under Bribery Act 2010, Applies to any Contractor or any person employed by him or on his behalf.
72
What are the grounds for termination of a contract by a contractor under a SBC?
Default by Employer = Does not pay amount due (plus VAT) by final date for payment.
Insolvency of the Employer
73
Which insurance provisions are expected under SBC clause 6.4?
The contractor is expected to have insurance against personal injury and property damage. This is usually satisfied by:
- Public liability Insurance – covers the liability for damages arising from injury to third parties or damage to their property in connection with the project.
The Contractor must, on demand, provide evidence of the policy. Amount is expected to be at least the value of the project
74
Under SBC clause 6.5 what is the insurance of liability of Employer?
- It requires insurance to be arranged, in the joint names of the employer and contractor, to protect the employer from legal liability for injury or property damage – other than damage caused by negligence
- Cover to protect in the case where the Contractor has taken all reasonable measures to prevent the event from occurring but it does arise.
75
What are the insurance options under SBC clause 6.7?
Option A: New Buildings – All Risks Insurance of the Works by Contractor.
Option B: New Buildings – All Risks Insurance of the Works by Employer.
Option C: Refurbishments – Joint Names Insurance by the Employer of Existing Structures and Works in Extensions to them.
C.1 Replacement Schedule
76
Give an example where insurance Option A might be used?
- For use on a new build project where the contractor is required to take out the insurance for the works.
- E.g. they undertake a lot of construction work and so can add it onto existing policies at a low premium.
77
Give an example where insurance Option B might be used?
- For use on a new build project where the employer elects to take out the insurance for the works.
- E.g. they undertake a lot of construction work and so can add it onto existing policies at a low premium.
78
Give an example where insurance Option C might be used?
- For use where the construction work is going to take place within an existing structure. This will include fit-out or refurbishment works.
79
Give an example where C1 replacement schedule might be used?
- This would be used when the Employer is the tenant of a landlord and the Landlord takes out the building insurance therefore it is not a simple addition to the Employer’s existing insurance.
- Usually to state the responsibility is on the Contractor under their public liability insurance.
80
What is professional indemnity insurance under SBC clause 6.15 and why is it required?
- Taken out by anyone providing design and the Contractor if he provides CDP/DB.
- Various members of design and construction team will have their own insurance policy to indemnify them against liability for professional negligence.
81
What is the joint fire code and when would it apply?
- Sets out a series of provisions and standards to minimise the risk of accidental or malicious fires on site.
- Not mandatory however is stated within clause 6.17 to state whether or not it applies.
82
What are collateral warranties?
- A collateral warranty creates a contractual relationship where otherwise one would not exist.
- Provide for a duty of care to be extended by one of the contracting parties to a third party who is not party to the original contract.
83
What are bonds in construction contracts?
- Bonds are a means of protection against the non-performance of the contractor.
- They are an undertaking by a bondsman or surety to make a payment to the client in the event of non-performance of the contractor.
84
What are on-demand bonds and conditional bonds?
- On-demand bond entitles the beneficiary to call upon the surety for payment whether or not there has been any default by the contractor under the principal contract.
- Conditional bond is where the employer must prove evidence that Contractor has not performed obligations and that they have suffered a loss as a consequence.
85
what is a performance bond?
- Means of insuring an Employer against the risk of a Contractor failing to fulfil contractual obligations.
- In the case of Contractor insolvency the bond finances the Employer to re-tender or negotiate to get another Contractor on site.
86
What is a parent company guarantee?
- Provided by a contractor's parent company in connection with the contractor's obligations.
- Can be preferable to performance bond considering there is no additional fee and also the parent company will step in to do the works rather than money and hassle of claims.
87
What is the difference between an EA and CA
- EA in D&B and CA in standard contract.
- The employer's agent represents the employer and manages the overall project, while the contract.
- Administrator focuses on overseeing the contract between the employer and the contractor.
88
What are the different NEC contract options?
NEC3 Engineering and Construction Contract (ECC):
Option A: Priced contract with activity schedule
Option B: Priced contract with bill of quantities
Option C: Target contract with activity schedule
Option D: Target contract with bill of quantities
89
What is the difference between Novation and Assignment?
- Novation involves a complete transfer of rights and obligations to a new party.
- Novation results in a substitution of parties.
- While assignment involves transferring specific rights or benefits to another party while retaining the original party's contractual obligations.
- while assignment allows for the sharing of rights between parties.
90
Why did the design team monitor rather than novate to the contractor
- By keeping the design team separate from the contractor through monitoring, rather than novation, maintains their objectivity.
- Furthermore, this safeguards the client's interests, and enhances risk management during the design and build process.
