Contract Practice Flashcards
What is the difference between defect liability period and the limitation period?
The expiry of the DLP does not provide a defence to any claims for breach of contract. On the contrary, it would be unusual for the client to sue the contractor within the DLP unless the contractor had made clear his refusal to carry out the remedial works requested.
The limitation period is for breaches of contract and are at 6 years or 12 years depending if it the contract is underhand or by deed.
How do you define practical completion?
Completion of all works described in the contract. Not limited to physical works but also include documentation such as certificates, operation and maintenance manuals and health and safety files.
What happens at practical completion?
+ The client takes possession and control of the building
+ Cessation of any further liability for delay damages, whether liquidated or unliquidated
+ Risk of loss or damage to the works passes to the client, which therefore terminates any further requirement on the contractor to insure and secure the works
+ Commencement of a defects liability, rectification or maintenance period
+ Milestone payment or release of retention monies
+ Obligations under third party agreements such as funding arrangements, bonds, guarantees, leases, sale agreements etc.
What would happen if there is a disputed completion date?
The CA/EA will need to certify the completion. If there is a disagreement, the contractor can try to persuade the client representative however if this does not work, the best course would be adjudication.
The contractor would need to have very detailed records for being able to prove they completed the works at a prior date.
What are consequential damages?
Any costs incurred that would have not if the negligent party had performed their contractual role properly. As long as the impact of the delay was not reasonably foreseeable at the time of contract then the claimant is entitled to the consequential damages.
What is consequential damage?
Any costs incurred that would not if the contracting party had carried out their obligations properly. If the damages were not foreseeable at the time of the contract then the claimant is entitled to claim.
Generally excluded on loss and expense claims are they are only for ‘direct loss’.
What is the summary list of relevant events?
- Changes such as variations and instructions
- Delay in receipt of any permission or approval for the purposes of development control requirements and deferment of possession of the site
- suspension
- works by statutory undertakers
- exceptionally adverse weather
- civil commotion
- terrorism and strikes
- any impediment, prevention or default, whether by act of omission by employer
What are the relevant matters for a loss and expense claim?
Where matters are either the fault of the employer or where the employer bears the risk.
- Failure to give contractor possession of the site
- Failure to give the contractor access to and from the site
- Delays in receiving instructions
- Discrepancies in the contract document
- disruption caused by works being carried out by the employer
- failure by the client to supply goods or materials
- instructions relating to variations and expenditure of provisional sums
- issues relating to CDM
What are the heads of claim for loss and expense?
Prolongation costs General disruption Finance charges Loss of profits Wasted management time
What are the provisions under the Construction Act? (HGCRA 96)
o The right to be paid in interim, periodic or stage payments.
o The right to be informed of the amount due, or any amounts to be withheld.
o The right to suspend performance for non-payment.
o The right to adjudication.
o Disallowing pay when paid clauses.
When does a claim for loss and expense need to be completed by the contractor for the claim to be valid in JCT?
No longer than 2 months after it became apparent the works would be affected.
What is included within prolongation costs on a loss and expense claim?
Site set up costs - only where additional plant is brought on site or inflation costs which are not reimbursable under fluctuation clauses.
Removal costs
Additional hire charges
Additional running charges
What is the Hudson and emden formula?
Used to assess the OH and P in a loss and expense claim. Looks at calculating this using the contract sum, period of delay and the OHP %.
This is only used if actual costs for OHP are not calculated. This can be calculated by time records and sheets, proof of payments and details showing build up of general head office overheads.
What are the changes from JCT 2011 to 2016?
- introduction of the IVD to make sure all payments in the supply chain are at the same time each month
- Valuations after PC now every month rather than every 2 months
- Incorporation of CDM Regs 2015
- provisions for performance bonds and PCG
- Insurance with existing structures - Option C
- Incorporates BIM.
When are NEC contracts used?
To date NEC has most often been used for infrastructure and building contracts, most specifically in the UK, South Africa, Hong Kong and New Zealand. The contracts are designed for worldwide application. Known for helping to improve project management, they can be used in any sector.
Are you aware of on demand and conditional bonds?
The essential difference between an ‘on-demand’ bond and a ‘default’ bond is that, under an ‘on-demand’ bond, the employer does not have to prove default. Provided that they can show that they have complied with the conditions for ‘demanding’ the bond, the employer can call on it. This is not true of a default bond where the employer must prove that the conditions necessary to call on the bond have been met.
What are the different valuation types?
Activity schedule in terms of percentage achieved orcompletionof theactivity.
Milestonesreached on a pre-agreedprogramme.
Measurementagainst abill of quantities.
Stagepaymentsagainst calendar dates.
What are the NEC options?
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
Option E: Cost-reimbursable contract
Option F: Management contract
What is a bond?
Bonds are undertakings given by one party - a bondsman - to another to pay money if a third party defaults.
What are construction security methods?
Parent company guarantee Bonds Collateral warranties Third party rights Direct agreements Payment security methods
When are on demand bonds used?
- Advance payments - used when the employer makes an advance payment to cover the contractor’s costs for for a particular part of the project
- Tender bond - would entitle the employer to payment if they have incurred substantial costs in a tender process and the contractor withdraws their tender
What are the differences between NEC and JCT?
- Relevant events not in NEC
- Programme not a contractual document in JCT
- Provisional sums not allowed for in NEC
- Unexpected ground condition - all contractors risk in JCT, however NEC
What were the 2011 changes to the construction act?l was it the construction act or the local democracy,economic development and construction act where the changes were made?
o Amended local democracy, economic development and construction act October 2011 to close loop holes within its provisions. Effectively changed the construction act.
o The act now applies to construction contracts including those that are not in writing.
o Adjudication clauses must still be in writing, otherwise the scheme applies.
o No longer allowable to define within a contract who should bear the cost of adjudication.
o Adjudicators have the right to correct errors in their decisions within 5 days.
o The dates for payments must be set out in the contract.
What were the benefits of issuing a certificate of practical completion on St Leonard’s Court?
- Occupational use for the client
- Releasing half of the retention (an amount retained from payments due to the contractor to ensure they complete the works).
- Ending the contractor’s liability for liquidated damages (damages that become payable to the client in the event that there is a breach of contract by the contractor - generally by failing to complete the works by the completion date).
- Signifying the beginning of the defects liability period.