Contract Practice Flashcards
What is Indemnity?
Indemnity is the obligation that one party holds in paying compensation to another party that suffered losses.
What is insurance?
transferring a risk from one party to another in exchange for a payment made.
What is the difference between Indemnity and Insurance?
Insurance can be seen as a periodic payment that is made to guard against any losses suffered, whilst indemnity is a contract between two parties for which the injured party will receive compensation for any losses.
How would you assess the cost of LDs a client proposes?
- Check LD figure is a genuine pre-estimate of the loss
- Explain even if LDs are applied, client may need to substantiate the figure
- Cannot be punitive or figure may not be enforceable
- If LDs not enforgeable employer would have to pursue the maic Co for actual direct loss that can be susbtantiated through formal dispute resoln procedure
What are EOT?
EOT adjust the completion date and relieve the contractor’s liability to pay liquidated damages for the period of the extension
What are liquidated damages?
a genuine pre-estimate of the likely loss incurred by the employer should the completion date not be met
What must be in place for LDs to be claimed?
- A non-completion certificate
- had a certificate been issued, a witholding notice (pay less notice)
What if E actually suffered no loss of damage?
- it does not matter
- damaged will be deducted at the pre-agreed rate stated in the contract
What are the benefits of being able to grant an EOT?
- relieves Co liability for LD for the delay they did not cause
- enables another completion date to be set, maintianing the Es ability to deduct LDs if another delay occurs
- prevents time becoming at large
what happens when time is at large?
- no completion date set
- Co only has obligation to complete the works in a reasonable time
- LDs cannot be claimed as no date to take them from
- E would have to prove Co did not complete in a reasonable time
What are relevant events in the JCT contract?
the events that entitle the contractor to an EOT
p178
What is retention?
Retention is a sum of money (the retention fund) held by the employer as safeguard against defective or nonconforming
work or materials provided by the contractor. It is to safeguard the employer against defects discovered after PC (latent) or the contractors failure to complete the C
What is a prime cost sum ?
a sum of money included in a unit rate to be expended on materials or goods from suppliers (e.g. ceramic wall tiles at £36.00/m or door
furniture at 75.00/door).It is a supply-only rate for
materials or goods where the precise quality of those materials and goods are unknown. It excludes design and install costs, OHP and prelims.
What is a Provisional Sum?
A sum of money included in pricing doc. A provisional sum is provided to cover the cost of something that cannot be entirely
foreseen or detailed accurately at the time tenders are
invited e.g. ceiling grid amendment and tile replacement where needed in the data halls
How is a Prov Sum used in contract?
CA instructs the designed works when known, ps deducted, new work costed and added to contract sum
What is a Defined PS
Where scope, timing and specific limitations of the works are known at PS inclusion
What is an undefined PS
Scope, quality, extent, timing and limitations are not known at inclusion
When do defined and undefined PS terms apply
When the contract pricing doc is a firm or approx BoQ measured in accordance with NRM2: Detailed measurement of capital building works, or the C has been amended to say this. In a CSA or BoQ measured another way, only Provisional Sum should be used.
What are LDs
LDs stands for Liquidated Damages, also called damages and delay damages are a sum of money stated in the contract as the damages payable in the event of a specified breach.
What requirements must LDs meet?
- genuine pre-setimate of the loss
- The genuine purpose must be to compensate
the employer rather than punish the contractor. - if the rate of liquidated
damages is considered to be a penalty, the employer may
still pursue an action for his or her actual damages
(unliquidated damages) at common law.
What are the advantages of LDs?
+no need to prove loss in the event of a breach
+deduct under contractual mechanism (no court involvement)
+Co aware of liability in advance of a breach
+ can be pre-agreed controlling risk
+no increased liability if actual loss higher or lower
Are LDs subject to VAT?
No - E must factor the lack of VAT in to the loss calculation if this impacts the damages required
Why are LDs related to EOT?
LDs can only be claimed form a completion date in the C, EOTs extend this and prevent time becoming at large. EOTs are only issued for non-fault delay/ rel events. So EOT means no LDs
What is time at large?
When the time is at large there is no set completion date and the Co only need complete in a reasonable time.
-EOTs prx time becoming at large.
-Cannot claim LDs if time at large (no date to charge from)
-only claim is for unliquidated common law damages
What must be in place to claim LDs?
- a set Completion Date
- breach of this date (delay of Co fault)
- a non-completion cert
- a warning notice LDs may be required
- a notice of the deduction demanding LDs or witholding
- if ddt from Co payment alongside other deductions,
a pay less notice showing all of them
What statute does retention of title impact?
Sale of Goods Act 1979 but also more relevant is the Sale of Goods and Services Act 1982
