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.
What are collateral warranties?
Collateral warranties are agreements which are associated with another ‘primary’ contract. They 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.
What were the benefits of a PCG over performance bond?
Under a PCG it is certain that the parent company will take over if the contractor defaults. This means that there is no delay to find a new contractor as there would under a performance bond.
What were the contract documents on Tolworth - JCT Intermediate with CDP?
- Pricing document
- Contract including contract particulars
- Cashflow
- Drawings
- Preliminaries
- Appendices including surveys eg. topography, utilities report, asbestos
What was an alternative to a deed of variation for sectional completion on St Leonards Court?
- Advance payment
- Partial possession
How should you advise on PI from a contractor?
Cost consultant cannot advise on PI.
When should an intermediate contract be used?
Designed to be used when the traditional procurement route has been chosen. To help fill the gap between the detailed and lengthy provisions of the SBC and the simplicity of the minor works contract.
What are JCT options A and B?
Interim certificates will be issued at monthly intervals (Alternative B) or at the completion of pre-agreed stages (Alternative A), dependent on what is agreed within the contract. Generally, monthly payments are the standard position: interim valuations shall be carried out monthly prior topractical completionand bi-monthly subsequently until agreement of the Final Account.
What are the JCT payment provisions?
IVD - when the contractor is due to send their application
Due date - 7 days after contractor submits their application
Payment notice date - 5 days after due date
Pay less date - at least 5 days before payment date
Payment date- 14 days after due date
Why didnt you use a performance bond and PCG on St Leonards Court?
After a financial check was done by the client’s in house team, they found that because of the contractor’s healthy financial position and the PCG it was not necessary.
What does it say in the JCT DB 2011 regarding liquidated damages?
Liquidated damages can only be claimed by the employer if they have, first, issued a non-completion notice and, second, given written notice that they may require payment of liquidated damages, before the due date for final payment.
What is the time period for issuing a certificate of non-completion after the planned completion date?
This must be under a payless notice which is 5 days before the final date for payment.
How does the QS assist the EA on a JCT DB Contract?
On my project the scope of service sets out that my duty is to assess the cost of changes, attend monthly project team meetings and conduct monthly interim payment recommendations.
What must a contractor do if a relevant event occurs?
The contractor must give notice if and whenever it becomes reasonably apparent that the progress of the works is being or is likely to be delayed. The notice must set out the material circumstances including cause or causes of the delay and must identify any event that is considered a relevant event.
What must the CA/EA do once the contractor has sent an extension of time claim?
The CA/EA if required to consider any notice of delay given by the contractor and to fix a new completion date if it is considered fair and reasonable to do so. A written notice of the decision must be provided as soon as reasonably possible, but must be within 12 weeks of receipt.
What must happen at completion of the works if an EOT was given during the project?
The period of extension must be reviewed after completion of the works. A review of the time originally awarded for an EOT must be made within 12 weeks of PC.
What certificates can be issued under a JCT contract?
- Interim certificate
- Certificate of Practical completion
- Certificate of non-completion
- Pay-less notice
- Payment notice
- Certificate of making good
What are the conditions of a JCT DB contract?
1) Interpretations and definitions
2) Carrying out the works
3) Control of the works
4) Payment
5) Variations/Changes
6) Injury, damage and insurance
7) Assignment, 3rd party rights and warranties
8) Termination
9) Settlement of disputes
Why use a standard form of contract?
- Save time
- Allocates risk fair and reasonably
- Comprehensive - covers previous pitfalls already occurred in previous projects.
How would you go about a monthly interim payment recommendation on St Leonard’s Court?
- Wait for the contractor to send their application (IVD)
- Go to site to check measures and make sure that works are in accordance with the contract drawings and the ERs
- Check against the CSA.
- Compile the certificate, valuation summary, CSA and variations
- Get checked by a director
- Issue certificate and valuation to contractor
What is acceleration?
o Increase in the originally planned/current rate of progress of the works to complete earlier
o JCT – schedule 2 deals with variation and acceleration quotations
o JCT – the CA shall invite proposals from the contractor with regards to acceleration
What are the provisions of the Construction Act 1996 (Housing Grants Construction Regeneration Act 1996)?
o Intended to ensure that payments through the supply chain are prompt
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 of the works for non-payment
o The right to adjudication
o Disallowed pay when paid clauses
What is the Scheme for Construction Contracts (England and Wales) Regulations?
o A scheme which applies when construction contracts do not comply with the Housing Grants Construction Regeneration Act 1996.
o Supplements contractual provisions where the contract has deficiencies
o Part 1 – Makes the provision for adjudication
o Part 2 – Replaces provisions in relation to payment
What are the differences between contract Administrators and an Employer’s Agent?
o As well as acting as the CA, the Employer’s Agent also typically acts as the Employer’s cost manager, project manager and other roles on the Employer’s behalf.
o EA’s are often also given the responsibility for;
o Drafting the project execution plan
o Managing clients and 3rd party liaison
o Preparing ER’s/tender documents
o Implementing change control
o Procuring design consultants/contractors
o … and so on
What were the aims of the amendment to the construction act in 2011?
- To increase clarity and certainty as to payment in construction contracts;
- To introduce a ‘fairer’ payment regime, and improve rights for contractors to suspend their work in non-payment circumstances; and
- To make adjudication more accessible for the resolution of disputes
The words used in the JCT Design and; Build Contract are similar but different to those within the JCT Standard Building Contact, which is used for Traditional Procurement. Are you able to give me 4 examples of these.
Non-completion notice/Non-completion certificate
Payment notice/ Payment Certificate
Employer’s agent/ Contract Administrator
Change/ Variation
Can you give me two examples of Relevant Events
- Variations.
- Exceptionally adverse weather.
- Civil commotion or terrorism.
- Failure to provide information.
- Delay on the part of a nominated sub-contractor.
- Statutory undertaker’s work.
- Delay in giving the contractor possession of the site.
- Force majeure (events that are beyond the reasonable control of a party, such as a war or an epidemic).
- Loss from a specified peril such as flood.
- The supply of materials and goods by the client.
- National strikes.
- Changes in statutory requirements.
- Delays in receiving permissions that the contractor has taken reasonable steps to avoid.
