Contract practice Flashcards
What if the client tells you the LADs are to be £100,000 per week?
I would check that the LAD figure is based on a genuine pre-estimate of financial loss and explain that
in the event LAD’s are to be applied, they would need to substantiate this figure.
* I would also explain that if the figure inserted into the contract is shown to be punitive and not based
on genuine financial loss it is not likely to be enforceable.
* In this scenario the employer will have to pursue the Main Contractor for any actual direct loss that can
be substantiated through a formal dispute resolution procedure.
What are extensions of time?
- Extensions of time adjust the completion date and relieves 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 before Liquidated Damages can be deducted?
- A non-completion certificate.
- A withholding notice
What if the employer actually suffered no loss or damage?
- It doesn’t matter.
- The damages can still be deducted at the value stated in the contract
What are the benefits of being able to grant an extension of time?
- It relieves the contractor’s liability for liquidated damages for a delay that they did not cause.
- It enables another completion date to be set, which maintains the employer’s ability to deduct
liquidated damages if another delay occurs.
What happens when ‘time is at large’?
- There is no set completion date.
- The contractor only has the obligation to complete the works in a ‘reasonable time’.
- Liquidated damages cannot be claimed as there is no date to take them from.
- The employer would have to try and prove that the contractor had not completed in a reasonable time
What are Relevant Events in a JCT form of Contract?
- They are events that entitle the contractor to an extension of time.
What are the relevant events?
There are 13 relevant events set out in JCT forms including:
o Variations.
o Instructions.
o Execution of an approx. quantity that is not a reasonably accurate forecast.
o Deferment of possession of the site.
o Suspension by the contractor for non-payment.
o The carrying out of work by statutory authorities.
o Impediment, prevention or default by the employer.
o Loss or damages occasioned by the Specified Perils.
o Exceptionally adverse weather conditions.
o Strike or lock out.
o Civil commotion or terrorism.
o The exercise of any statutory power after the base date by the UK gov.
o Force majeure.
What are the main elements you would include within an interim
valuation?
- Preliminaries.
- Measured work.
- Variations.
- Materials on site.
- Materials off site.
- Loss and expense.
- Retention
What needs to be in place for you to include payments for materials on
site?
The materials should be for the works.
* They should be adequately protected.
* Delivered to programme.
* In a reasonable quantity
What needs to be in place for you to include payments for materials
off site?
- Proof that ownership will transfer to the employer upon payment (vesting certificate).
- Insurance until materials arrive at site.
- Materials are clearly labelled as for the site and set apart from other materials.
- A materials off site bond has been provided if required
What is a retention of title clause?
- Where the sub-contractor or supplier retains ownership of materials until they are paid for them by the
contractor. - This highlights the importance of vesting certificates as the employer may subsequently pay for
materials that are not owned by the contractor. - This legal principle can lead to disputes in the event of insolvency
How do you evaluate interim valuations?
- Go to site and inspect the works to form a view on the percentage of works undertaken.
- Check for materials on site and materials off site.
- Value time related and fixed preliminaries items undertaken.
- Value any agreed variations and claims.
- The valuation amount is presented as the gross valuation, less previous payment made and retention.
- Finally I would send my recommendation to the Architect or Contract Administrator for them to
prepare the payment certificate.
How do stage payments work?
- The stages and their values are set out in the contract particulars.
- The stages are usually related to the completion of significant design items for example completion of
the substructure or achieving a water tight structure.
What is the interim certificate conclusive of?
- Interim certificates are not conclusive.
- They carry no contractual significance to state that the quality of materials or workmanship is
satisfactory. - It is only the final certificate that is conclusive.
What is retention?
It is a percentage of each interim certificate deducted and retained by the employer from each interim
payment to the contractor.
What is the purpose of retention?
- It provides an incentive for the contractor to rectify any defects within the contract defects liability
period. - It provides some financial security to the employer in the event of a contractor default
When is the retention released to the contractor?
- Half of the retention is released in the interim certificate after Practical Completion.
- The remaining retention is released in the final certificate after the certificate of making good defects is
issued.
What is a typical retention percentage under JCT contracts?
- Usually retention is between 3% or 5% depending on the form in use.
What is a retention bond?
- This is a bond provided by the contractor in lieu of taking retention from interim payments.
- It should be equal to the same value as the retention deducted.
- The requirement for the bond should be stated in the contract particulars.
- A standard form is provided in the JCT contract schedules
What happens if the contractor does not maintain the retention bond?
- The employer can deduct retention from interim payments.
- If the bond is subsequently taken out, the retention deducted must be repaid to the contractor
Why might a retention bond be used?
It may be used in difficult market conditions to aid the contractor’s cashflow
What are the disadvantages of a retention bond?
- The employer would have to pay the premium for taking out the bond.
- It may reduce the contractor’s incentive to complete making good defects promptly.
- It reduces the employer’s cashflow.
- The employer would not get the interest accruing on the amount of the retention bond