Contract Practice Flashcards
What forms a contract?
offer, acceptance, consideration and intent to create legal relations.
What is offer and acceptance?
An offer is a statement or action that indicates a willingness to agree. Acceptance is an agreement to the terms of an offer by the other party
How can a contract be used as a tool to maintain party relationships?
Contracts prevent disputes between parties
At a basic level, contracts are a tool that helps businesses to agree more. Since contracts are a collection of terms that parties have reached a consensus on, they are very effective at preventing conflict and contractual disputes in the future.
When would JCT be used?
JCT contracts are commonly used in the private sector as employers and contractors are used to it. Private commercial property developers generally prefer the JCT because they can achieve greater control by transferring risk as far as possible, which helps to meet the expectations of their funders
When would NEC be used?
NEC focuses on pro-active risk management rather than on what happens when things go wrong. This can greatly benefit all parties to save cost and time by being pro-active rather than re-active
JCT Benefits?
It minimises transaction cost. It allocates risk in a fair and recognisable way. Standard forms are designed in a way that is comprehensive, and cover most of the pitfalls which surround contractual relations in the building industry.
NEC Benefits
With a complex structure of options, the NEC3, arguably, offers greater flexibility and adaptability; it is a form of contract that benefits from having a sophisticated client. NEC3 provides clarity, simplicity and flexibility of use
What is the difference between shorter form, Longer form and JCT D&B Subcontract?
Shorter Lower Value less risk no design
Longer Larger value no design
D&B Design risk
What documentation forms part of your Subcontracts?
- SC Enquiry
- Particulars
- Conditions
- Contract drawing list
- ERs
- Inclusions
- CPs
- Code of conduct
- Confidentiality agreement
- Due diligence review
- Supply chain contacts
What is discussed when you chaired prestart meetings?
- Attendees
- Particulars
- Compliance
- Basis of quotation
- Scope of works
- Attendances
- Access to site
- Programme
- H&S
- Quality
- Defect Rectification
- Commercial
- Tax and Insurance
- Data Protection
What is included in your interim valuations?
- Date
- Prelims
- Measured works
- Fees
- MOS
- Prov Sums
- OH&P
- Previously certified
What clauses were referred to your extension of time claims?
Clause 2.26.14
What process is undertaken when reviewing contracts?
During contract review, the document will be examined to confirm that it contains all the elements of a contract, that everything is stated clearly and accurately, without errors or discrepancies, free of potential conflicts, and important, with acceptable terms to help the parties avoid getting locked into an unsatisfactory agreement
What is included on an NEC4 Early warning notice?
Section 15
Both parties must give early warning of anything that may delay the works, or increase costs as soon as they become aware of them. They should then hold an early warning meeting to discuss how to avoid or mitigate impacts on the project.
NEC 4 Compensation event
Clause 60
Cost
Delay/Time
Programme
Why is the programme issued with early warning notice?
required by contract
When was retention due?
On reciept of PC certificate
On receipt of certificate of MGD
What evidence was provided when you requested EoT for weather and Covid on Queenshill?
Substantiation
Time sheets
Breakdown of time lost
Covid tests
Weather report
How did you review weather data to prove it was above and beyond?
I looked at historic weather data for the time period and reviewed against actual days lost
With the Change order to the maintenance partnership what was this for?
Precontract services for pilot scheme for RMBC
OHP
What was the action taken following discovering that it would be only costs recovered up to the cost included in the change order?
As this was deemed low risk and small value we aimed to preserve client relationship
When MC works were let this was to be discussed with the client
Why was the retention not released for the contractor?
As per the contract retention was due to be released on receipt of making good defects
Defects were still outstanding
What is a vesting certificate?
A vesting certificate or agreement for construction goods, plant or materials, in letter form, used to confirm that ownership of the goods, plant or materials will transfer from one party to another on payment
Why were fire doors off site requested to be paid?
Manaufactured prior to delivery
Behind programme and unable to store on site
What is the process of advising your line manager the type of subcontract to be used?
assess the requirements of the works package and level of risk advise accordingly
Considerations when selecting the appropriate construction contract?
As per JCT guidance: Deciding on the apt JCT Contract 2016:
- Project nature and scope of works
- Measure of control, risk assessment
- Accountability
- Contractor appointment
- Certainty of final cost
- Programme
- Changes during construction
- Relationships with supply chain / appointing contractor
[depends on procurement route chosen]
What does JCT stand for?
- Joint Contracts Tribunal
What are some of the contracts in the JCT family?
- Standard
- Intermediate
- Minor works
- Major project
- Design and Build
- Management
- Construction management
- JCT Constructing Excellence
- Measured Term
- Prime Cost
- Repair and Maintenance
- Homeowner
What are key project characteristics which influence which JCT contract is used?
- Size, value and type of project
- Need for contract design
- Final cost certainty
- Appetite for risk ownership and risk transfer
- Employer experience
- Programme requirements
When would you use the JCT Minor Works Contract?
- Smaller, basic construction projects with work of a simple nature
- Projects procured via traditional method
Why would you use the JCT intermediate contract?
- Construction projects involving all recognised trades and skills of the industry
- Fairly detailed contract provisions without building complex building services or other specialist work
- Suitable when projects procured via traditional method
When would you use the JCT standard building contract?
- Large / complex construction projects where detailed contract provisions needed
- Suitable when projects procured via traditional method
- Employer responsible for design, though have optional provision for CDP if appointed contractor responsible for design of specific parts of the works
- Works can be carried out in sections
When would you use the JCT major project construction contract?
- Large-scale construction projects where major works involved
- For employers that regularly procure large-scale construction work- to be carried out by contractors with experience and ability to take greater risk
- Suitable for projects procured via D&B method
When would you use the JCT design and build contract?
Construction project where contractor does both design and construction work; varies in scale but generally suitable where detailed provisions needed
Key features of the JCT D&B contract?
- Scale varies greatly
- Contractor completes design based on employer’s concept / produces and completes design from outset
- Design requirements go beyond traditional contract with CDP
- Employer normally uses agent to administer contract
- Works can be carried out in sections
When would you use the JCT prime cost contract?
- Designed for projects requiring early start (alterations / urgent repair work)
- Nature and extent of works unknown until project underway - full design docs not complete until work has commenced
- Suitable for projects procured via traditional method - uses cost reimbursement or cost-plus payment structure
When would you use JCT MTC?
Measured term contract
- Employers with regular flow of maintenance, minor works and improvements and projects they want to be carried out by single contractor over specified period
- Suitable for projects procured via traditional method, using measurement payment structure
When would you use the JCT construction management contract?
- Employer appoints several trade contracts to carry out the works
- Construction manager appointed to oversee works completion
- Projects procured via management method
What are the different certificates you are aware of under JCT forms of contract?
- Interim certificate
- Practical completion / sectional completion certificates
- Non completion certificates
- Certificate of making good
- Final certificate
3 ways that benefits can be transferred under JCT contracts?
- Collateral warranties
- Third party rights
- Assignment
Does JCT have a target cost contract?
Yes, JCT construction excellence incorporates target cost option
What are the different sections of a JCT contract?
- Section 1 – Definitions
- Section 2 – Carrying Out the Works – e.g. relevant events, PC and certificates
- Sections 3 – Control of the works – e.g., Instructions form CA
- Section 4 – Payment
- Section 5 – Variations
- Section 6 – Injury, damage and Insurance
- Section 7 – Assignment, 3rd party rights and Collateral Warranties
- Section 8 – Termination
- Section 9 – Dispute Resolution
Intermediate vs standard building contract?
- Intermediate doesn’t have 3rd valuation rule for receiving a quote for retentions
- IC doesn’t have provision for retention bond
- IC retention 5% vs SBQ 3%
- No provision for third party rights
Intermediate vs minor works?
- MW doesn’t have provision for possession (deferment, early use, partial possession)
- MW no provision for assignment, collateral warranties, performance bonds
JCT 2011 vs 2016?
- Payment provision more aligned to construction act
- Choice between PCG and performance bond in contract particulars
- Introduction of notice of delay by contractor
- Introduction of Insurance Option C
What legislation has been introduced between JCT 2011 and 2016?
- Public Contract Regulations 2015- rules for public sector procurement, fair valuation timescales, BIM provision
- CDM Regulations 2015 - Principle designer replaces CDM co-ordinator
Similarities between NEC and JCT?
- Standard forms of contract
- Suites that accommodate for different circumstances
- Both set out provisions specifically for construction contracts
- Set out information and obligations for contractor and employer
- Provisions for change control, adjudication, payment
NEC vs JCT?
- NEC drafted in plain English- less use of legal terms
- NEC has early warning process
- JCT splits up dealing with time and cost, whilst NEC deals with them together
- JCT: Variations; NEC: Compensation events
- JCT - EA/CA; NEC - PM
- NEC has 6 main options, JCT has a larger suite of separate contracts
- No QS in NEC
- NEC considered more collaborative approach to working- work in spirit of ‘mutual trust and cooperation’
- NEC - programme is a contract document (withhold 25% of monies if contractor doesn’t submit accepted programme)
- NEC has ‘periods of reply’
- NEC heavy on administration
- JCT allows for provisional sums, NEC does not
NEC3 vs NEC4?
- NEC4 has 2 new contracts- DBO (Design build and operate- enables contract to be procured from single supplier) and ALC (alliance contract- for clients who want to enter single contract with several participants- focuses on collaborative working)
- Risk register is now Early Warning Register to distinguish between project risk registerr with wider use
- Employer now Client
- Works information now scope
- 4 week period for escalation and negotiation of dispute introduced (before commencing formal proceedings - senior representatives of parties meet to negotiate solution)
- Secondary option X12 partnering now ‘collaboration’ to better reflect intent
- Now only 1 fee percentage- no separate one for subcontracted works
- Payments - contracts now must submit payment applications, instead of PM obliged to assess if they fail to do so
- Now gender neutral
What are the valuation rules?
As per ICD:
Measurable work
> where additional work is of similar nature and conditions, used priced document rates and prices
> where additional work is similar nature but not conditions (significant qty change), use pricing document rates as basis and allow fair allowance for difference
> where additional work not of similar character, value at fair rates and prices
> where approx qty reasonable forecast, approx. qty = valuation
> where approx qty not reasonable forecast, use same rates and determine valuation on fair qty
> where work is omitted, rates and prices as contract
> [ditto for CDP] measurement in accordance with same principles as preparing contract bills, allowance for any % / lump sum adjustments, and adjust any add/subtract of preliminary items
Daywork
> Prime cost of work calculated in accordance with RICS “Definition of Prime Cost of Daywork” (or current definition for specialist works) + % additions as stated in priced document
> must provide names, timesheets, plant and materials to CA up to 7 business days after work executed
[Additional provisions - no effect for loss and expense under these conditions]
What is a prime cost?
- Direct costs of materials and labour associated with production process
- As per NRM 2 Prime cost sum is an allowance by PQS for which the contractor to add their OH&P, costs for installation, prelims, fees etc. Supply-only rate for materials / goods where precise quality / spec unknown
Can you tell me a bit about the JCT guidance note for deciding on the appropriate JCT contract?
- 2 main parts
- Part 1 discusses project strategy, including procurement methods, types of contract available and the factors that might influence choice
- Part 2 details when each contract under the suite is appropriate and whether CDP, sectional completion, public sector clients and named specialists can be used
Any other guidance?
- RICS Appropriate Contract Selection [Archived]
Legislation applicable to contract practice
- H&S at Work Act 1974
- Employment Rights Act 1996
- Equality Act 2010
- GDPR
What consultants do you require on Ashbrow?
- Architect / CA
- Engineer
- Fire Consultant
- Landscape architect
Can you describe some of the key differences in payment provisions between Standard and Design and Build contracts?
Application
- SBC / IC / MW - CA obliged to request QS to undertake valuation regardless of whether contractor has issued application
- DB - Payment / due dates only following suit from application
Retention
- SBC / DB - 3%
- IC / MW - Retention not referred to but default % to pay before completion is 95%
Some key differences in payment provisions between JCT and NEC?
JCT
- 5 days from due date for payment notice / interim certificate
- 14 days from due date for final payment
- Pay less 5 days before final payment
NEC
- 1 week from due date for payment cert
- 3 weeks from due date for final payment
- Pay less 1 week before final payment
Retention
JCT
- Embedded into main contract clause
- No provision for retention-free amount
NEC
- Option clause X16
- There can be a retention free amount specified in contract data
Can you describe some of the key differences in insurance provisions between Standard and Design and Build contracts?
- No differences in insurance options but DB vs ICD - ICD doesn’t have retention bond provision
Some key differences in insurance provisions between JCT and NEC?
JCT:
- Risk for the works - insurance Options A/B/C
- Pool Re Cover
- Professional Indemnity
- Employers Liability
- Contractor Public Liability
NEC
Core Clause 8 - Table setting out insurances to be made against:
- Loss / damage to works, plant, materials
- Loss / damage to equipment
- Liability for loss / damage to property
- Employer liability
- Core Clause 8 also sets out employer’s and contractor’s risks
Can you describe some of the key differences in variations provisions between Standard and Design and Build contracts?
- In both, employer introduces change as instruction as instruction / request for quotation
DB
- In D&B contracts, contractor can also propose change to employer’s requirements
- Change = from contractor
- Variation = from employer
Some key differences in variations provisions between JCT and NEC?
NEC
- Measures time and cost together
- EWN system
- Doesn’t include provisions for provisional sums
JCT
- Has variation rules
Can you describe some of the key differences in design provisions between Standard and Design and Build contracts?
- Design submission procedure in schedule 1 for both (schedule 6 in ICD), both have same provisions (Status A/B/C)
Standard
- Lesser extent of design unless CDP
Some key differences in design provisions between JCT and NEC?
JCT
- Status A/B/C
NEC
- Core Clause 2 - Contractor designs parts of work that scope states for them to design and doesn’t proceed until PM accepted design
- Option Clause X15 - The Contractor’s design - Contractor not liable for defects unless it fails to carry out design with skill and care
Main elements you would include within an interim valuation?
- Preliminaries
- Measured work
- Variations
- Materials
- Loss and expense
- Retention
How do you evaluate interim valuations?
- Go to site, inspect works and view what’s been undertaken
- Check for materials (on and off site)
- Value time-related and fixed preliminaries
- Value any agreed variations and claims
- Valuation is presented as gross, minus previous payment and retention
- Send my recommendation to CA to prepare payment certificate
What is included in contract recitals?
JCT:
- Description of the works
- [CDP]
- Where drawings and numbers are listed
- Drawings and pricing document defining works
- Division of works into sections
- Whether the work is supplemented by a Framework Agreement
What’s included within contract documents?
- Tender drawings and specification
- Pre-Construction H&S Information
- Client policies
- Existing site photos
- Preliminaries
- Contractor’s design portion
- Warranties and bonds
- Contract sum analysis
- Tender queries and correspondence
What’s included in your contract preliminaries?
- Project particulars (who different parties are, points of contact)
- Site information (access and logistics, investigations)
- Description of the work, form of contract
- CDP
- Tender conditions
- Minimum standards and targets (i.e. BREEAM), quality standards
- Management of works
- Documents to be sent to CA / EA
- Security / safety provisions and limitations
- Operation / maintenance of finished building
What do clauses 4.8, 4.11 and 4.12 say for payment?
- 4.8 - due date is 7 days after valuation date, CA interim certificate 5 days after due date (following valuation from QS)
- 4.11 - Application to be sent by valuation date, if application and cert not made, may issue payment notice
- 4.12 - final date for payment
(may have also been worth adding 4.13 for pay less notices, requiring apt notice)
What are clauses 3.8-3.13? What is your contribution as a QS?
- 3.8 - compliance with instructions
- 3.9 - Non-compliance with instructions - if contractor fails within 7 days, Employer may pay other person to execute, of which Contractor is liable for additional costs incurred (ddt from contract sum)
- 3.10 - provisions empowering instructions - contractor requesting additional provisions and CA can comply with request
- 3.11 - Instructions requiring variations
- 3.12 - postponement of works
- 3.13 - instructions on provisional sums
QS - Input on whether anything needs to be instructed through contractual procedures (St Botolph’s)
- Value in accordance with valuation rules
- Make reasonable assessments and relevant omissions from contract sum
What is Clause 4.3?
ICD - adjustment of contract sum
- Contract sum adjusted by amount agreed by employer and contractor
- any fluctuations
- deduction of prov sums / approx qtys
What do you typically include within your pricing documents?
I.e. EQL - schedule of work
- Preambles / pricing notes
- Summary page (inc OH&P, confirmation / addition for firm price)
- Elemental breakdowns
- Sections for contractor to itemise items they feel not covered
- Prov sums and dayworks
- Prelims (into fixed and time-related)
- CDP
How do you identify that liquidated damages are applicable?
Under ICD Clause 2.23
- CA issues certificate of non-completion
- Advise employer to notify contractor in accordance with timescales (5 days)
- Employer either states they require contractor to pay LDs or they will withhold LDs
- Clause 2.24 - If EOT is given, Employer shall repay amounts
Under JCT contracts, what contractual documents need to be in place before damages can be deducted?
- Non-completion notice / certificate
- Formal notification to contractor that the employer intends to levy
- Pay less notice served
What are delay damages / LDs?
- Genuine pre-estimate of loss suffered by employer because of late completion of works
- Damages inserted into contract prior to signing by contracting parties
- NOT a penalty
- Quick remedy to avoid having to prove actual loss and contractor aware of the liability
- Employer calculates figure
What sort of expenses / costs can the employer include in the damage calculation?
- Loss of rent / other income
- Additional professional fees
- Expected costs incurred by other parties
- Costs for not having facility (storage, rent, abortive costs etc)
- Capital salaries
- Associated legal costs
Can the employer levy liquidated damages if they do not actually incur the loss identified in the initial calculation?
In essence yes, provided that:
- Damages not deemed to be penalty on contractor
- Original calculation is a genuine pre-estimate of loss
When is the remainder of retention released?
- Upon expiry of the defects rectification period
What are the contractual timescales for settling the Final Account?
DB
- Contractor submits Final Statement within 3 months of PC
- Employer gives notice if not submitted (contractor has additional 2 months)
- If contractor doesn’t submit, Employer issues final statement to contractor
When is the final certificate due?
Under JCT
- 1 month (DB) after the latest of:
> end of Rectification Period
> Issue of last cert of making good
> date on which CA sends contractor copies of Final Statement
What items are not subject to retention?
- L&E
- Fluctuations
- Insurance options
- Costs incurred with contractor’s suspension
What contractual provisions are there for early possession?
- Early use
- Partial possession
(before commencement - sectional completion)
What is early use?
- Employer can occupy site / part of site for storage or otherwise before PC
- Contractor gives consent, subject to confirmation that this doesn’t impact insurance
- Insurance option A / if Contractor covers own risks and this results in insurance premium, contractor notifies employer to be added to contract sum if still required (no retention) (contractor produces receipt if requested)
What is partial possession?
- Contractor allowing employer to take possession of part of the works before they have been formally completed
- Often requires contractor agreement, allows employer to use portion for its intended purpose
- Not agreed prior to signing building contract
- Completion deemed occurred for that section
- Contractor must give consent
- Voluntary agreement between employer and contractor
Can the contractor refuse to give partial possession?
- Consent cannot be unreasonably withheld
- Contractor could withhold occupation if it hinders their ability to complete the remaining areas
What are the typical implications of partial possession?
- Half retention released (proportionate to area of possession)
- Contractor’s responsibility for insuring works there ends
- Contractor’s liability for damages ends (proportionate as above)
- Employer responsible for any damages to the works
- Defect rectification period commences
What does the CA have to do at partial possession?
- Issue written statement to the contractor showing relevant part and stating Relevant Date
What is sectional completion under a JCT contract?
- Provision allowing different completion dates for different sections of the works
- Contractor has obligation for achieving sectional completion dates
- Liquidated damages agreed up front should section be delivered late
Sectional completion vs partial possession?
- Sectional completion is pre-planned and defined in contract documents - typically contract should provide if employer knows in advance
- Partial possession relies on contractor’s consent
What are the benefits of sectional completion over partial possession?
- Sectional completion leaves less to chance - parties have agreed many practical consequences
- If something goes wrong (i.e. delay), easier for CA to deal with delays, changes and acceleration
Do the works have to be totally completed before practical or sectional completion is achieved?
- PC is a vague concept not defined in JCT
- Reliant on CA’s opinion that works are complete- should not be conditional
- There may be minor defects / omissions that don’t prevent employer taking beneficial occupancy
What are the main options for insuring works under a JCT contract?
- Option A - Contractor takes out and maintains joint names all risks insurance of the work for new buildings
- Option B - employer takes out and maintains as above
- Option C - for renovations and existing structures-employer takes out and maintains joint names all risks insurance
What is contractor’s ‘all risk’ insurance?
- Protection against physical loss / damage to works being undertaken
- Policy pays for repair / replacement of insured works following damage caused by insured event
Different insurance provisions included in JCT contracts?
- Risk for the works - insurance Options A/B/C
- Pool Re Cover
- Professional Indemnity
- Employers Liability
- Contractor Public Liability
What is a joint names insurance policy?
- Policy in the names of 2+ parties (i.e. contractor and employer)
- Joint names -> insurer has no right of subrogation against insured parties, even if they have caused loss the insurer has to pay for
How can you minimise risk for payment of off-site materials?
- Off-site materials bond
- Value of bond can be reduced as it’s delivered to site
- Advance payment
- Vesting certificate
- Check financial status of contractor
- PCG
- Direct contract with supplier
What is a vesting certificate?
- Letter used to confirm that ownership of the goods, plant or materials will transfer from one party to another on payment
How would you assess payment for materials off site?
Sheen projects - Ask for vesting certificate
- Visit factory
- Ensure materials stored safely and labelled appropriately
Risks of vesting certificates?
- Might be ambiguous
- Difficulties if subcontractor / contractor goes insolvent, unclear means of recourse
- Status of certificates within main contract may be unclear
- This can lead to disputes
What is a retention of title clause?
- Subcontractor / supplier retains ownership of materials until they are paid for by contractor
- Highlights importance of vesting certificates
- Legal principle can lead to disputes in the event of insolvency
First interim valuation date?
- Refer to contract
- 1 month after date of possession (and thereafter same date in each month / nearest Business Day)
Risk of contractors frontloading programme?
- Could be early sign of insolvency
- Employer may pay too much and not have enough in the event that things go wrong
- Materials on site too early could have increased chance of damage
