CONTRACT PRACTICE Flashcards
What does NECC stand for and what is it?
New Engineering Contract - A suite of construction contracts intended to promote partnering and collaboration between the contractor and client
What is X clauses X1 to X5
*Option X1 Price adjustment for inflation (used only with Options A, B, C and D)
*Option X2 Changes in the law
*Option X3 Multiple currencies (used only with Options A and B)
* Option X4 Parent company guarantee
*Option X5 Sectional Completion
What is X clauses X6,X7,X12,X13,X14
*Option X6 Bonus for early Completion
*Option X7 Delay damages
*Option X12 Partnering
*Option X13 Performance bond
*Option X14 Advanced payment to the Contractor
What is X clauses X15-X20
*Option X15 Limitation of the Contractor’s liability for his design to reasonable skill and care
*Option X16 Retention (not used with Option F)
*Option X17 Low performance damages
*Option X18 Limitation of liability
*Option X20 Key Performance Indicators
What is a Z clause + provide an example
Z clauses are bespoke clauses or amendments to the standard form clauses added to NEC3
Conflict of interest
Activity Schedule?
An activity schedule is a list of activities prepared by the Contractor which he expects to carry out in Providing the Works.
When it has been priced by the Contractor, the lump sum for each activity is the Price to be paid by the Employer for that activity.
Bill of Quants? How is it priced? What does the Employer pay for?
A bill of quantities comprises a list of work items and quantities.
Tenderers price the items, taking account of the information in the tender documents and including for all matters which are at the Contractor’s risk.
The Employer pays for work done on the basis of actual measurement of those items with quantities
Target Cost? What does the employer pay for?
Target contracts are sometimes used where the extent of work to be done is not fully defined or where anticipated risks are greater.
The financial risk is shared between the Employer and the Contractor.
Employer\Contractor Pays for PWDD over or under the target cost.
Cost Reimbursable?
A cost reimbursable contract should be used when the definition of the work to be done is inadequate even as a basis for a target price and yet an early start to construction is required.
In such circumstances, the Contractor cannot be expected to take cost risks other than those which entail control of his employees and other resources.
He carries minimum risk and is paid Defined Cost plus his tendered Fee.
How is payment dates decided and what is the payment period?
First payment date decided by PM and then 4 weeks after that date + additional assessment occurs after completion
What is retention?
In NEC Retention is an optional clause - provides security for the client, to protect it from the contractor’s failure to correct defects after completion and the insolvency of businesses in the construction supply chain.
What is Option A contract and advantages & disadvantages?
Option A – Priced contract with Activity Schedule - fixed lump sum
- Less risk to client as cost is fully defined.
- Only risk is employers risk
DIS - Need full scope of works
What is Option B contract and advantages & disadvantages?
Option B – Priced contract with Bill of Quants –remeasurement -
ADV - Less risk to client, paid tender rates for works done – only risk is employers’ risks and time + cost of CEs.
DIS - Need full scope of works
What is Option C contract and advantages & disadvantages?
Option C – Target Cost with Activity Schedule - cost reimbursement with fixed target -even cost risk between all parties good when there is a half scope, gives contractor incentive to save money
DIS - actual cost remains unknown until end date
What is Option D contract and advantages & disadvantages?
Option D – Target Cost with Bill of Quants - cost reimbursement with remeasure target even cost risk between all parties. - good when there is a half scope
What is Option E contract and advantages & disadvantages?
Option E – Cost reimbursable no target – most risk to client - the Contractor is paid the Defined. Cost, as defined in the chosen main Option. good when there is no scope
ADV - simple to manage
Dis - no fixed cost
What is Option F contract?
Option F – Management Contract - cost reimbursement for subbies and lump sum for contractor - Option F is essentially cost reimbursable but risk allocation can be varied by choosing appropriate main Options in the subcontracts
Compensation Events?
Compensation events are events which, if they occur, and do not arise from the Contractor’s fault, entitle the Contractor to be compensated for any effect the event has on the Prices and the Completion Date or a Key Date
Advantages & Disadvantages of NEC
*Adv - Stimulate good management.
*Be clear and simple, written in plain English, in the present tense and without legal terminology.
*Be useable in a wide variety of situations from minor works to major projects
*Promotes collaboration
*Dis- Requiring too much expertise to operate, focusing too much on project management
*The number of companies involved on a large building project and the length of supply chains means that capturing cost information in relation to compensation events takes a long time.
JCT Contract Types
- Standard Building Contract designed by design team and constructed by Contractor.
-Design and Build - full or partly designed and constructed by contractor
Construction Management
-Minor Works
NEC3 VS NEC4
*New forms of contract - the Design Build and Operate Contract (DBO), the Alliance Contract (ALC), and the Facilities Management Contract (FMC)
*Improved clarity and simplicity across the NEC4 suite
*New and improved support for dispute avoidance, early contractor involvement, quality management, and more
What 6 items make an offer valid?
Offer, acceptance, consideration, intent, legality and capacity.
CDM Regs 2015?
The Construction (Design and Management) Regulations (CDM Regulations) are intended to ensure that health and safety issues are properly considered during a project’s development so that the risk of harm to those who have to build, use and maintain structures is reduced.
3 Types of Letter of Intent
Letter of comfort- extends tender period , Authority to spend- allows work to progress on site and recognition of contract - contract starts while conditions are being agreed
What is a performance bond
Insurance back surety which provides generally 10% of the contract sum should the contract fail in their insurance.
Construction Act 1996
Introduced - interim payments, suspension, adjudication, pay when paid and applies to verbal contracts.
What is a contractual Warranty
Side agreement to create a contractual link between parties who would not be linked.
What are a couple of contract types aside from lump sum?
Lump sum - Fixed price for works only extras are instructed.
Re-measure - based on approx quantities or schedule or rates
Cost reimbursable - Contractor gets actual cost plus OHP
When does a performance bond expire?
PC
What is a divergence and discrepancy in terms of a contract?
Divergence -when contact docs does not comply with statutory requirements
Discrepancy - Inconsistency between contract docs
3rd Party Rights
Removes the right of privy to the contract and allows 3rd parties to enforce the benefit of the contract
Adv + dis of 3rd party rights
Adv - Simpler than collateral warranties
Less admin
DIS - Little case law & No physical warranty
Adv + Dis of LOIs
ADV - allows for early start on site
Early order of materials
Dis - doesnt cover the client in the event of insolvency
Employer can lose the position to negotiate
What is with without and approximate quantities?
Without quant - Lump sum contract, only change for CEs
With quant - Quantities measured frim the drawings and change is a CE
Approx Quant - Same as above but estimated
Pre contract service agreement?
When a contractor is onboarded early within the precontract stage to assist with design and with services typically outside of a typical building contract
When do you release retention?
PC and after the defects periods once all defects have been rectified
What would you do if a contract became insolvent?
Secure site, valuation of materials on and off site, prevent the release of monies to the contractor, phone administrator and subbies
What is insolvency?
The condition of having more debts than total assets
Listed Item
Pre-agreed items to be included in interim payment for off site materials
Need vesting certificate
What is a EWN
A EWN is a notice where a party becomes aware of any matter which may affect cost and time of the contract.
Notification of Delay/Loss and expense
Loss and expense claims are addressed under the “compensation event” mechanism.
The contractor must notify the project manager of a compensation event within eight weeks of becoming aware of the event, or the claim may be disallowed.
The contractor must provide a quotation for the compensation event, including a breakdown of costs and time extensions.
The project manager assesses the claim and either agrees to or disputes the contractor’s quotation.
Compensation events can result in time extensions, additional payments, or both.
Parent Company Guarantee
PCG is a guarantee where the parent company will fulfill the defaulting subsidiary under the contract and or cover loss and expense
What is loss and expense claim
A claim by the contractor or Employer to recover monies relating to cost, time and quality. For example contractor recovers the above for CEs which may prevent PC and the employer may recover for defective works
What is LADS
Liquated Ascertained Damages are a agreed rate within the contract which is applied for loss suffered for late completion.
Example loss of rent or production.
Process of levying LADS
Issue non completion cert
Calculate LADs based on contract rate
Issue pay less along with valuation
Issued by employer
What is expressed and implied terms?
Expressed Terms - agreed terms with parties
Implied terms- not been expressly agreed but has been implied by law or statute
What is a contract
A Legally binding promise by one party to fulfill and obligation for another in return for consideration
Tort?
Civil wrong
What is statutory and contract provisions ?
Statutory are set out by law and must be complied with.
Contract is provisions related to a contract only and only applies to that project
Breach of contract
When one party fails to fulfill their contractual obligation in accordance to the terms of the agreement.
Third party rights
Contracts Act 1999 - allows third parties to enforce term of the contract they are not party to but will benefit them in someway.
ADV + DIS OF third party rights
ADV - reduced time and cost as there is no separate document
DIS - Lack of flexibility - limited room for negotiation
Difference between bond and CW
Bond is 3rd party financial commitment within the contract which protects the owner against non- payment, lack of performance and warranty issues where as a CW is separate to the contract
What is a performance bond
a form of security provided by a contractor to an employer, the insurer will make a payment to the employer if the contractor defaults under the contract.
May need for new contractors or ones with uncertain finance
Potential problems with Z clauses?
Poorly drafted clauses can be problematic as edited core clauses may result in further clauses being changed.
Total float, Time risk allowance and Terminal float?
Total float - the time and activity can be delayed frim its early start date without delaying planned completion
Risk allowance - duration allowed in each activity by the contractor to account for risk for not completing that activity in the minimum possible period.
Terminal float- duration between planned and current contract completion
How can completion dates change
Via CEs or acceleration
Difference between NEC & JCT
NEC has no QS
NEC is CE not variation
NEC is in plain English
NEC is more collabarative
Dispute resolution clauses
W1 & W2
Y (UK) 2 & 3
2 - The housing grants, construction and regeneration act 1996
3 - The contracts (rights of third parties at 1999
What is on-demand bond and conditional
On-demand - bond is immediately available thought needing to satisfy and preconditions where as conditional requires obligation have been fulfilled
Tender Bond
Bond in place if the successful tenderer fails to enter contract
Retention bond adv+dis
DIS - Employer pays premium for taking out the bond
ADV- protects payments to contractors by employer in advance of works being done
Defects under NEC
A part of the work which is not in accordance with the works information
Patent and latent defect
Patent obviously to the eye on inspection
Latent - cant see i.e foundations
Novation
Contracted by the client and then novated to contractor
Adv - reduces learning curve, designers are there throughout
Dis -Employer requires CW
What can be done to reduce the risk of insolvency at tender stage
Check contractors account
Bank references
Credit checking
Consideration for contract selection
Nature of client
Priorities - cost, time and quality
Complexity of work
Detail payment timeline
Assessment date
Assessment Period - 7 days
Due date - 5 days after
Last date to issue interim certificate
No interim certificate = default payment by contractor
Pay less notice - 7 days before final payment
Vesting cert?
A vesting certificate is a document evidencing that ownership of goods or materials will transfer from one party to another on payment.
Core clauses
1.General
2. Contractor responsibilities
3. Time
4. Quality Management
5. Payment
6. CE
7. Title
8.Risk and Insurance
9.Termination
Contract data
The Contract Data deals with the who, where and when questions of the contract.
-Parties of contract as well as PM & Supervisor
-Contract start + end dates
-Risks
CE process
- Notification
-Quote - Assessment
- Implementation
CE Timelines
Contractor notifies within 8 weeks issues CE , 1 week period for pmi and contractor quote, accepted or 2 weeks until CE is accepted
What is the risk of non payment from the client?
Suspends performance on site
Termination
Increase in cost and time to redo procurement process
What is PCIP and what does it include
PCIP allows safe designs to be developed and enable the Principal Contractor to plan and manage the construction phase of the project.
- H&S file
-Risk Register
What is a interim valuation and what is its purpose?
It is an assessment of all works on site and provides advice to the certifier for the issue of interim certs and payment notices
QS role in valuation process
1 Planning - understand requirements
2 Pre- valuation -desk top study
3 Valuation - conduct on site
4 Documentation - check valuation & documents
5 Issue - sign and issue
6 - Post Valuation - Maintain records
