Contract Practice

Question 1

You mention you have undertaken structured CPD - what was this and what were the key learnings?

Question 2

When are the new JCT contract suite of contracts being released and why are they being updated? What are the changes?

Answer 2

2024

They are being released to better align with legislation changes such as the Building Safety Act 2022.

The duration to review an EOT claim is going from 12wks to 8wks.

Question 3

When would you levy LDs other than a delay to works?

Answer 3

When a performance specification has not been met.

Question 4

What is the impact if LDs are set at too high a rate?

Answer 4

Not enforceable and can be challenged in court

Also disincentive to tender / price in greater risks.

Question 5

Who issues a payless notice?

Answer 5

Employer issues the final certificate.

Question 6

What takes precedent the ERs or CPs?

Answer 6

CPs

Question 7

How would you check a hard hat is ok to use?

Answer 7

CE stamp and visual inspection for any damage

Question 8

Who calculates LDs?

Answer 8

LDs are pre-determined damages set at the time that a contract is entered into, based on a calculation of the actual loss the client is likely to incur if the contractor fails to meet the completion date. They are generally set as a fixed daily or weekly sum.

The can include:
- Loss of rent / rental costs
- Additional professional team fees
- Storage costs

LDs are calculated by the client supported by the professional team.

Question 9

What are the different sections of a contract? Preamble / prelims etc?

Answer 9

1. Agreement
2. Recitals / preamble (a statement of facts or reasons that explain why a contract exists. Sometimes called a ‘whereas’ or ‘preamble’ clause, it provides context information.)
3. Articles:
   Article 1: Contractor’s obligations
   Article 2: Contract Sum
   Article 3: Employer’s Agent
   Article 4: Employer’s Requirements and Contractor’s Proposals
   Article 5: Principal Designer
   Article 6: Principal Contractor
   Article 7: Adjudication
   Article 8: Arbitration
   Article 9: Legal proceedings
4. Contract Particulars
   ERs
   CPs
   CSA
   Base date (The Base Date is usually stated to be the date of the tender or priced offer, which means that the risk of inflation between the tender and contact execution lies with the supplying party)
   PC Date
   LDs
   Rectification period
   Retention rate
   PI insurance for contractor
   Insurance details
   Bond and PCG requirements
   Adjudication body
5. Attestation - The attestation clause is the place in the agreement where the parties sign to indicate their consent to the provisions of the agreement. The execution clauses and signature blocks are found at the end of the agreement. Under hand or as a deed.
6. Conditions and definitions

Question 10

What is meant by contractors design portion?

Answer 10

It is an agreement for the contractor to design specific parts of the works. The contractor may in turn sub-contract this design work to specialist sub-contractors. Set out in the tedner documetns.

Question 11

Are meeting minutes a contract document?

Answer 11

Meeting minutes are not a contract document.

Question 12

What is an NEC contract and name some key differences.

Answer 12

New Engineering Contract. Usually used for engineering projects.

NEC contracts include a defined role as a PM, note the programme as a contract document and do not allow for provisional sums. NEC includes an incentive bonus for early completion of works.

Question 13

What is the difference between under hand and as a deed contract signatures?

Answer 13

Under hand - 6yr limitation period.

As a deed 12yr limitation period.

Question 14

What section of the contract would the contract sum be found?

Answer 14

In the Article section of the contract.

Question 15

What do you mean ‘contract mechanism’?

Answer 15

These are clauses within the contract noting specific areas for consideration to protect the client - rectification period, retention sum etc.

Question 16

What is a bond?

Answer 16

Bonds are a means of protection against the non-performance of the contractor. They are an undertaking by a bondsman or surety to make a payment to the client in the event of non-performance of the contractor. The cost of the bond is usually borne by the contractor, although this is likely to be reflected in the contractor’s tender price.

Bonds can be ‘on demand’ or ‘conditional’, with conditional bonds requiring that the client provides evidence that the contractor has not performed their obligations under the contract and that they have suffered a loss as a consequence.

A performance bond is commonly used as a means of insuring a client against the risk of a contractor failing to fulfil contractual obligations to the client, although they can also be required from other parties.

Advance payment bond - If the client agrees to make an advance payment to the contractor, (for example where the contractor incurs significant start-up and procurement costs before construction begins), a bond may be required to secure the payment against default by the contractor. This will normally be an on-demand bond.

Performance bonds are typically set at 10% of the contract value. This compensation can enable the client to overcome difficulties that have been caused by non-performance of the contractor, such as, finding a new contractor to complete the works.

Question 17

Who advises and issues a bond?

Answer 17

A bondsman or bank can issue.

Question 18

What is a parent company guarantee?

Answer 18

A parent company guarantee (PCG) is a guarantee given by one contracting party’s ultimate or intermediate holding company in favour of the other contracting party to secure the performance of that party’s obligations under the contract.

Question 19

How do you ensure the financial suitability of the parent company?

Answer 19

Due diligence was undertaken by the client’s financial team. Including a request for company accounts.

Question 20

What is a collateral warranty?

Answer 20

A collateral warranty creates a contractual link between the third party and the contractor or professional consultant. A collateral warranty is a contract that sits alongside the underlying contract, such as a building contract or consultant appointment, and grants rights to a third party which can be sued upon.

Normally between a sub-contractor to the client.

Question 21

What is the difference between a warranty and a guarantee?

Answer 21

A guarantee offered to a consumer is a ‘promise’ that problems with a product or service that occur within a specified period of time will be rectified. Typically guarantees are not paid for.

A warranty on the other hand (or an ‘extended guarantee’) generally is paid for and is similar to an insurance policy.

Question 22

What is an alternative to a collateral warranty? Third party rights?

Answer 22

Third-party rights can be used where a collateral warranty will not be issued. They allow someone who is not a signatory to a contract to enforce the benefit of a term contained in the contract.

The right created is to enforce a term of a contract, not the whole contract itself. For example, if a building contract contains a term that the contractor is required to use materials of good quality, then that term might be the subject of a third party enforcement right.

Despite collateral warranties tending to be the preferred option, third party rights are increasing in popularity since they can be incorporated into building contracts, subcontracts, etc., with a simple notice; avoiding the need to produce detailed additional agreements. The administrative exercise of organising collateral warranties can be considerable, sometimes costing more in money and time than their actual value.

However, collateral warranties can be perceived as being more effective since they mirror the responsibilities of the underlying contract. The construction industry is also more used to using them.

Question 23

When would you expect to see a warranty?

Answer 23

Typically product warranties will be provided by the manufacturer. the warranty will detail the rights of both parties and obligations in the event of a dispute.

Question 24

What are sub-contractor warranties?

Answer 24

Also noted as a collateral warranty - makes a contractual link between in the client and subcontractor not noted in the main contract.

Question 25

Why is the JCT the preferred choice of contract?

Answer 25

It is a standard form of contract that is commonly used therefore understood by all parties involved.

Question 26

What is included in the ‘Deciding on the Appropriate JCT Contract 2016 Guidance Note’?

Answer 26

This guidance includes:
- different procurement methods
- a guide to selecting the appropriate contract inn a flowchart form
- PCSA

Question 27

Why do you have contract amendments? And do you draft these yourself?

Answer 27

Contract amendments allow the standard form of contract to be tailored to best meet the client requirements. Drafted by the client legal representative.

Question 28

What are some typical contract amendments?

Answer 28

1. Defect liability period from 6months to 12 months.
2. Payment terms from 14 to 28 days.
3. Rate of retention. Typically 3% on D&B contract and updating to 5%.

Question 29

L2 - what contract was progressed in your industrial unit refurbishment?

Answer 29

JCT intermediate contract with contractors design portion

Question 30

What is the difference between a minor works, intermediate and traditional contract?

Answer 30

A minor works is less detailed than an intermediate uncontract. It does not allow for sectional completion or define relevant events or matters. Not suitable for any design portions of work and the contractor will price a specification.

Question 31

What did you include in the comparison table to present to the client?

Answer 31

Included the design allocation, timelines and risk associated with each contract.

Question 32

When would a minor works contract be suitable?

Answer 32

For straight forward works of limited contract works where no sections are required and the specification is provided to the contractor.

Question 33

What is the difference between sectional completion, partial possession and early access?

Answer 33

Sectional completion is defined in the contract. It will have a separate PC date and LD rate in the contract.

Partial possession is agreed during the contract works and must be agreed between the client legal team and contractor. If this is agreed retention monies for the space must be proportionally released and LDs not levied. Must consider site logistics, insurances and H&S measures

Early use allows the client to use part of the space prior to PC. The risk remains with the contractor unlike sectional completion or partial possession, the contractor will still be liable for LDs if delivered late. Usually used for storage or surveys.

Question 34

What is beneficial occupation?

Answer 34

The client is physically able to take occupation of the works and use them for their intended purpose.

Question 35

L3 -0 What is the definition of insolvency?

Answer 35

Insolvency is when an individual or company cannot commit to their financial obligations for paying debt to lenders on time. This usually occurs when a person’s debt exceeds the value of their assets. Insolvency is not the same as bankruptcy, but it is criteria for bankruptcy.

Bankruptcy is a legal process. It is undertaken when an individual can no longer afford to pay off their debts.

Difference:
- Bankruptcy is a legal process or court order, while insolvency is a state of financial distress.
- Bankruptcy is a type of insolvency, but there are others.
- Bankruptcy isn’t the only way out of insolvency.
- Bankruptcy applies only to individuals and sole traders with unlimited liability. Insolvency applies to businesses as well as individuals.

Insolvency is a financial state where a person cannot meet debt payments on time. Bankruptcy is a legal process that happens when the individual declares he or she can no longer pay back his or her debts to creditors.

Question 36

Did you undertake the due diligence yourself for the list of contractors?

Question 37

What due diligence did you do prior to the instruction?

Question 38

Did YOU advise on the PCG? Does your insurance cover this sort of financial advise?

Answer 38

I can advise on a PCG from a PM perspective but it would be up to my Client’s discretion and independent advise on which route to proceed.

Question 39

Is a PCG or bond included in the contract?

Answer 39

Noted in the contact particulars and appended to the contract

Question 40

What would you expect the value of the bond to be?

Answer 40

Typically 10% of the contract sum however this would be up to the client to clarify the amount to be requested given the risk of the project.

Question 41

Who typically requests subcontractor warranties

Answer 41

The client

Question 42

What would you typically find in a dunn and bradstreet report?

Answer 42

• Summary of the company (founding date, employees)
• D&B Rating EG 3A4 (3A financial strength (5A best HH worst) and credit appraisal (1 best 4 worst))
• Risk of default score
  Officer and director information

Question 43

CPD – What is the role and responsibility of a CA?

Answer 43

To impartially administer the contract.

Question 44

CPD – What is PC? What is triggered at PC? What happens when liquidated damages can no longer be claimed?

Answer 44

PC is the point at which the client can take beneficial occupation of the space and use it for its intended purpose.

PC will implicate:
1. release half of the retention monies
2. start the defect rectification period
3. LDs can no longer be levied
4. Insurances are passed from the contactors to the client

Question 45

CPD – what do you understand by the different insurance options a,b c?

Answer 45

Option A requires the Contractor to take out and maintain all risks insurance of the works;

Option B requires the Employer to take out and maintain all risks insurance of the works; and

Option C requires the Employer to take out and maintain (a) insurance in respect of the existing structures and their contents and (b) all risks insurance of the works.

Question 46

CPD - What are some of insurances you see on projects?

Answer 46

• Professional Indemnity
• Public liability
• Employers liability

Question 47

CPD – What is NBS Contract administrator?

Answer 47

National Building Specification

NBS Contract Administrator provides an efficient platform to administer your JCT/SBCC contracts. Containing electronic copies of the official RIBA Contract Administration Forms for use with the JCT Standard, Intermediate, Minor Works and Design and Build contracts. The software filters the right forms, for the right contract at the right time.

Question 48

CPD – What is a vesting certificate?

Answer 48

Vesting certificate is the transfer of ownership for the value of offsite materials from the contractor to the client.

Includes the transfer of ownership details, decryptions of the items, value, date.

Goods should be clearly labelled and kept separate in the warehouse.

Question 49

What are unliquidated damages?

Answer 49

Unliquidated damages are damages, the exact amount of which has not been pre-agreed, and are typically determined by the courts.

Question 50

What is an LOI and how is this different to a PCSA. Why would you recommend each?

Answer 50

Letter of intent - drafted by the client legal team

Pre construction services agreement PCSA - a standard JCT template that includes definitive tasks to be completed and a value

Question 51

What is the acceleration quotation in a JCT contract?

Answer 51

The employer can request the contractor provides a cost and investigate the possibility to improve the PC date. This must be provided within 21 days and the client as 7 days to review.

Question 52

What is force majeure?

Answer 52

An unforeseen event that is not caused by a party within the contract that inhibits the contractual obligations being undertaken

Question 53

Name a force majeure event not Covid-19

Answer 53

Earthquake / natural disaster not in a known risk area.

Question 54

Would an EOT be granted for a force majeure event?

Answer 54

This under the contract is classed as a relevant event and therefore would allow the contractor time but no monies.

Question 55

What is included in an LOI?

Answer 55

This is a detailed intent to enter into the contract. This will include:
1. reference to the contract particulars, ERs, CSA , CPs
2. Scope to be undertaken during the LOI period prior to the execution of contract.
3. A value “maximum amount” to be expended during completing these works.
4. Insurance requirements (as noted in the contract)
5. A termination date for the LOI or upon execution of the contract.
6. Client design ownership
7. Signatures from the client and contractor

Question 56

What is the joint fire code?

Answer 56

Introduced in 1992, Refers to the prevention of fires on construction sites and applies to contracts where the value is more than £2.5 million. Or apply to lower contract value where it is deemed high risk.

The code describes a series of simple precautions and safe working practices (to) ensure that adequate detection and prevention measures are incorporated during the design and planning stages and that work on a site is undertaken to the highest standard of fire safety

If not complied it is a breach of the contract

1. Hot works permits
2. Weekly testing the fire alarm
3. Weekly inspections of escape routes
4. Appointment of fire marshals
5. Local fire and rescue service invited for inspections

Question 57

What is the retention rate in a minor works, intermediate contract, D&B and trad?

Answer 57

5% = minor and intermediate
3% = trad & D&B

Question 58

What is contractors all risk insurance?

Answer 58

Contractors’ all risk insurance, also referred to as Contract Works Insurance or Construction Insurance, is a non-standard insurance policy that provides coverage for accidental physical loss or damage that occurs to a property insured during the construction period. It covers the contract works undertaken by the contractor and sub contractors.

Question 59

What is the housing grant, construction and regeneration act? And how does this relate to contractor payments?

Answer 59

• Does not allow pay when paid clauses in a contract.
• If a contractor is not paid they can suspend works for the period and claim and EOT for the period for the time/ money of suspension.
• 45 day period plus interim payments valid.

Question 60

What are the JCT provisions for contractor payments?

Answer 60

Alternative A: stage payments – the contractor is entitled to be paid on a stage payment basis. A number of work stages will be identified in the contract particulars and priced on a cumulative basis. As stages are completed, the contractor is to submit an application for payment for the cumulative value of the works (taken from the contract
particulars) at that stage.

Alternative B: periodic payments – the contractor is to submit an application for payment on the dates set out in the contract particulars. The payment is based upon the value of work and design work executed by the contractor by that date.

Question 61

What is a purchase order?

Answer 61

A purchase order (PO) is a legally binding document created by a buyer and presented to a seller. A purchase order is essentially a list of what you want to buy. It lays out the order details, including quantity and types of products the buyer needs, as well as payment terms and delivery details.

The difference between a purchase requisition and a purchase order is that the latter acts as a contract between the buyer and the seller. By submitting an order, the buyer is committing to purchasing goods or services for the agreed upon amount. Because the order is filled before the buyer receives their bill, a purchase order gives the seller insurance against non-payment.