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.
What is acceleration?
Acceleration is the completion of works in a shorter time frame than that anticipated at tender or the act of programme recovery by the contractor if they are in delay.
What options may be considered to achieve acceleration?
• Re-sequencing the works or making sequential activities parallel.
• Increasing the working time by using working longer hours.
• Increasing the resources employed by using larger gangs.
• Changing the working methods for example using a dehumidifier to dry out the works faster.
• Increasing incentives for example offering bonus payments.
Which are the most and least efficient?
• Re-sequencing the works can be the most cost effective and efficient.
• The least efficient is usually increasing the working time and increasing the resources employed which usually results in lower productivity
What is a fixed price contract?
Where adjustments of the contract sum are limited to changes in statutory contributions, taxes and levies.
What is a fluctuating price contract?
Where the contract sum is adjusted for changes in the costs of materials and labour as well as statutory
contributions, taxes and levies.
What is the date for completion?
The date fixed and stated in the contract particulars.
How does this differ from the completion date?
This is the date for completion of the works that may be adjusted to take into account agreed Extension of Time.
What does it mean when ‘time is at large’?
• There is no fixed completion date.
• The contractor must only complete the works in a reasonable time.
What is practical completion?
• When the works are substantially complete with minor defects only.
• The employer is able to gain beneficial occupancy of the development.
• Half of retention is released.
• The employer surrenders the right to apply liquidated damages.
• The employer takes back possession of the works and is responsible for arranging insurances.
What is sectional completion?
The completion and handover of the works to the employer in agreed stages.
Do the works have to be totally completed before practical or sectional completion is achieved?
• Practical completion is a vague concept.
• It is not defined in JCT.
• It is reliant on the architect’s opinion that the works are complete.
• It should not be conditional.
• It is common practice for PC to be granted when the works are substantially complete however there may be minor defects or omissions with nothing to prevent the employer from taking beneficial occupancy.
