Contract Practice

Question 1

What is a contract?

Answer 1

It is a legally binding promise (written or oral), by one party to fulfil an obligation to another party in return for consideration.

Question 2

What is the difference between an implied and express term?

Answer 2

• Implied Terms - These are implied by law and not necessarily written into the contract and are inferred by the actions of the parties involved. For example: going to a restaurant and ordering food, the waiter must serve the food and the customer is obliged to pay.
• Express Terms - These are terms which are explicitly agreed by both parties and stated in the contract. For example: pay, hours, holidays and etc. Important note, once an express term is established and identical implied contract cannot exist.
• Both contracts are legally binding.
• An express contract is much easier to enforce as it is in writing compared to an implied contract.

Question 3

What is quantum meruit?

Answer 3

This is where a reasonable sum is paid for the services rendered or work undertaken if the amount due is not stipulated in the contract.

Question 4

What does a typical pack of contract documents contain?

Answer 4

• Conditions of contract and amendments to standards forms e.g. SOA or Z-Clauses (depending on type of standard form).
• Preliminaries.
• Contract Sum Analysis/Pricing Schedule.
• Drawings.
• Specifications.
• Planning conditions/Agreements.
• Contractor’s Proposals.

Question 5

What legislation are you aware of that govern construction contracts in the UK?

Answer 5

• Housing Grant, Construction and Regeneration Act 1996 (HGCRA).
• Local Democracy, Economic Development and Construction Act 2009 (LDEDC).

Question 6

What laws does the construction industry operate under in the UK?

Answer 6

• Tort law.
• Contract law.
• Criminal law.

Question 7

Explain some of the sanctions the HGCRA 1996 imposes on construction contracts in the UK?

Answer 7

• Contracts in excess of 45 days are entitled to interim or stage payments.
• Right to suspend performance for non-payment.
• Disallowing ‘pay when paid’ clauses.
• Right to adjudication.
• Right to be informed of the amount due and amount withheld.

Question 8

Explain some of the sanctions the LDEDC 2009 imposes on construction contracts in the UK?

Answer 8

• Bolstering a payee’s right to suspend for late payment.
• Removing existing barriers to adjudication.
• Making both written and oral contracts subject to the Act.
• Right for adjudicator to correct typos and clerical errors.

Question 9

Explain the understanding of the Unfair Contracts Act 1977 (UCTA)?

Answer 9

It regulates contracts by limiting the extent to which one party can avoid liability through the use of exclusion clauses.
For example: if one party was to raise prices without considering the rights of another would be considered unfair e.g. a utility provider increasing their prices without notifying the consumer or a landlord increasing rent without given sufficient notice to their tenants.

Question 10

Name some families of contracts?

Answer 10

• Joint Contract Tribunal (JCT).
• New Engineering Contract (NEC).
• International Federation of Consulting Engineers FIDIC.

Question 11

What are the key changes of the new JCT suite of contracts 2024?

Answer 11

• Gender neutral language.
• Option of ‘collaborative working’ changed to core article for parties to work together in good faith and in a spirit of trust and respect.
• Target cost contracts.
• Updating relevant events to include for the following:
  
  • epidemics which occur after base date or before the base date but effects change after base date that affect the proper carrying out of works such as availability of labour, securing materials and etc.
  • delays upon the discovery of asbestos, contaminated materials and UXO’s.
  • change in law, guidance or exercise of statutory powers that affect the execution of the works.
• Duty holder obligations introduced by the Building Safety Act 2022 to comply with their respective duties under Part 2A of Building Regulations. New roles of PD and PC also recognised.
• Design liability - Contractor’s design liability has changed from ‘fit for purpose’ to ‘exercise reasonable skill and care.’
• Termination - Updated in line with the Corporate Insolvency and Governance Act 2020. List of events entitling either party to terminate a contract has been updated to include for epidemics and changes in law that affect the execution of the works.

Question 12

Name some of the standard forms of JCT contract?

Answer 12

• Standard form with quantities (SBC/Q).
• Standard form without quantities (SBC/XQ).
• Standard form with approximate quantities (SBC/AQ).

Question 13

Name some of the conditions of the SBC/Q?

Answer 13

• Works have been designed.
• There is a bill of quantities (BoQ).
• Is a lump sum form.
• Contractor’s risk is limited to price only.
• Employer takes risk of errors in the bill.
• Can include for CDP elements.

Question 14

Name some of the conditions of the SBC/XQ?

Answer 14

• Works have been designed.
• There is no bill of quantities (BoQ).
• Is a lump sum form.
• Contractor takes risk for price and quantity.
• Can include for CDP elements.

Question 15

Name some of the conditions of the SBC/AQ?

Answer 15

• Is a remeasurement form of contract.
• There is no contract sum.
• Design is incomplete at time of contract execution.
• Approximate bill of quantities (BoQ) has been prepared.
• Can include for CDP elements.

Question 16

When is it most ideal to use the JCT SBC form of contracts?

Answer 16

Ideal for project with the following:
- Value in excess of £1m+.
- Programme duration of 12 months or more.
- For large complex projects.
- Administered by the contract administrator (CA), who can be either:
- Architect
- Project Manager
- Building Surveyor
- Engineer
- Quantity Surveyor
Also, under an SBC, the QS is appointed and named.

Question 17

What is the JCT intermediate building contract, it’s conditions and when it’s most suitable for?

Answer 17

The IBC is a contract that is more detailed than the minor works building contract but not as extensive as the standard building contract. Is usually administered on projects that are procured via the traditional method and call also contain elements of CDP.
It is best suited for projects with the following conditions:
- Procured via the traditional route.
- Design is complete prior to tender.
- Can include elements of CDP, if so, then IBC with CDP must be issued.
- Is a lump sum contract.
Ideal for projects with the following:
- Value in between £250k - £1m.
- Programme duration of up to 12 months.
- For moderate sized projects although some complex areas can be included through CDP.
- Administered by the the contract administrator (CA), who can be either:
- Architect
- Project Manager
- Building Surveyor
- Engineer
- Quantity Surveyor
Also, under an IBC, the QS is appointed and named.

Question 18

What is the JCT minor works building contract, it’s conditions and when it’s most suitable for?

Answer 18

The MW is a contract that refers to small, relatively straight forward construction projects that are less than £250k in value. Is usually administered on projects that are procured via the traditional method.
It is best suited for projects with the following conditions:
- Procured via the traditional route.
- Design is complete prior to tender.
- Can include elements of CDP, if so, then MWBC with CD must be issued.
- Is a lump sum contract with periodic payments.
Ideal for projects with the following:
- Value up to £250k.
- Programme duration of up to 12 months.
- Administered by the the contract administrator (CA), who can be either:
- Architect
- Project Manager
- Building Surveyor
- Engineer
- Quantity Surveyor
Also, under an MW, the QS is not appointed and named.

Question 19

What is the JCT Design and Build (D&B) contract, it’s conditions and when it’s most suitable for?

Answer 19

The D&B is a contract where there is a need for a single point of responsibility for delivering the entire project. Is usually administered on projects that are procured via the design and building method.
It is best suited for projects with the following conditions:
- Procured via the D&B route.
- Design can overlap during the tender/construction and thus a programme saving can be offered.
- Is a lump sum contract with periodic payments.
Ideal for projects with the following:
- Value in excess of £500k+.
- Programme duration of 12 months or more.
- Contractor’s proposals form the basis of the contract.
- Enhances collaborative working, sustainability, 3rd party rights, bonds, collateral warranties and etc.
- Administered by the Employer’s Agent (EA), who can be either:
- Architect
- Project Manager
- Building Surveyor
- Engineer
- Quantity Surveyor
Also, under an D&B, the QS is not appointed and named.

Question 20

Name some of the elements of a JCT contract?

Answer 20

• Recitals - describes the purpose of the contract and contextualises the agreement such as:
  
  • describes the works required by the employer.
  • confirmation of a priced schedule has been provided.
  • identifies the contract design information and etc.
• Articles - set out what is required between the parties of the contract such as:
  
  • contractor to deliver the works.
  • client to pay the sum under the contract and etc.
• Contract Particulars - sets out the details specific to the contract such as:
  
  • the contract sum.
  • retention percentage
  • Interim payment method.
  • Completion dates and sectional completion dates and etc.

Question 21

What are some of the differences between the JCT and NEC forms of contract?

Answer 21

• JCT:
  
  • Forms of Contract.
  • Legal language.
  • QS referenced in SBC, not in D&B.
  • Programme is not a contractual document.
  • Variations.
  • Loss and expense (L&E), extensions of time (EOT).
  • Provisional sums.
  • Administered by either CA or EA.
• NEC:
  
  • Six main options including ‘mix and match’.
  • Layman terms.
  • No QS reference.
  • Programme is part of the contract.
  • Compensation events (CE).
  • Time and cost claims covered within CE.
  • No provisional sums.
  • Administered by PM.

Question 22

What are the differences of an EA and CA?

Answer 22

EA:
- Appointed and named under D&B Contracts.
- Issuing instructions for variations.
- Co-ordinating the review of information prepared by the contractor.
- Considering items submitted by the contractor for approval.
- Managing change control procedures.
- Reviewing progress of the works and preparing reports for the client.
- Validating and certifying payments.
- Considering claims.
- Monitoring commissioning and inspections.
- Arranging handover.
- Certifying PC.
- Highlighting defects to the contractor.
- Issuing certificate of making good defects.
- Agreeing the final account.
CA:
- Appointed and named under SBC, IBC and MW Contracts.
- Issuing instructions for variations.
- Administering change control procedures.
- Preparing and issuing progress reports.
- Issuing interim certificates.
- Considering claims.
- Agreeing commissioning and testing procedures.
- Issuing certificates for PC.
- Collating and issuing of schedules of defects.
- Issuing certificate of making good defects.
- Issuing final certificate.
- Chairing progress meetings.
- Co-ordinating and instructing site inspectors.

Question 23

How do you go about calculating LAD’s on a project?

Answer 23

• The client must provide the CA or EA what their LAD’s are as it is based on a genuine pre-estimate of the client’s consequential losses.
• If the client insists for advice on this matter then I would advise them that I am not in a position to do this.

Question 24

What are LAD’s and what needs to be in place for this to be deducted?

Answer 24

• LAD’s are a genuine pre-estimate of a client’s consequential losses such as loss of rent, income, fees and etc. and are usually expressed in contracts on a weekly basis.
• For these to be deducted then the following needs to be in place:
  
  • A non-completion certificate.
  • A withholding notice.

Question 25

What is a relevant event?

Answer 25

It is an event that causes delay to the completion date which is either caused by the client or a neutral event. As such, this entitles the contractor to an extension of time (EOT). Examples of relevant events include:
- Variations.
- Exceptionally adverse weather (one in a 10 year event).
- Civil commossion or terrorism.
- Force majeure.
- Delay in giving possession of the site.
- National strikes or lockout.

Question 26

What is a relevant matter?

Answer 26

It is a matter which the client is responsible for that materially affects the progress of the works. As such, this entitles the contractor to both direct loss & expense (L&E) and an extension of time (EOT). Examples of relevant matters include:
- Failure to give the contractor possession of the site.
- Failure to give the contractor access to and from the site.
- Variations.
- Delays in receiving instructions.
- Opening up and testing works that have already been carried out according to the contract.
- Failure by the client to supply goods or materials.

Question 27

What elements need to be considered within an interim valuation?

Answer 27

• Preliminaries.
• Measured works.
• Variations.
• Materials on/off site.
• Loss and expense.
• Retention.

Question 28

What needs to be in place to include for payments for materials on site?

Answer 28

• The materials should be for the works.
• Should be adequately protected.
• Delivered to programme.
• In a reasonable quantity.

Question 29

What needs to be in place to include for payments for materials off site?

Answer 29

• Refer to the contract to ensure there is provision for conducting any materials off site payments. These are usually scheduled as ‘Listed Items.’
• Proof of ownership will transfer to the client upon payment (vesting certificate).
• Clearly labelled and set aside from other materials.
• Insurance until materials arrive on site.
• If a Materials off site bond has been provided if required.

Question 30

How does one go about conducting an interim valuation?

Answer 30

• Attend site and inspect the works to form a view of works undertaken to date.
• Check for materials on and off site.
• Value time and fixed related preliminaries undertaken.
• Value any agreed variations and claims.
• Assess based on gross valuation (total works done to date), less previous payment and retention.
• Send recommendation to CA or EA for them to prepare and issue payment certificate.

Question 31

What is retention and what is its purpose?

Answer 31

A percentage deducted from each interim certificate and retained by the client.
Its purpose is to provide some financial security to the client in the event of a contractor default. It also provides an incentive for the contractor to rectify any defaults within the contract defects liability period.

Question 32

What is a retention bond?

Answer 32

• It is a bond that is provided by the contractor in lieu of deducting retention from each interim payment.
• It should be equal to the same amount as retention deducted.
• Requirement for the bond should be stated in the contract particulars.

Question 33

What happens if the contractor does not maintain the retention bond?

Answer 33

• The client can then deduct retention from interim payments.
• If the bond is subsequently taken out, then whatever retention is deducted, must be paid back to the contractor.

Question 34

What is a notional final account?

Answer 34

• In the event of contractor insolvency, a notional final account is an amount that is agreed to pay the contractor for works that have been done to date and nothing more.

Question 35

Why might a retention bond be used?

Answer 35

• In difficult market conditions to aid the contractor’s cashflow.

Question 36

What are the disadvantages of using a retention bond?

Answer 36

• The client will have to pay a premium out for taking the bond.
• Can reduce the contractor’s incentive to complete making good defects promptly.
• Reduces client’s cashflow.

Question 37

What is practical completion (PC)?

Answer 37

• When the works are substantially complete with minor defects.
• The client is able to gain beneficial occupancy of the built asset.
• Half of the retention is released.
• Client surrenders the right to apply liquidated damages.
• Client takes possession and must make arrangements for insuring the built asset.
• Triggers the final account process.
• Defects liability period/Rectification period begins.

Question 38

What is the difference between sectional completion and partial possession?

Answer 38

• Sectional completion is a contractual obligation to hand over a section at a specified date, failure to do so, the contractor could be levied with LAD’s.
• Partial possession on the other hand is when the client requests and the contractor consents to handing over the works or dedicated section prior to PC or sectional completion. As such, the contractor is not levied with LAD’s.

Question 39

What is a non-completion certificate?

Answer 39

This is usually issued by the architect to certify that the works or sections have not been completed by the relevant completion date.
As such, the client has the right to withhold LAD’s provided a withholding notice is given.

Question 40

What are the different forms of certificate available under the JCT contract?

Answer 40

• Interim certificates.
• Practical completion or section completion certificates.
• Non-completion certificates.
• Certificate of making good defects.
• Final certificate.

Question 41

What are collateral warranties and why are they used?

Answer 41

• They make a contractual relationship between the main parties of the contract with an external 3rd party.
• They are used because due to privity of contract, it provides remedies to those external 3rd parties that would otherwise not have them.

Question 42

Who might want collateral warranties?

Answer 42

• Any 3rd party with a financial investment in a project e.g. funding institutions, future tenants or purchasers.
• The client may wish to have a collateral warranty with sub-contractors in case the main contractor was to go insolvent, there would be no redress in the case of defective workmanship.

Question 43

Why may a party wish for collateral warranties when they have 3rd party rights?

Answer 43

• Collateral warranties provide a party with more added legal protection.
• Although 3rd party rights exist and form an indirect contractual relationship between 3rd parties and the main contract, however it is limited and a collateral warranty provides direct agreements between parties and clearer relationships.
• Therefore using both helps provide a more comprehensive legal framework and ensures the enforceability of rights in various scenarios.

Question 44

What is a performance bond and what is its purpose?

Answer 44

• It is a form of guarantee from either the bank or insurance company that the contractor will fulfil their obligations under the contract.
• It gives the client a guarantee of payment up to a stated amount should they suffer a loss as a result of the contractor’s breach and/or insolvency.
• It is usually 10% of the contract value and the premium for taking it out is included within the contract sum.

Question 45

What is a Parent Company Guarantee (PCG)?

Answer 45

• It is an arrangement when one company as part of a wider corporate umbrella is underwritten by it’s corporation.
• In doing, the corporation steps in and undertakes the works themselves or pays the financial equivalent.

Question 46

What is an on-demand bond?

Answer 46

• It is paid upon the default occurring and request for payment.
• There is no need to satisfy any review or specific conditions to demonstrate the default unless a conditional bond is in place.

Question 47

On the Ashman Bank project, why wasn’t the Contractor entitled to additional loss and expense following instruction from the Client?

Answer 47

• The scope of the works stated the design and construction of re-cladding including replacement of all non-compliant balconies and screens (timber cladding only).
• Through reviewing the contract including the SOA it clearly stated the contractor is responsible for the design of the works including any design contained within the ER’s and the CP’s whether prepared by the client or not.
• It also stated within the JCT contract regarding site conditions that the contractor has had the opportunity to have inspected and examined the site and address any on site conditions which could be improved upon and failure to do so would not entitle the contractor to any adjustment of the contract sum.
• Therefore for this reason, it was not considered a variation but rather a design development issue and the contractor was deemed to make the necessary amendments to pick up any inadequacies within the design information.

Question 48

On GMV 401 & 403, what were some of the comments the Contractor suggested and how did this affect the Client’s SOA? What was your role specifically in this task?

Answer 48

Some of the amendments included:
- the contractor would like the clause surrounding force majeure to be deleted from the client’s SOA as they consider it to be a risk that they cannot accept due to the nature of it falling outside of the contractors control for the proper carrying out of works.
- the client demanded certain levels of collateral warranties from the main contractor as well as their design team and sub-contractor’s. The contractor suggested to discuss redrafting this clause within the client’s SOA to reflect market conditions surrounding PI and levels of cover.
- Supplemental provision 7 relating to cost savings and value improvements should not apply as the contract was a fixed lump sum with no fluctuation entitlements.
I prepared a schedule which provided the client with high level advice of what the changes did before the client considered further legal advice.
- A meeting was then arranged between the contractor and the client to review these and suggested actions noted moving forward.

Question 49

What was the difference in the cost of the bond and how did you go about negotiating this between the contractor and the client?

Answer 49

• The difference in cost of the bond was approximately £105k.
• I liaised between the Client, the Contractor and the Client’s solicitor to agree terms which subsequently had a commercial impact resulting in the difference in cost.
• The reason for the difference was because within the SOA, there was additional wording surrounding adjudication that in the event of any legal proceedings to notify the guarantor within 3 days of issue of notice of adjudication as oppose to 28 days if via arbitration.
• Also, the bond made reference to refer the decision of the adjudicator to the courts for final determination.
• As such the contractor suggested for the wording to adjudication be removed and in doing so, they were willing to offer a saving.

Question 50

What are the differences between standard forms of contract and bespoke contracts?

Answer 50

Standards forms:
- Balanced terms and conditions (fair).
- Familiar and understood.
- Less time to draft.
- Less legal fees.
- Backed by case law, judicial precedence.
- Contractors more inclined to accept.
Bespoke forms:
- Tailored allocation of risk, client benefit.
- Simplified contract and easier to administer.
- Time consuming to draft.
- Legal costs incurred to draft.
- Lack of judicial precedence when using amended contract.
- Contractors less likely to accept if contract is ambiguous.

Question 51

How can a contract be terminated?

Answer 51

• Default of the contractor.
• Contractor insolvency.
• Corruption.
• Frustration.

Question 52

What are the insurance provisions within a JCT contract?

Answer 52

• Option A - Contractor to insure works for all risks to new build.
• Option B - Client to insure works for all risks to new build.
• Option C:
  
  • C1 - Client to ensure for loss and damage arising from specified perils to existing buildings.
  • C2 - Client to ensure works for all risks to existing buildings.

Question 53

What do you do if a Contractor doesn’t submit a valuation?

Answer 53

• Under JCT SBC the CA must still prepare a payment notice on time regardless of whether the contractor has submitted an application or not.
• Under a JCT D&B the timeframes are not triggered as no application has been submitted therefore there is no obligation for the EA to prepare a payment notice. Ultimately, it is the Contractor’s obligation to apply for payment.