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EH APC Cards > Contract Practice > Flashcards

Contract Practice Flashcards

1
Q

What are the fundamentals of contract law such as the requirements of a legally binding contract?

A

Offer, Acceptance, Consideration (something that the party is not currently entitled e.g., money), Intent (Both parties have an intention to be legally bound by the agreement), Capacity (The parties are legal entities recognised by law, such as companies, limited liability partnerships and individuals of at least 18 years of age)

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2
Q

What constitutes a construction contract under the Construction Act? Are consultant appointments covered?

A

The carrying out of construction operations, the carrying out of construction operations by others whether under sub contract to him or otherwise and providing his own labour, or the labour of others for the carrying out of construction operations. Includes agreement for surveying work.

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3
Q

Operations not considered as construction?

A

Drilling for oil and gas, nuclear processing and power generation

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4
Q

What does the HGCRA (1996) cover?

A

s107 Construction Contract to be in writing
s108 Right to Adjudicate
s109 Entitlement to stage payments
s110 Payment notices
s111 Withholding
s112 Right to suspend works for non-payment s113 ‘Pay when Paid’ became ineffective

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5
Q

What is the payment scheme process in HGCRA?

A
  • End of relevant period
  • 7 days until due date
  • 5 days from due date to issue interim certificate
  • 7 days before final date for payment to issue pay less notice
  • entire cycle 24 days
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6
Q

How did the Local Democracy, Economic Development and Construction Act 2009 (LDEDCA) amend the HGCRA?

A
  • Contracts will no longer required to be evidenced in writing
  • Adjudicator’s power to correct decision (clerical error)
  • Bans tolent clauses
  • Payment notice - If after 5 days no Notice of Payment is issued, Payee may issue a Notice in Default stating what is due. If an application has been made in accordance with the Contract, the application is considered the Payee’s ‘Notice in Default’ (rather than them issuing a separate notice of payment) -> The amount contained in the Notice in Default may be considered as the amount DUE
  • Withholding payment – provides clarity – requirement to pay the ‘notified sum’. Payer may amend ‘notified sum’ via a ‘notice of intention to pay less’.
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7
Q

What documentation makes up an NEC3 contract?

A

Form of Agreement, Works Information, Site Information, Pricing document, Contract Data Part 1, Contract Data Part 2, Programme

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8
Q

Documentation that makes up a NR contract?

A

The contract agreement (form of agreement), schedule of post tender amendments, Appendix Part 1 (same as CDP1 & 2), the conditions of contact with NR amendments, technical workscope, HSEA, preliminaries, Appendix parts 2-4, pricing document.

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9
Q

What’s included in the works information?

A

Description of works, constraints e.g. access to site, working hours, contractors design e.g. design submission procedures and approvals, completion e.g. completion definition, training, final clean requirements, programme requirements additional to clause 31.2

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10
Q

What is the structure of a NEC contract?

A
  • Core clauses
  • Dispute resolution (W2 – adjudication)
  • Secondary option clauses
  • S(S)CC
  • CDP1 & CDP2
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11
Q

What are the main differences between NEC and JCT?

A

Collaboration, NEC has EWN process, time baring in NEC, NEC - CE is time and cost, JCT changes are relevant time and relevant matters, programme is contractual document in NEC

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12
Q

What are the roles and responsibilities of the named parties in NEC3?

A

Employer
Project Manager – the key person involved in the management of the contract, duties are summarised in clauses of the contract e.g. issuing a project managers instruction
Supervisor - His main function is to check that work is carried out in compliance with the Works Information. He is also concerned with identifying and correcting Defects.
Adjudicator
Contractor – Responsible for undertaking the works

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13
Q

What are the roles and responsibilities of the named parties in NR contracts?

A

Employer
Employer’s Representative – nominated by the Employer to act for such purposes of the contract such as instructing variations
Contractor – Responsible for undertaking the works

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14
Q

What are the roles and responsibilities of the named parties in JCT contracts?

A

Adjudicator, Architect/Contract Administrator, Quantity Surveyor, Contractor, Employer
Employer’s Representative, Site Manager (appointed to act as the Contractor’s representative)

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15
Q

What are liquidated damages and benefits?

A

Pre-determined damages written into the contract for non-completion or missing a sectional completion date. Genuine pre-estimate of loss.

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16
Q

Who calculates delay damages?

A

Client

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17
Q

What is an unliquidated damage?

A

Haven’t pre-determined the damages.

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18
Q

What do you do if your contract has a liquidated damage stated as zero?

A

Nothing – stays zero.

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19
Q

Delay damages blank?

A

Up for negotiation

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20
Q

How to enforce delay damages?

A

Through pay less notice, should always be having conversations with contractor counterpart, issue EWNs, need to consider the relationship, often last resort

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21
Q

What is consequential loss?

A
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22
Q

What are collateral warranties and benefits?

A

A collateral warranty is an agreement with a third party that is not named in the contract. Creates a contractual agreement where there wasn’t one, this party can benefit from privity of contract. Protection mechanism e.g., could use to complete the works if the contractor goes insolvent. Third Party Rights Act 1999 can be used instead.

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23
Q

Example of where collateral warranties can be used?

A

In a D&B contract between the designer and the employer?

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24
Q

What is a net contribution clause?

A

Limits the party in the collateral warranty to only be liable for the works they have undertaken.

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25
Q

What are third party rights?

A

The Contracts (Rights of Third Parties) Act 1999 allows a third party to a contract, i.e. not the Employer or the Contractor, to enforce a term of that contract in certain circumstances.

This Option (Y(UK)3) will ensure that only those terms that are clearly set out in Part one of the Contract Data can be enforced by those persons, or class of persons, that are named. This will ensure that third party rights cannot be implied from any of the other terms of the contract or Works Information

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26
Q

What do you do if a contractor goes insolvent?

A

Check contract, is there a PCG to call upon to finish works? Could you enter into contract with a sub-contractor to finish works? Could re-tender (more time consuming and costly).

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27
Q

What are the secondary option clauses NEC?

A

Adapt contract to suit nature of project and requirements of the client e.g. X7.

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28
Q

What are delay damages (X7)?

A

Delay damages are liquidated damages paid by the Contractor if he fails to complete the works by the Completion Date. The rate is defined in CDP1 (should not exceed a genuine pre-estimate of the damage which the Employer will suffer as a result of the Contractor’s breach).

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29
Q

Opinion on delay damages?

A

Suitable mechanism for a genuine requirement and based on a genuine pre-estimate of loss for the client but should not be used a punishment tool to punish the contractor

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30
Q

What is retention (X16)?

A

The purpose of retention is to enable the Employer to retain a proportion of the Price for Work Done to Date as security and as an additional motivation for the Contractor to complete the works. Usually 3 to 5%. Half of the retention being held is released at Completion of the works and the remaining half is released at the end of the defects period. Can have a retention free amount stated in CDP1. Not collaborative, impacts contractors cash flow.

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31
Q

What is an alternative to retention?

A

Retention bond.

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32
Q

What is a retention bond?

A
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33
Q

What is the change process under NEC3? (Option A)

A
  • A CE can be notified by either the employer or the contractor but it needs to be an event under clause 60.1
  • If the contractor is notifying he has to do so within 8 weeks of becoming aware of event and the PM has to reply within 1 week if he agrees or not
  • If the PM agrees or if the PM is issuing a CE, he instructs the contractor to either provide a quote and proceed or provide a quote and do not proceed
  • The contractor provides a quote withing 3 weeks
  • The PM has to assess quote within 2 weeks for acceptance or non acceptance
  • If the PM does not accept, he can do a PM assessment or the contractor quotation period starts again
34
Q

Find 3 examples of CEs

A
  • The project manager gives an instruction changing the Scope
  • Denied access
  • The Project Manager or the Supervisor does not reply to a communication from the Contractor within the period required by the contract
35
Q

What is the change process under NR contracts (NR12)? (Target Cost)

A
  • Variations must be instructed by the Employers representative in writing.
  • The contractor submits offer with estimated cost and estimated delay.
  • If the Employers representative accepts the contractors offer, he shall issue a variation order and the contractor shall be entitled to an adjustment to the target cost.
  • Unlike NEC, no time baring parameters.
36
Q

How do you assess an interim valuation NEC Option A?

A

Contractor submits AfP at assessment interview, request substantiation, check if work are complete on site or work with project team/engineers, only 100% of activities can be applied for and certified. Cumulative work done to date.

37
Q

How do you submit an interim valuation on NR3 (Cost Reimbursable)?

A

Apply at the end of the period in line with the contract, I would download the project cost report including time sheets and expenses to get the costs incurred to date, ensure disallowed costs are not included, apply appropriate rates for staff and expenses and fee.

38
Q

How do you submit an interim valuation on NR12 (Target Cost)?

A

Apply at the end of the period in line with the contract, I would download the project cost report including time sheets and expenses to get the costs incurred to date covered under total cost (NEC equivalent is defined cost), ensure disallowed costs are not included, apply for the fixed fee.

39
Q

What is an early warning?

A

A risk management tool is designed to encourage a ‘no-surprise’ approach by both parties to the contract and has considerable benefits to the parties in relation to time, cost and quality.

A notification that is given as soon as either of the parties becomes aware of any matter which could increase the total of the prices, delay completion or a key date, impair the performance of the works in use.

40
Q

How do you assess a CE if an EWN hasn’t been submitted by the contractor?

A

The sanction for failure by the Contractor to give early warning is to reduce the payment due to him for a related compensation event (63.5) - If the Project Manager has notified the Contractor of his decision that the Contractor did not give an early warning of a compensation event which an
experienced contractor could have given, the CE is assessed as if the Contractor had given early warning.

41
Q

How do you assess a CE NEC?

A

CE notification has to state what clause the CE is. Respond within one week to review NCE, is say yes, 3 weeks to price quotation, accept, reject with 2 weeks and resubmit or PMA. Quote check – rates in contract and SSCC.

Option A - Defined Cost is the cost of the components in the Shorter Schedule of Cost Components whether work is subcontracted or not excluding the cost of preparing quotations for compensation events
Option C - paid defined cost less disallowed cost, fee applied on top

42
Q

What is included in the SCC and SSCC?

A

What the contractor is entitled relating to people, equipment, plant and materials, anything not included in the SCC is deemed within the fee. Rates for the schedules are populated in CDP2.

43
Q

What if there is not an appropriate rate in contract?

A
  1. Bill of quants, 2. Schedule of rates, 3. Similar rates, 4. Go and get quote
44
Q

How do you assess a variation NR3 & NR12?

A
  • NR 12 Total Cost, less disallowed cost, fixed fee
  • NR 3 Actual hours incurred multiplied by agreed schedule of rates and actual expenses, backed up by timesheets and invoices
45
Q

Example of entitlement to change under NR12 contract?

A

Failure by employer to give access to the site or obstructions which could not have been foreseen by the contractor (NR cancelling possessions)

46
Q

Types of letters of intent?

A

Comfort letters, instructions to proceed with consent to spend, recognition of the existence of binding contracts

47
Q

What is included in each LOI?

A

Comfort letters – the letter is only a statement of intent and does not create a legally binding contract

Instructions to proceed with consent to spend – these are legally binding contracts which pre-date and are superseded by the main contract when executed. What’s included (but not limited to):
* Parties
* Price
* Intent to enter into main contract
* Dates for possession and completion
* What the other party will be entitled to if the main contract is revoked by either party
* Whether the contractor will be entitled to interim payments
* The procedure for terminating the LOI
* The expiry date of the letter

Recognition of existence of binding contracts – may be used to execute the contract before the formalities of copying, binding and signing the contract may be completed. Sometimes may be used when the parties wish to enter into a binding contract but some of the terms are not agreed and negotiations are ongoing. What’s included (but not limited to):
* Parties
* Contract documents
* The contract sum
* Dates for possession and completion
* Insurances
* The superseded effect of the contract documents that are to be executed and how interim payments are taken into account

48
Q

Alternative to LOI

A

PCSA (PCSA also used to appoint contractor for ECI)

49
Q

Advantages of LOI?

A

Allows works to commence before the main contract is agreed and signed

50
Q

Disadvantages of LOI?

A

Less robust than the main contract (less clauses) less case law

51
Q

How was your clients liability capped?

A

Capped on what the letter includes in spend, time, insurance.

52
Q

Why legal drafted?

A

We are not insured or qualified, ran a comp check for the value

53
Q

What are the main insurances?

A

Professional Indemnity, Contractors All Risks, Employers Liability, Public Liability

54
Q

What is triggered at completion?

A

Half retention is released, defects period commences, LDs stop, insurances switch to employer

55
Q

Explain the payment provisions under NR12?

A

I know that in line with the construction act and contract, I have 5 days to issue the interim payment certificate after the due date. If my client disagrees with the certification, he has 7 days before the final date for payment to issue a pay less notice. The entire default payment cycle under NR12 is 21 days which is within the 24 day cycle of the scheme for construction contracts.

56
Q

Explain the payment provisions under NEC3?

A

I know that in line with the construction act and contract, I have 5 days to issue the interim payment certificate after the due date. If my client disagrees with the certification, he has 7 days before the final date for payment to issue a pay less notice. The entire default payment cycle under NEC3 is 21 days which is within the 24 day cycle of the scheme for construction contracts.

57
Q

What is assignment?

A

The transfer of a right or benefit from one party to another.

58
Q

Named and nominated contractors?

A

Named allows contractor to choose and take risk. Nominated, selected by the client and the client’s risk for performance and cost.

59
Q

What are the risks of using bespoke contracts?

A

Not tested in case law. Less managing guides available e.g., for NR contracts like the managing reality books for NEC.

60
Q

What types of float NEC programme?

A

Terminal float, total/project float, time risk allowances.

61
Q

What is insurance?

A

Risk spreading mechanism

62
Q

How do you determine the levels of cover required for PI?

A
63
Q

Run off cover

A

Merrett V Babb case law. Required for a minimum of 6 years from the expiry date of the policy in force at the time of cessation or for 6 years from the cessation of the practice.

64
Q

What happens if contractor doesn’t put in AfP?

A

NEC4 – PM doesn’t have to do an assessment

65
Q

Disallowed Costs (NEC)

A

is not justified by the contractors accounts or records, correcting defects after completion.

66
Q

Disallowed Cost (NR)

A
67
Q

Total Cost (NR)

A

Same as defined cost under NEC. Means all cost (excluding Disallowed Cost and items covered by the Fee) incurred by the Contractor for the design, construction and completion of the Works in accordance with the Contract, as determined in accordance with the Appendix Part 4;
Appendix Part 4:
Staff
Labour
Materials and goods
Contractor’s equipment

68
Q

Difference between collateral warranty and third party rights?

A

The rights being conferred by a third party rights notice can be narrowed to specify exactly which rights and/or contract terms are to be transferred. Whereas, with collateral warranties the terms of the entire contract are to be transferred across.
The right created is to enforce terms of a contract, not the whole contract itself.

69
Q

Terminal float?

A

Contractor owns – difference between planned completion and the completion date.

70
Q

Time risk allowances?

A

If the contractor identified an activity float in the programme, the contractor owns it.

71
Q

Total float?

A

Owned by the project, available to the client or contractor on a first come first serve basis.

72
Q

Implied term?

A

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.

73
Q

Express term?

A

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.

74
Q

If a client wanted to change payment terms what would you advise they consider?

A
75
Q

What did you advise around delay damages?

A
76
Q

What did you consider before advising delay damages?

A
77
Q

What where the operational implications?

A
78
Q

Opinion on retention?

A

Incentive for contractor, easily to calculate and administer but crude method, cashflow restricted.

79
Q

Did you consider an ECI contract, rather than an LoI?

A
80
Q

Case law around LOI

A
81
Q

Types of bond?

A
  • Retention
  • Performance
  • Advanced payment
  • Tender
  • Off-site materials bond
82
Q
A

EH APC Cards (20 decks)

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