Contract Practice Flashcards
1
Q
What is a contract?
A
- A contract is a legally binding promise (written or oral) by one party to fulfil an obligation to another party in return for consideration.
- A basic binding contract should comprise four key elements: offer, acceptance, consideration and intent to create legal relations.
2
Q
Please define ‘express terms’?
A
- Express terms are the terms of the agreement which are expressly agreed between the parties.
- Ideally, they will be written down in a contract between the parties but where the contract is agreed verbally, they will be the terms discussed and agreed between the parties.
3
Q
Please define what is meant by ‘implied terms’?
A
A contractual term that has not been expressly agreed between the parties but has been implied into the contract either by common law or by statute.
4
Q
What is tort?
A
A tort is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act.
5
Q
How do statutory provisions and contract provisions differ?
A
- Statutory provisions are set out by law and must be complied with regardless.
- Contract provisions relate to the contract in question and therefore only apply to a specific project.
6
Q
What is your opinion of oral contracts?
A
While they are legally binding, the difficulty lies in proving the specific terms and conditions of the agreement. A written contract is always preferred.
7
Q
What is a breach of contract?
A
- A breach of contract occurs when one party in a binding agreement fails to deliver according to the terms of the agreement.
- A breach of contract can happen in both written and oral contracts.
8
Q
What is the Local Democracy, Economic Development and Construction Act 2009?
A
- October 2011 - The Local Democracy, Economic Development and Construction Act 2009 (the “2009
Act”) came into force in England and Wales. - The Act amended the Housing Grants Construction and Regeneration Act 1996 (the Construction Act).
- The Act changed the way construction contracts are entered into and introduced an amended regime for payment and adjudication.
9
Q
What are the key provisions under the Act?
A
Contracts:
The LDEDC Act repeals the requirement for construction contracts to be in writing; therefore, contracts that are partly in writing or wholly oral are now covered. This wil allow parties to go to adjudication even if their involvement is not formally recognised in writing.
Payment:
Under the HGCR Act, a construction contract must have an adequate mechanism’ for determining what payments are due and when they become payable.
Pay-when-certified clauses can no longer be used to prevent paying a subcontractor on the basis that a certificate in the main contract is yet to be issued.
Payment notices: contractual requirements:
- The construction contract must specify thal either the payer or the payee (but not both) will issue the payment notice.
- This must be issued not later than 5 days after the payment due date and before the final date for payment identified by the construction contract (the parties being free to agree how long the period is between the date the sum becomes due and the final date for payment).
- The payment notice must specify the sum the payer or payee considers to be is due at the payment due date and the basis on which that sum was calculated. A payment notice must be issued, even if the amount of the payment notice is nil.
Payment notices: payee’s notice in default of payer’s notice:
- If the payer is required by contract to issue a payment notice and fails to serve that notice in the required form or within the set timeframe, the payee is entitled to issue a default payment notice.
- A default payment notice obliges the payer to pay the amount due and allows the payee their statutory right to suspend performance for non-payment.
Pay less notice:
- Paying parties are required to either pay the notified sum specified in either the payment notice or default payment notice, by the final date for payment or serve an effective pay less notice. This allows the payer to amend the sum due if it is later discovered that work covered or the amount notified within the payment notice turns out to be unsound.
- To be effective, a pay less notice must specify the sum that the paying party considers to be due on the date the notice is served, the basis on which that sum is calculated and be served no later than the prescribed period prior to the final date for payment.
Suspension of performance for non-payment:
- The LDEDC Act clarifies the contractor’s right to suspend carrying out the work in the event of non-payment.
- To validly suspend performance of its obligations by reason of non-payment, a default notice must be issued and there must have been a failure to pay. The party in default (the party who has not paid) is liable to pay to the payee (the contractor stopping work) a reasonable amount by way of costs and expenses incurred by exercising the suspension of all or part of the work.
10
Q
What is a letter of intent?
A
- Typically used to describe a letter from an employer to a contractor (or from a main contractor to a subcontractor) indicating the employer’s intention to enter into a formal written contract for the works described.
- The letter of intent typically asks the contractor to begin those works before the formal contract is executed.
11
Q
What information is typically included in a letter of intent?
A
- Detailed description of the work to be completed.
- Contract sum (if agreed).
- Date for possession.
- Date for completion.
- Insurance provisions required
- Method of payment.
- Expiration date of the letter.
- Typically, it states employers’ right not to award the main contract for whatever reason.
- ADR method for dispute resolution.
12
Q
What are the advantages of a letter of intent?
A
Allows work to commence (or place orders) before the main contract is agreed and signed.
13
Q
What are the disadvantages of a letter of intent?
A
- May lead to complacency and disincentivise both parties from signing the main contract.
- A letter of intent is usually less robust than the main contract.
- The employer’s negotiation strength is usually reduced.
14
Q
Who issues the letter of intent?
A
The employer
15
Q
In what circumstances might a letter of intent be used?
A
- Where the employer needs to commence work before a certain date.
- Where materials have long lead periods and early procurement would aid the programme.
- Starting construction might trigger external founding.
16
Q
Who usually signs the letter of intent?
A
Both the employer and the contractor.
17
Q
What would you say if the client asked you to draft a letter of intent?
A
It is a legally binding agreement like a contract; therefore, the document should be drafted by a legal or contract professional.
18
Q
What are the different types of letters of intent?
A
Comfort letter:
A comfort letter is a letter expressing a party’s intention to act in a particular way at some point in the future or at the time of issuing the letter.
Instruction to proceed with consent to spend:
A letter with instructions to proceed and consent to spend is sometimes referred to as an “if” contract.
This type of letter allows work to proceed up to a certain value while the contract itself is being finalised.
Recognition of contract:
This type of letter is also referred to as a letter of acceptance and is used by some forms of contract (such as FIDIC) to formally execute the contract itself. Generally, such a letter will be issued only once the contract has been substantially agreed and usually marks the completion of negotiations between the parties.
19
Q
Are you aware of any case law relating to letters of intent?
A
Ampleforth Abbey Trust v Turner & Townsend.
- The defendant project managers were retained by the Trust in relation to a project to build new accommodation at a school.
- The defendant’s retainer included obligations ‘facilitating, assisting and being involved in the procurement of the building contractor and the building contract.
- The contractor never signed the building contract and the whole of the works (which was completed late) was procured using letters of intent.
- The effect of this was that the Trust was not able to claim liquidated damages under the building contract for the late completion of the works.
- HHJ Keyser QC held that the defendant had been negligent in failing to take the steps reasonably required of a competent project manager for the purpose of finalising the building contract between the Trust and the contractor.
20
Q
What is a parent company guarantee?
A
- A parent company guarantee (PCG) is a form of security that may be required by clients to protect them in the event of default on a contract by a contractor that is controlled by a parent company (or holding company).
- Typically, such a default might be caused by the insolvency of the contractor.
21
Q
In what circumstances may a Parent Company Guarantee be required?
A
- Parent company guarantees can be particularly useful where a small contractor is part of a large, financially stable group of companies.
- The guarantee is given by the parent company to the client and in the event the contractor defaults on their obligations, the parent company is required to remedy the breach, meeting all the contractor’s obligations under the contract (and/or covering loss and expense incurred by the client).
22
Q
Are there any Acts that govern third party rights?
A
Contracts (Rights of Third Parties) Act 1999.
23
Q
What is the overarching purpose of the Contracts (Rights of Third Parties) Act?
A
- The Act allows third parties to enforce terms of contracts that they are not party to, but that benefit them in some way, or which the contract allows them to enforce.
- It also gives parties access to various remedies if those contract terms are breached.
24
Q
What are the advantages of third-party rights?
A
Time and cost:
Since no separate document (i.e. a collateral warranty) is being entered into, using the Act cuts down on the time and cost associated with warranties being drawn up, signed and circulated.
Certainty:
- Once the rights to be conferred on third parties are negotiated and agreed by all parties, there is limited room to revisit the wording when protection is required as is often the case when new collateral warranties are circulated for signature.
Subcontractors:
The third-party rights process can also be extended to subcontracts, so that (provided the relevant buiding contract and subcontract are drafted accordingly) an employer can unilaterally confer third party right in relation to work done by subcontractors. This avoids the need to chase large numbers of individual warranties.
25
What are the disadvantages of third-party rights?
Lack of flexibility:
Once the schedule of third-party rights being conferred has been agreed, there is limited room for negotiation. While this can be an advantage as it will help to keep costs down, in some circumstances the inflexibility could cause a problem if a specific provision is required for a particular party, such as an incoming tenant or purchaser.
Need for careful drafting:
- Recent cases have shown the importance of drafting provisions relating to the enforcement of third-party rights very clearly to ensure that all the necessary rights are conferred on the third party, for example, the right to commence adjudication proceedings if this is required.
26
Why might third-party rights be used instead of collateral warranties?
- If a lot of collateral warranties are required, it can involve a lot of administration and cost.
- Third-party rights are easier to get in place because there is no separate document required.
27
What is a collateral warranty?
- A collateral warranty is a formal contractual agreement which runs alongside another contractual agreement
- Its purpose is to create a contractual relationship between two parties (e.g. companies or individuals) where one would not otherwise exist.
28
Can provide a working example of how a collateral warranty could be used?
- The employer places a contract with a contractor, the contractor then places several subcontracts with its suppliers to undertake the work. The employer has a direct contractual relationship with the contractor, but he has no contractual relationship with any of the subcontractors (this is known as 'privity of contract).
- In these circumstances the employer may wish to have a direct contractual relationship with the subcontractor so that it can enforce the obligations that the subcontractor owes directly, or to create other obligations and rights between them. This might be considered a security measure if the contractor should become insolvent or if its employment were to be terminated for any reason.
29
Who might want a collateral warranty?
- Any third party with a financial or inherent interest in the project but is not party to the main contract.
E.g. funding institution, future tenants, purchasers, etc.
- The employer may want a collateral warranty with key subcontractors or suppliers, if the contractor were to go into liquidation, otherwise they would have no contractual link with them for redress in case of defective workmanship, etc.
30
What is the difference between a bond and a collateral warranty?
- A bond is usually a financial commitment backed up by a third party, a collateral warranty passes on contractual obligations.
- Bonds are contained within the contract.
- Collateral warranties are a side agreement to the contract.
31
Are there any alternatives to collateral warranties?
An alternative method to confer such rights is provided by the Contracts (Rights of Third Parties) Act 1999 which allows third parties to obtain benefits from contracts, which are entered into by others.
32
What are the three ways that benefits can be transferred under a building contract?
- Collateral warranties.
- Third party rights.
- Assignment.
33
Are you aware of any case law relating to collateral warranties?
Parkwood Leisure v Laing O'Rourke.
- In light of the particular wording used in the collateral warranty, there was no doubt that it should be treated as a construction contract under Section 104 of the Housing Grants, Construction and Regeneration Act 1996.
34
There is a high probability that collateral warranties will be needed under a D&B contract. Can you explain why?
The design team typically sit below the contractor under a D&B contract; therefore, the employer will need to retain a contractual link with the design team (using a collateral warranty).
35
What is assignment?
Assignment is the process whereby the benefit of a contract is transferred from one party to another, but the burden of the contract remains with the original party to the contract.
36
Can you provide a working example to explain how assignment might be applied?
- Assignment can arise where one party wants to assign a benefit of the building contract to a third party, such as a purchaser or tenant.
- Banks and other funders will frequently take an assignment as an additional part of the security package for their loan to finance the development in the event of the employer defaulting on its financial obligations during the works.
37
What are some of the typical clauses of assignment?
- It is standard to allow assignment of rights twice without consent.
- The assignment should be notified in writing.
38
What is a bond?
- Construction bonds are protection for the owner against non-payment, lack of performance, company default and warranty issues.
- An arrangement where a contractual duty owed by one party to another is backed up by a third party.
39
Can you list five different bonds that might be used on a project?
- Performance bond.
- Retention bond.
- Off-site materials bond.
- Advance payment bond.
- Tender bond.
40
What is a performance bond?
- A Performance Bond is a form of security provided by a contractor to a developer or employer.
- It consists of an undertaking by a bank or insurance company to make a payment to the employer in circumstances where the contractor has defaulted under the contract.
41
When might the employer want a performance bond?
- If the contractor is new or unapproved.
- If there is concern over the contractor's finances/commercial standing.
- The economy might be heading into recession.
- The employer simply wants to protect their commercial exposure.
42
What is the difference between on-demand and conditional performance bonds?
On-demand bonds - Money set out in the bond is immediately available on demand without needing to satisfy any preconditions whatsoever (including establishing the contractor's liability), unless the demand is fraudulent.
Conditional bonds - Requires the employer to provide evidence that the contractor has not performed their obligations under the contract and that they have suffered a loss consequently.
43
What is the typical value of a performance bond?
Usually, 10% of the contract sum.
44
What is the typical cost of a performance bond?
The cost largely depends on the financial stability of the contractor and the number of previous claims (if any).
45
What is the risk of not having a performance bond?
- In the event a contractor goes into insolvency and there is no bond in place, the employer will be liable to pay all costs to deal with the insolvency.
- Costs include sourcing a new contractor to complete the works and any premium that will attract.
- The employer will not be able to pursue the contractor as the company will be in the process of liquidation.
46
Are there any alternatives to a performance bond?
- If the contractor is part of a group of companies, then the employer may wish to consider a Parent Company Guarantee (PCG).
- If the smaller company breaches the contract, the parent company is obligated to step in and remedy the breach.
47
What is a tender bond?
- Requested by the employer when inviting contractors to tender for a contract.
- A tender bond provides security against the risk of the successful bidder failing to enter the contract.
- It should help prevent idle tendering.
48
What is an off-site material bond?
- Covers an employer against the risk of paying the contractor for materials being manufactured off-site.
- If the contractor or subcontractor becomes insolvent, the employer can claim on the bond for goods paid for (in the event they are not delivered to site).
49
What is a retention bond?
A retention bond is a type of performance bond. Like all surety bonds, it involves three parties:
- Contractor.
- Employer
- Bond provider (surety company).
In the bond agreement, the surety will act as a guarantor between the two parties. The surety will pay the employer up to the full amount (like they would have in place of cash retention) if the contractor fails to perform the obligations or remedy defects immediately after contract completion.
50
What are the disadvantages of a retention bond?
- The employer will ultimately have to pay the premium for taking out the bond (usually through the contract sum.
- May reduce the contractor's incentive to complete the work promptly and to the desired standard.
51
Why might a retention bond be used?
May be used in difficult market conditions to aid the contractor's cash flow.
52
What is an advanced payment bond?
- An advanced payment bond is required to protect and support payments to contractors by the employer in advance of work being done.
- Some contracts require the purchase of materials in advance of the contract commencing. There is always a risk to the employer in advancing money to a contractor, particularly if it's a new relationship.
- An advanced payment bond protects the payment being advanced in exchange for a bond underpinned by a suitable guarantor to give peace of mind to both parties.
53
What are antiquities?
Items as:
- Historical artefacts, pottery and coins.
- Bones or fossils.
- Something of historical interest or value.
- Archaeology.
54
What should the contractor do if they discover such objects?
- Cease work and seek advice prior to proceeding.
- Take the necessary measures to preserve in the existing location and condition.
- Inform the contract administrator or project manager of the discovery and the location.
55
When objects of interest are discovered, who is liable for the delay and expense incurred?
- This depends on how the risk is allocated within the contract.
- Significant delays and costs can arise, which can be a serious event for the employer and/or contractor.
56
What are defects?
- Broadly defined as a defect in workmanship, design, materials, or systems used.
- The result is a failure of the building project or structure that causes damage to people or property. This, in turn, leads to financial losses or harm to the owner.
- The NEC contract defines a defect as:
- A part of the work which is not in accordance with the scope or,
- A part of the work designed by the contractor which is not in accordance with the applicable law or the contractor's design which the project manager has accepted.
57
What are patent defects?
- Patent defects are those which can be discovered by reasonable inspection.
- Patent defects would include wall cracks, sagging gutters, broken windows, missing tiles, etc.
58
What are latent defects?
Latent defects are those which cannot be discovered by reasonable inspection, for example, problems with foundations may not become apparent for several years after completion when settlement causes cracking in the building.
Examples include:
- defective tanking in basements
- Inadequate wall ties or wind posts
- Misplaced reinforcement
- Inadequate foundations
59
Why is the defect rectification period typically 12 months?
- 12 months will allow the building to go through all seasons of the year; therefore, most defects (with exception of latent defects) will become apparent within this period.
60
What is novation?
- Under a design & build contract, novation normally refers to the process by which design consultants are initially contracted to the client, but are then 'novated' to the contractor.
- The contractor will then go on to manage the remaining design process with the existing design team, rather than bring their own consultants onboard.
61
Are novation agreements required under traditionally procured projects?
Not usually; this is because the designers are typically retained by the employer.
62
What are some of the advantages of novation?
- Reduced learning curve - by working with the client at an early stage, the design team can gain a strong understanding of the project requirements. If the design team are not novated, this learning is potentially lost, and parts of the process will need to be replicated with a new design team.
- Reduced contractual risk for the employer - the process of novation and the transfer of responsibility to the contractor means the employer assumes minimum risk contractually.
63
What are some of the disadvantages of novation?
- Following novation of consultants, the employer will generally require collateral warranties.
- The client may need to employ a shadow team for compliance purposes.
- There is potential for conflict-of-interest, particularly in relation to services that remain to be performed.
64
What is retention?
A percentage of the sums certified for payment under the construction contract, typically 3-5%, are held by the employer during the construction phase.
65
Are you aware of any guidance issued by RICS associated with retention?
Retention - 1st edition 2012.
66
What is the purpose of retention?
It is used as an assurance of project completion and is intended as a safeguard against subsequent defects that the contractor may fail to remedy.
67
What can the employer use retention monies for?
- If the contractor does not return to correct the defects, then the retention may be used to fund the payment of others to correct the defects.
- The project manager / contract administrator will need to check the contract for the ability to do this and the relevant notices that should be given to the contractor prior to appointing others to undertake the works.
68
How is retention released to the contractor?
Typically, retention monies are released in 2 stages:
- At the time of issuing the completion/practical completion statement, the first half of the retention monies will be certified and released.
- The second half of the retention monies will be certified and released upon the expiration of the rectification period.
69
Who typically benefits from interest accruing on retention money?
Usually, the employer.
70
Are there any alternatives to holding retention?
It is possible to procure a retention bond to cover the retention that would otherwise have been deducted.
71
What is professional negligence?
- Professional negligence occurs when a professional fails to perform their responsibilities to the required standard or breaches a duty of care. -This poor conduct subsequently results in financial loss, physical damage or injury to their client or customer.
72
How can the employer recover a loss if the consultant or contractor is professionally negligent?
Make a claim on their professional indemnity insurance (PII).
73
What is product liability insurance?
- Manufacturers and/or suppliers of products incorporated in construction work are at risk of claims being made against them for damages if defects in those products result in damage or injury.
- Product liability insurance protects the policyholder against liability resulting from these defects.
74
What is public liability insurance?
- Public liability insurance protects against liabilities for injury to third parties or their property.
- For example, a member of the public could make a claim if a fallen brick damaged their car or if a supplier tripped over an unsecured cable.
75
What is employer liability insurance?
Employers' liability insurance can pay the compensation amount and legal costs if an employee claims compensation for a work-related illness or injury.
76
What is Contractor Design Portion (CDP)?
Typically used on traditionally procured projects, design responsibility for specific elements of the building is transferred to the contractor.
77
What is the difference between traditional procurement with CDP and design & build?
- Traditional procurement with CDP - the design responsibility lies with the employer except for certain elements that are transferred under CDP.
- Design & build - all responsibility for the design rests with the contractor.
78
How are CDP elements executed?
- A performance specification is provided at tender stage, the contractor then provides design proposals in response.
- These proposals are then reviewed by the design team and either accepted, commented upon, or rejected.
79
Can you list typical CDP elements which the employer may wish to transfer?
- Steelwork connections.
- Cladding.
- Roofing.
- Temporary works.
- MEP elements.
80
What are 'domestic subcontractors'?
- Domestic subcontractors are chosen by the contractor to execute a package of work.
- Neither the employer's consultants (e.g. architect, PM, QS, etc,) nor the employer themselves influence the appointment or the conditions.
81
What are 'named subcontractors'?
- The employer provides a list of named subcontractors that are pre-approved.
- The contractor selects one from the list through the tendering process.
- Once appointed by the contractor, they then become a domestic subcontractor.
82
What are the advantages of naming subcontractors?
Naming a subcontractor provides the employer with more control to the selection of a subcontractor by the contractor, while still leaving them with the element of choice and the responsibility of monitoring their performance.
83
What are 'nominated subcontractors'?
- A nominated subcontractor is selected by the employer to carry out an element of the work (still employed by the contractor).
- Nominated subcontractors are usually imposed on the contractor.
84
What are the disadvantages of nominated subcontractors?
- As the subcontractor is being imposed on the contractor, the contractor will generally be allowed the right to object under certain conditions (safety reasons, for example).
- The contractor and subcontractor may have conflicting procedures, ethics, attitudes etc
85
What are the advantages of nominated subcontractors?
On the basis that the employer has nominated them in the first instance, their work should be of high quality and acceptable to the employer.
86
Are you aware of any guidance issued by RICS associated with subcontracting?
Subcontracting, 1st Edition, April 2021.
87
What is insolvency?
Insolvency is concerned with the inability to pay debts.
88
What can be done at tender stage to identify potential contractor insolvency?
- Thoroughly check financial accounts for stability.
- Check for front loading of the tender submission.
- Bank refences.
- Use credit checking agencies (Dun & Bradstreet Report).
- Previous references (from consultants and employers).
- Request a bond and/or parent company guarantee - this will not prevent insolvency but will give the employer comfort in the event of default.
89
What is termination?
When a contract is terminated, the parties are no longer obliged to perform their obligations under the contract.
90
Can the contractor suspend work for non-payment?
- If the notified sum is not paid by the final date for payment, the Construction Act 2009 puts the payee in a stronger position than before.
- The contractor can now suspend the performance of any or all of its obligations, not just the work.
- The contractor can stop insuring the works, postpone applying for a necessary consent, or refuse to implement a variation instruction.
- The payee will be entitled to a "reasonable amount" for its re-mobilisation costs, as well as an extension of time.
91
What are delay damages / LDs?
- A genuine pre-estimate of loss suffered by the employer because of late completion of the works. The damages are inserted into the contract prior to signing by the contracting parties.
Key points:
- LDs should not be a penalty.
- Quick remedy to avoid having to prove actual loss due to the breach.
- The contractor knows their liability.
- The employer should calculate the figure (consultants should not do this on their behalf).
92
What sort of expenses/costs can the employer include in the damage calculation?
- Loss of rent or other income.
- Additional professional fees.
- Expected costs incurred by other parties.
- Cost of not having a facility (storage, rent, abortive costs, etc.).
- Capital salaries.
- Associated legal costs.
- The figure should not be construed as a penalty; thus, the employer needs to be realistic when identifying potential costs.
93
What if your client tells you the damages are £100,000 per week?
- Exercise due diligence - check that they do believe £100,000 per week is a genuine pre-estimate of likely loss.
- If there is a concern - explain the dangers that the damages might be construed to be a penalty (they may not be enforceable).
94
Under JCT contracts, what contractual documents should be in place before damages can be deducted?
- A non-completion notice/certificate is in place.
- The contractor is formally notified that the employer intends to levy liquidated damages.
- A pay-less notice is served.
95
What is a LD holiday or LD free period?
- This is essentially just a grace period during which the contractor has no commmerical liability for delay.
- For example, if the contractor has a two-week LDs holiday, LDs will only begin accruing after the delay has continued for two weeks.
96
What is the implication of inserting 'nil' or £0 against the damage clause?
- Placing 'nil' or £0 against the clause effectively means there are no liquidated damages.
- This action may also prevent the employer from pursuing the contractor for unliquidated damages.
97
What is the implication of leaving the damage clause blank?
If the clause is left blank, then the employer can pursue the contractor for unliquidated damages if they choose to do so.
98
What is the difference between liquidated and unliquidated damages?
- Contracting parties might agree to pay a certain amount on breach of the contract (usually due to a completion delay).
- When such provisions are created in the contract, they are known as liquidated damages.
- Unliquidated damages are granted by the courts based on an assessment of the loss or injury caused to the party suffering a breach of contract.
99
If the date for completion is adjusted, what effect would this have on delay damages?
Damages cannot be deducted from the original date; damages are levied from the revised practical completion / completion date.
100
Can the employer levy liquidated damages if they do not actually incur the loss identified in the initial calculation?
In essence, yes, provided that:
- The damages levied are not deemed to be a penalty on the contractor.
- The original calculation is a genuine pre-estimate of loss.
101
What is a pre-construction services agreement (PCSA)?
- A contract between the employer and contractor for pre-construction services.
- The PCSA documents the services that the contractor is to perform before signing the building contract and identifies the terms and conditions under which these services are to be performed.
102
When might a PCSA be used?
In a two-stage tender approach to facilitate early contractor involvement.
103
How can a PCSA benefit the project?
Early involvement of the contractor should improve the buildability and cost certainty of the design, as well as creating a better integrated project team and reducing the likelihood of disputes.
104
What sort of activities can the PCSA be used for?
- Contribute to the design process.
- Advise on buildability, sequencing and construction risk.
- Advise on the selection of specialist subcontractors.
- Help develop the cost plan and construction programme.
- Help develop the method of construction.
- Assist with any planning application matters or other approvals.
105
What should be considered when drafting the PCSA?
- Arrangements do not commit the employer to entering into the building contract. It is important that the employer have a means of securing an alternative bid if second-stage negotiations fail.
- The scope of service for the contractor is clearly defined and unambiguous.
- The usual programme and delay damage clauses are carefully drafted by the legal team.
106
What are the main forms of building contracts?
- JCT (Joint Contracts Tribunal).
- NEC (New Engineering Contract).
- FIDIC (International Federation of Consulting Engineers).
- Bespoke contracts are also used.
107
What are some of the considerations when selecting the appropriate construction contract?
- Nature of the client.
- Priorities - cost, time, quality and risk allocation.
- Procurement choice.
- Value of work.
- Type/nature of work.
- Public or private employer.
- Complexity of work.
- Size and location of work.
108
What is a bespoke contract?
- Bespoke contracts are contracts that are tailored to fit the specific requirements of a project.
- Bespoke contracts are often used when standard forms are not suitable.
109
What are the advantages of standard forms over bespoke contracts?
- Written by legal experts.
- The rights and obligations of each party are clearly set out to the required level of detail.
- Parties should be familiar with the provisions in the form, resulting in greater consistency in application and fewer unforeseen anomalies.
110
What are the disadvantages of bespoke contracts?
- Familiarity decreases as they are rarely used.
- Expensive to draft (legal fees).
- May be poorly drafted and lead to ambiguity.
- Not familiar to the party administering the contract.
- Clauses or provisions might be untested in court.
- This type of contract could be unappealing to the contractor.
111
When would a bespoke contract be appropriate to use (rather than a standard form)?
When amending a standard contract will not do, the most efficient means of achieving a client's requirements might be to create a bespoke contract.
112
Have you amended a standard contract? Can you explain exactly how you did this?
- As consultants, we do not have legal training, so we do not amend the contract ourselves.
- All amendments should be drafted by the legal team.
113
What are some of the risks associated with amending a standard contract?
- Amendments can spoil the delicate balance of risk allocation.
- Can create legal uncertainty.
- Can attract a cost premium to tenders.
- Amendments must be reasonable and comply with legislation.
- Courts can strike out amendments if they are contrary to good faith.
114
What does JCT stand for?
Joint Contracts Tribunal.
115
What are some of the contracts in the JCT family?
- Standard Building Contract.
- Intermediate Building Contract.
- Minor Works Building Contract.
- Major Project Construction Contract.
- Design & Build Contract.
- Management Building Contract.
- Construction Management Contract.
- JCT Constructing Excellence Contract.
- Measured Term Contract.
- Prime Cost Building Contract.
- Repair & Maintenance Contract.
- Homeowner Contract.
116
What are key project characteristics that could influence which JCT contract is used?
- Size, value and type of project.
- Need for contractor design.
- Certainty on the final cost.
- Appetite for risk ownership and risk transfer.
- Employer experience.
- Programme requirements.
117
When would you use the JCT Minor Works Contract?
- The contract is designed for smaller, basic construction projects where the work is of a simple nature.
- Minor Works Building Contracts are suitable for projects procured via the traditional method.
118
What are the key features of the JCT Minor Works Contract?
- The employer is responsible for the design. The employer (through its advisers) will need to provide drawings, a specification, or work schedules to specify the quantity and quality of work at tender stage.
- If the appointed contractor is to be responsible for designing specific parts of the works, then a Minor Works Building Contract with contractor's design must be used
- The Minor Works Building Contract is not suitable where the project is complex enough to require bills of quantities, detailed control procedures, or provisions to govern work carried out by named specialists.
- Minor Works Building Contracts are normally administered by the architect or a contract administrator.
119
When would you use the JCT Intermediate Contract?
- The contract is designed for construction projects involving all the recognised trades and skills of the industry, where fairly detailed contract provisions are needed, but without complex building service installations or other specialist work.
- Intermediate Building Contracts are suitable for projects procured via the traditional method.
120
When would you use the JCT Standard Building Contract?
- Designed for large or complex construction projects where detailed contract provisions are needed, it is suitable for projects procured via the traditional method.
- The employer is responsible for the design. However, Standard Building Contracts also have an optional provision for a 'Contractor's Designed Portion' if the appointed contractor is to be responsible for the design of specific parts of the works.
- Works can be carried out in sections.
121
When would you use the JCT Major Project Construction Contract?
- Designed for large-scale construction projects where major works is involved.
- It is used by employers who regularly procure large-scale construction work and the work is carried out by contractors with the experience and ability to take greater risk than would arise under other JCT contracts.
- Major Project Construction Contracts are suitable for projects procured via the design & build method.
122
What are the key features of the JCT Major Project Construction Contract?
- Often in Major Projects, a 'novation' agreement is put in place so that the architect or designer who initially worked with the employer continues to complete the design under the responsibility of the contractor.
- The employer usually employs a representative to exercise their powers and functions under the contract.
- The project can be carried out in sections.
- The employer and contractor have their own detailed in-house procedures, so only limited procedures need to be set out in the contract conditions.
- The contractor is responsible for the design, as well as completing the works. The scale of design work to be carried out by the contractor can vary.
123
When would you use the JCT Design & Build Contract?
- The JCT Design & Build Contract is designed for construction projects where the contractor carries out both the design and the construction work. - Design & build projects can vary in scale, but the Design & Build Contract is generally suitable where detailed provisions are needed.
124
What are the key features of the JCT Design & Build Contract?
- The scale of design work needed to be carried out by the contractor can vary greatly on design & build projects.
- The contractor will complete a design based on a concept provided by the employer's advisers or will be responsible for producing and completing the design right from the outset.
- The design requirements and responsibility of the contractor in design & build projects go beyond those covered in a traditional contract with a contractor's designed portion.
- The employer normally uses an agent to administer the contract.
- Works can be carried out in sections.
125
When would you use the JCT Prime Cost Contract?
- Designed for projects that require an early start on site, often for alterations or urgent repair work (such as fire damage).
- Usually, the exact nature and extent of the work are not known until the project is underway, so full design documents are not completed until work has commenced.
- Suitable for projects procured via the traditional method, using a cost reimbursement or cost-plus payment structure.
126
When would you use the JCT Measured Term Contract?
- Designed for use by employers who have a regular flow of maintenance, minor works and improvement projects that they would like carried out by a single contractor over a specified period.
- Measured Term Contracts are suitable for projects procured via the traditional method, using a measurement payment structure.
127
When would you use the JCT Construction Management Contract?
- For use on construction projects where the employer appoints separate trade contracts to carry out the works and a construction manager to oversee the completion of the works for a fee.
- Construction management contracts are suitable for projects procured via the management method.
128
What are the key features of the JCT Construction Management Contract?
- Works can be carried out in sections.
- The contract is used where separate contractual responsibility for design, management and construction of the project is desired.
- The employer provides the design and enters into separate direct trade contracts with suppliers to carry out the construction of the works.
- The construction manager is appointed by the employer to manage the project and act as an agent on the employer's behalf.
- The construction manager also administers the conditions of the trade contract.
129
When would you use the JCT Management Building Contract?
- Management Building Contracts are suitable for large, complex projects, where flexibility and an early start on site are required.
- Construction is completed under a series of separate works contracts, which the management contractor appoints and manages for a fee.
- The management contractor employs works contractors to carry out the construction and the works contractors are directly and contractually accountable to the management contractor.
- Works can be completed in sections.
- The employer is responsible for the design which is usually supplied to the management contractor by the architect or design team working on the employer's behalf.
130
What are relevant events?
- A relevant event is an event on or off site that causes a delay to the completion date of the works.
- For example, a relevant event could be something that happens during the design and manufacture process to delay progress, or a site event that prolongs the installation works.
131
Can you provide examples of relevant events in the contract?
- Variations and instructions.
- Deferment of possession of the site.
- Suspension by the contractor for non-payment.
- The carrying out of work by statutory undertakers.
- Impediment, prevention, or default by the employer.
- Loss or damages occasioned by a Specified Peril (fire, flood, etc).
- Exceptionally adverse weather conditions.
- Strike or lockout.
- Civil commotion or terrorism.
- The exercise of any statutory power after the base date by the UK Government or public authority.
- Force majeure.
132
What is force majeure?
Force majeure events are usually defined as certain acts, events or circumstances beyond the control of the parties, for example, natural disasters or the outbreak of hostilities.
133
Can you provide some examples of a force majeure event?
- War, hostilities, invasion, acts of foreign enemies.
- Rebellion, revolution, insurrection and civil war.
- Contamination by radioactivity.
- Riot, commotion, strikes, go slows, lockouts or disorder.
- Acts or threats of terrorism.
134
What happens when a relevant event occurs?
- Upon it becoming reasonably apparent that a delay will occur, the contractor notifies the contract administrator in writing, stating the particulars and extent.
- The contractor must state one of the relevant events and provide details of how and why the delay is occurring or is likely to occur.
- The contractor should give an estimate of the delay in the notice so that the contract administrator can complete their assessment.
- The contract administrator responds within 12 weeks, stating whether a relevant event has or has not occurred.
- If the event has occurred, the contractor administrator assesses the delay.
- A new completion date is then fixed (an extension of time).
135
Assuming the relevant event has occurred and is accepted by the contract administrator, is the contractor entitled to loss and expense?
- Relevant events entitle the contractor to claim an extension of time only.
- The contractor will need to demonstrate a relevant matter has occurred to claim loss and expense.
136
What are relevant matters?
- A matter for which the employer is responsible that materially affects the progress of the works.
- A relevant matter will usually entitle the contractor to submit a loss & expense claim.
137
Can you give some examples of relevant matters?
- Failure to give the contractor possession of the site.
- Failure to give the contractor access to and from the site.
- Delays in receiving instructions.
- Disruption caused by work carried out by the employer.
- Variations
- Instructions
138
What is the difference between a relevant event and a relevant matter?
- Relevant events entitle the contractor to claim additional time.
- Relevant matters entitle the contractor to claim additional costs (loss and expense).
139
What is a loss and expense claim?
Loss and expense claims are often associated with delays but can be for any event where the Contractor incurs loss due to the failure of the employer (relevant matter).
140
What is the key thing to remember when assessing loss and expense claims?
- It should be the actual loss incurred by the contractor.
- The prices in the contract bill of quantities, contract schedule of rates or preliminaries should not be used (actual costs may be more or less than these).
141
What are the common heads of claim in loss and expense?
- Prolongation (extra site preliminaries).
- Thickening of preliminaries (extra site supervision).
- Disruption (causing plant and labour to be underutilised or unproductive).
- Increases in labour and material costs during the period of delay.
- Finance charges (i.e. interest).
142
What are prolongation costs?
- Prolongation costs are a type of financial claim made by contractors due to project delays (usually outside of their control).
- They typically include claims for the cost of time related resources such as site management, site accommodation and key items of plant and machinery.
143
What partial possession?
- A building contract may allow the employer to take partial possession of part of the works before they have been formally completed.
- Partial possession often requires the agreement of the contractor but allows the employer to use part of the works for its intended purpose (prior to completion of the whole of the works).
144
What are the key points of partial possession?
- Not agreed in advance (prior to signing the building contract).
- Usually, completion is deemed to have occurred for that section.
- A voluntary agreement between employer and contractor.
- The contractor must give consent.
145
Can the contractor refuse to give partial possession?
- Partial possession can only be taken with the consent of the contractor, but that consent may not be unreasonably withheld.
- The contractor would be entitled to withhold if occupation of completed areas would hinder their ability to complete the remaining areas.
146
What are the typical implications of partial possession (for both the contractor and the employer)?
- Half retention is released (proportionate to the area of possession).
- The contractor's responsibility for insuring the works (for the relevant part) ends.
- The contractor's liability for liquidated damages ends (proportionate to the area of possession).
- The employer becomes responsible for any damages to the works.
- The defect rectification period commences.
147
What is sectional completion under a JCT contract?
- Sectional completion refers to a provision within the building contract which allows different completion dates to be set for different sections of the works.
- Once it is in the contract, the contractor has an obligation to achieve the sectional completion date.
- Liquidated damages are agreed in advance should the section be delivered late.
148
What is the difference between sectional completion and partial possession?
Sectional completion differs from partial possession in that it is pre-planned and defined in the contract documents.
149
What are the benefits of sectional completion over partial possession?
- Sectional completion leaves less to chance, because the parties have agreed to many of the practical consequences of that completion in advance.
- If something does go wrong (a delay to practical completion, for example), it is easier for the contract administrator to deal with delays, changes or even acceleration with sections in place.
150
What are the main options for insuring the works under a JCT contract?
Option A - The contractor takes out and maintains joint name all risk insurance of the works for new buildings.
Option B - The employer takes out and maintains joint name all risk insurance of the works for new buildings.
Option C - The only option referring to refurbishment and alterations to existing structures. This is where the employer takes out and maintains a joint name all risk insurance policy for the works.
151
What is contractor's 'all risk' insurance?
- The essence of the contractor's 'all risk' cover is protection against physical loss or damage to the works being undertaken.
- Sometimes referred to as 'CAR insurance'.
- The policy will pay for the repair or replacement of the insured works following damage caused by an insured event.
152
What are specified perils?
Specified perils tend to be significant events that would cause very significant damage to the works, including but not limited to:
- Fire.
- Explosions.
- Earthquakes.
- Flooding, etc.
153
What is subrogation?
- Subrogation is a concept that allows an insurance company that has paid a loss to step into the shoes of its insured and then sue a party that may be responsible for causing the loss.
Working example:
If a contractor's crane drops a steel beam, causing damage, the owner's builder's risk insurer pays the loss, the owner's insurer can step into the shoes of the owner and sue the contractor for the loss it caused.
154
What is a joint names insurance policy?
- Policy in the names of two or more parties (i.e. contractor and employer).
- Under a joint names policy, the insurer will have no right of subrogation against any of the insured parties, even where an insured party has caused the loss for which the insurer has had to pay out.
155
What are the key differences between NEC and JCT construction contracts?
- NEC is drafted in plain English. NEC attempts to eliminate the use of legal terms and instead provides for simple language and gives words their natural meaning.
- NEC operates an 'early warning' process where both the project manager and contractor are required to notify each other of any matter that could affect time, cost, or quality.
- JCT splits up the components of time and cost, dealing with them and their subparts independently at various stages after a change arises. NEC deals with the effects of time and cost together.
- JCT: variations - NEC: compensation events.
- Each has an allotted person to act on behalf of the employer (contract administrator in JCT, project manager in NEC).
- NEC uses 6 main options and various secondary options, JCT uses separate contracts (for example
Minor Works, Standard Building Contract, Design & Build).
- The QS is not mentioned in NEC, only the project manager.
- NEC is considered to have a more collaborative approach to working. Parties are required to work in the spirit of 'mutual trust and cooperation.
- Under NEC, the programme is a contract document. If no programme is identified in the contract data, one quarter of the price for work done to date is retained in assessments, until the contractor has submitted a first programme for acceptance.
- NEC has 'periods of reply' (which incentivises the parties to respond to each other in a timely manner); however, the contract is heavy on administration.
- JCT allows for provisional sums; NEC does not.
156
What are the key updates from NEC3 to NEC4?
- NEC4 has introduced two new contracts into its suite:
- Design Build and Operate (DBO) Contract - The DBO contract combines the functions of design, construction, operation and/or maintenance to enable it to be procured from a single supplier.
- Alliance Contract (ALC) - This contract is for clients who wish to enter into a single contract with several participants to deliver a project or programme of work. The focus of the contract is on collaborative working, encouraging all parties to work together to achieve client objectives.
- The 'Risk Register' has been renamed the 'Early Warning Register' to distinguish it from the project risk register often used for wider project management purposes.
- 'Employer' becomes 'Client' and 'Works Information' becomes 'Scope'.
- A 4 week period for escalation and negotiation of a dispute has been introduced, which takes place prior to commencing any formal proceedings. This requires nominated senior representatives of each party to meet and try to reach a negotiated solution.
- In secondary option X12, 'Partnering' has been changed to 'Collaboration'.
- There is now only one fee percentage, with no separate fee percentage for subcontracted works.
- Payments - Contractors must submit applications for payments, rather than the project manager being obliged to assess if they fail to do so.
- Language - All contracts are written gender neutrally (no more "he/his").
157
What does NEC stand for?
New Engineering Contract.
158
What does ECC stand for?
Engineering and Construction Contract.
159
Please can you give me an overview of the NEC4 ECC contract?
- It is suitable for any sector of the industry, including civil, building, nuclear, oil and gas.
- It was developed by the Institution of Civil Engineers (ICE) in the United Kingdom and is known for its collaborative and flexible approach to project management.
- The NEC ECC contract aims to promote cooperation, clarity and fair risk allocation between the parties involved.
- There are six main options to choose from (Options A - F)
Key points:
- There are no references to the quantity surveyor in the contract.
- The project manager assumes full authority on behalf of the employer.
- The project manager controls time and cost as an administrative function.
- It is widely accepted that the contract generates a large volume of paperwork and administration.
- The programme is a contract document.
- Requirement for parties to issue early warnings where appropriate.
160
What are some of the perceived advantages of using the NEC4 ECC contract?
- Clarity and simplicity: NEC4 ECC is known for its clear and straightforward language, which reduces ambiguity and helps in better understanding of the contract terms. It uses plain English and provides extensive guidance in its accompanying documents, making it easier for parties involved to comprehend their obligations and rights.
- Flexibility and adaptability: NEC4 ECC emphasises flexibility and allows for effective project management. It includes provisions for early warning systems, compensation events, and the implementation of risk and change management processes. This flexibility enables parties to respond promptly to unforeseen circumstances and make adjustments as necessary, reducing the likelihood of disputes.
- Collaboration and communication: NEC4 ECC promotes collaborative working relationships between the parties involved in a construction project. It encourages open communication and cooperation, aiming to achieve mutually beneficial outcomes. The contract promotes a proactive approach to managing issues and encourages parties to work together to find solutions rather than resorting to adversarial positions. The contract also requires the parties, the project manager and the supervisor to act in a spirit of mutual trust and cooperation.
- Risk allocation and management: NEC4 ECC places a strong emphasis on risk management and risk allocation. It provides mechanisms for identifying, assessing, and managing risks throughout the project lifecycle.
- Dispute avoidance and resolution: NEC4 ECC incorporates mechanisms for dispute avoidance and early resolution. It encourages parties to engage in open dialogue and resolve issues collaboratively.
161
What are the 6 main options under the NEC4 ECC contract?
- Option A: Priced contract with activity schedule.
- Option B: Priced contract with bill of quantities.
- Option C: Target contract with activity schedule.
Option D: Target contract with bill of quantities.
- Option E: Cost-reimbursable contract.
- Option F: Management contract.
162
Can you provide an overview of NEC Option A contract please?
- Option A under the NEC4 ECC is a pricing option that involves the use of an activity schedule.
- Option A is suitable when the scope of work is well-defined, and it is possible to accurately estimate the quantities and prices for the activities involved. It provides transparency in pricing and allows for effective monitoring of progress and payments based on completed activities.
Key points:
- Option A requires the contractor to submit a priced activity schedule. The activity schedule includes a list of activities or work items required for the project, along with their corresponding prices and quantities.
- Payments are based on completed activities as specified in the activity schedule, the contractor is paid for the completed activities at the agreed prices.
- Risk and Responsibility: The contractor takes on the risk and responsibility for delivering the completed activities at the agreed prices.
- NEC ECC Option A is a lump sum contract.
163
Can you provide an overview of NEC Option B contract please?
- Option B is a priced contract with a bill of quantities (BoQ). The main difference between Option A and Option B lies in the pricing mechanism.
Key points:
- Option B uses a bill of quantities, which quantifies the different items of work with specified quantities and prices. The contractor is paid for the completed quantities at the agreed prices.
- Option B is suitable when the project scope can be accurately quantified and when a detailed and specific pricing structure
164
Can you provide an overview of NEC Option C contract please?
- Option C under the NEC ECC is a target contract with an activity schedule. It can include any level of design and is ideal for more complex or larger projects where the client and contractor are willing to share project financial risk in a fully collaborative way.
Key points:
- The Option C contract allows the financial risks to be shared between the parties (client and contractor), which motivates the contractor to deliver the works in the most cost-efficient way.
- The target cost is agreed between the parties, it is made up of the contractor's estimate of the 'Defined Costs' plus a fee which is to cover the contractor's costs, overheads and profit.
- Once the works are completed, the final "Defined Cost" plus fee and the Target Cost are compared. The difference between the two (savings or additional cost) is then shared between the contractor and client. - This is known as the "pain/gain" mechanism and the method by which the split is calculated will vary from project to project.
165
Can you provide an overview of NEC Option D contract please?
- Option D is a target cost contract with a bill of quantities.
- The contract operates in a similar way to Option C (using the pain/gain mechanism); however, a BoQ is used instead of an activity schedule.
- The choice between Option D and Option C depends on factors such as the level of pricing detail required, the complexity of the project, and the risk allocation preferences of the parties involved.
166
Can you provide an overview of NEC Option E contract please?
- Option E is a cost-reimbursable contract, which can include any level of design.
- It is ideal for projects where the scope cannot be properly defined at the outset, such as urgent or emergency works, and the client is prepared to carry most of the financial risk.
- The contractor is paid the actual costs it incurs plus an agreed fee.
167
Can you provide an overview of NEC Option F contract please?
- Option F is a cost-reimbursable management contract, which can include any level of design.
- It is intended for projects where the contractor acts as a management contractor, and the works are entirely delivered by various suppliers engaged by the contractor.
- The financial risk is taken largely by the client, which pays the contractor the actual amounts paid to its suppliers plus an agreed fee.
168
Which NEC4 ECC main option carries the least financial risk for the employer?
Option A, this is because it is a fixed price contract.
169
Which NEC4 ECC main option carries the most financial risk for the employer?
- Option E, this is because the contractor is reimbursed for the actual costs they incur in carrying out the work, plus an additional fee.
170
What are secondary options under NEC4 ECC?
- Secondary option clauses (X, Y and Z) are optional bolt-on clauses that can be applied to the contract:
- X and Y are a selection of pre-written clauses.
- Z clauses are completely bespoke contract amendments.
171
What are the X Clauses under the NEC4 ECC contract?
- Option X1: Price adjustment for inflation (used only with option A,B,C & D) - This clause provides the means for adjusting the price of works.
- Option X2: Changes in the law - Allowance for a compensation event, should a change in law occur after the Contract Date.
- Option X3: Multiple currencies (used only with options A & B) - This is used where the contractor is paid in currencies other than the currency of the contract.
- Option X4: Ultimate holding company guarantee - Used as a guarantee to the Client of the Contractor's performance when the Contractor is a subsidiary of another company,
- Option X5: Sectional completion - Used when completion of works may mean a section of works, rather than the whole of the works.
- Option X6: Bonus for early completion - Monetary incentive for contractor finishing ahead of time.
- Option X7: Delay damages - Monetary disincentive for the contractor finishing late.
- Option X8: Undertakings to the client or others - When the Contractor gives undertakings to Others as stated in the Contract Data.
- Option X9: Transfer or rights - When the Client owns the Contractor's right over material prepared for the design of the works.
- Option X10: Information Modelling - Used when there is electrical integration of Project Information.
- Option X11: Termination by the client Provides the Client with the right to terminate the Contractor's obligation to Provide the Works.
- Option X12: Multiparty collaboration (not used with Option X20) - Used when there are multiple parties or partners who have a contract in connection with the subject matter of the contract. In essence, multiparty collaboration.
Option X13: Performance bond - Client insurance against the contractor failing to fulfil contractual obligations. Issued by either an insurance company or the bank.
-Option X14: Advanced payment to the contractor - Used when there are advanced payment agreements between the Contractor and Client.
- Option X15: The contractor's design - Used when the contractor is carrying out their own design.
- Option X16: Retention (not used with option F) - Used as insurance for works defects. Retention is a percentage of money retained from the contractor until completion of the works.
- Option X17: Low performance damages - If a defect is linked to low performance (by the Contractor) and this clause is enacted, the Contractor pays the amount of low performance damages stated in the contract data.
- Option X18: Limitation of liability - This clause gives grounds for the limitation of the Contractor's liability to the Client for certain events which cause loss to the Client.
- Option X20: Key performance indicators (not used with option X12) - Used as incentives for the Contractor to meet a certain level of performance stated in the Incentive Schedule.
- Option X21: Whole life cost - Used when Client's want Contractor's to propose revisions to the Scope in order to reduce the cost of operating and maintaining an asset.
- Option X22: Early contractor involvement (used only with Options C and E) - Allows contractor involvement in a project before a full design or price has been established, enabling the contractor to take part in design development and construction at the planning stage.
172
What are the options for dispute resolution under NEC4 ECC?
- Formal dispute resolution is a key feature of the contract and is dealt with under options W1, W2 and
Multi-tier dispute resolution: Options W1 and W2 require the initial referral of all disputes to the parties' senior representatives specified in the contract data:
- Under Option W1 (used where the Construction Act does not apply), this initial referral process is mandatory before you can escalate a dispute further.
- Option W2 also envisages that the parties should refer a dispute to the senior representatives in the first instance, but confirms that the parties can still refer a dispute to adjudication at any time.
W3 - This is a new option to NEC and can be used where the Housing Grants Construction and Regeneration Act does not apply but the parties choose a Dispute Avoidance Board (DAB) rather than adjudication. The DAB procedure must be followed before referring to court or arbitration.
173
What are Z clauses?
- Z clauses can be used and inserted into NEC contracts to allow the parties to agree on additional terms and conditions to cater for specific needs relating to a project and the terms of its delivery.
- Z clauses are bespoke contract amendments.
174
What problems can potentially arise when drafting Z clauses into the contract?
- Poorly drafted Z clauses can be problematic if they do not work effectively with the core clauses in the standard contract. For example, a Z clause that amends one clause may unintentionally impact another.
- Z clauses should therefore be drafted by individuals with a good knowledge of NEC and understand how amendments will affect the wider contract.
175
What are the different types of float on a NEC4 ECC programme?
Total float - The time an activity can be delayed without delaying planned completion (or critical path).
Time risk allowance - This is the float added to activities to allow for the risk of delays arising or non-productive time occurring.
Terminal float - the duration between planned completion and the contractual completion date
176
How can the completion date be changed under NEC?
By a compensation event or acceleration
177
How can the planned completion date be changed?
- Anything can change it.
- For example, the contractor could be delayed in completing activities, or the works could be going faster than originally anticipated.
178
With reference to the contractor's programme, how does NEC differ from JCT?
- The programme is not a contract document under JCT; under NEC it is.
- The programme plays a significant role in the NEC contract; one of its key functions is to assist with the compensation event assessment process.
179
What are compensation events under NEC?
- Compensation events are events which are usually not the fault of the contractor and change the cost of the work, or the time needed to complete it.
- As a result, the prices, key dates or the completion date may be reassessed, and in many cases, the contractor will be entitled to more time or money.
180
Does the NEC contract have relevant events and relevant matters like JCT?
- No, NEC contracts deal with these issues under the single heading - compensation events.
- Compensation events deal with both time and money.
181
Where are compensation events (CEs) detailed in the NEC4 ECC contract, please also provide examples of a potential CE?
- Compensation events are dealt with under clause 60.1.
Examples:
- The PM gives an instruction to change the scope.
- The client does not allow access to the site.
- The project manager or the supervisor does not reply to a communication from the contractor within the period required by the contract.
- The project manager gives an instruction for dealing with an object of value, historical or other interest found within the site.
- The project manager certifies take over of a part of the works before both completion and the completion date.
182
Under NEC, what happens if the contractor notifies a compensation event 12 weeks after becoming aware of the
event?
- The contractor is not entitled to a change in the prices, the completion date, or a key date. Clause 61.3 requires the contractor to notify a compensation event within eight weeks of becoming aware of the event.
- There are exceptions to this; if the event arises from the project manager or the supervisor giving an instruction or notification, issuing a certificate, or changing an earlier decision; then the 8-week rule does not apply.
183
Under NEC what are early warning notices?
- The early warning process is a mechanism for both parties to identify potential problems with the project. The contract emphasises that both parties (contractor and project manager) are obliged to notify the other as soon as they become aware of a matter which could:
- Increase the total of the prices.
- Delay completion.
- Delay meeting a key date.
- Impair the performance of the works in use.
The early warning process is detailed under clause 15.
184
When might you use a JCT Minor Works Contract?
- For a project that is relatively simple in nature
- Minor works contracts do not allow sectional completion
185
Can you name some contract suites?
- The Joint Contract Tribunal (JCT)
- New Engineering Contract (NEC)
- Institution of Civil Engineers (ICE)
- International Federation of Consulting Engineers (FIDIC)
186
What are some obligations of Employers under JCT contracts?
- Making payments
- Providing possession of the site
- Not hinder progression
187
What is the role of the QS under a traditional contract?
- Assess Interim valuations and make recommendations for payment
- Final account negotiations
- Variation reviews
- Review loss and expense claims
188
What is the role of a QS under a Design & Build Contract?
The QS is not a named role within D&B contracts
189
How does NEC deal with changes?
- Compensation events
- Deals with time and money in one go
190
What are the valuation rules under JCT?
Measurable works:
- where works similar in character and executed under same conditions use contract rates
- where similar in character but not executed under same conditions then use contract rates with fair allowance for the different conditions
- where not similar in character or execution then value at fair rates and prices
