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RICS APC > Contract Practice > Flashcards

Contract Practice Flashcards

1
Q

How do you feel about oral contracts?

A
  • Difficult to prove any specific Terms & Conditions, and can make it difficult to prove any agreement
  • Ideally all contracts should be written down to refer to
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2
Q

What do you understand by the term contract law?

A

The body of law that govern and implements agreements between parties 

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3
Q

What are the key elements to make a contract legally binding?

A

Offer, acceptance, consideration, and the intention to create legal relations

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4
Q

What are express terms?

A

Expressed terms are terms, ideally written down, that have been discussed and agreed between parties

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5
Q

What are implied terms?

A

Imply terms are terms not expressly agreed, but are implied by law

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6
Q

What are some of your considerations when you were recommending an appropriate construction contract?

A
  • The client
  • Priorities in relation to time, cost, quality, and risk
  • Procurement route
  • Value, nature and complexity of works
  • Public or private sector client
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7
Q

What is the Housing Grants, Construction, and Regeneration Act 1996?

A

The overarching legislation to ensure construction activities and contracts are fair and reasonable for all parties

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8
Q

Are you aware of any addendum to the Housing Grants, Construction, and Regeneration Act 1996?

A

The Local Democracy, Economic Development and Construction Act 2009

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9
Q

Can you summarise your knowledge of the Local Democracy, Economic Development and Construction Act 2009

A

THE ACT PROVIDED THE PROVISION FOR STATUTORY REFERRAL TO ADJUDICATION FOR CONSTRUCTION CONTRACTS

Contracts:
- Can be both written and oral under the addendum (previously only written contracts)

Payment:
- Need for adequate payment mechanisms to determine what payments are due and when
- Payment when certified clauses no longer acceptable

Payment notices:
- At least one party must issue a payment notice (usually client)
- Must be issued no later than 5 days after due date
- Must be issued even if payment is nil

Default payment notices:
- If the client does not issue the payment notice, the payee is entitled to serve a payment notice for the amount due (would be the contractors assessment of works completed)

Pay less notice:
- Can be used to amend the payment due
- Must be issued before final date for payment (under NEC=7 days, and JCT=5 days before final date for payment)

Suspension for non-payment:
- Contractor can suspend all works and obligations under their contract for non payment
- Client is obligated to pay contractor reasonable expenses for their exercising the suspension of works

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10
Q

Could a client make any changes they wanted under their construction contract?

A

Any changes could be made providing aligned with legislation such as the construction act

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11
Q

What are the maximum number of days you can go without paying your contractor?

A

The construction act states contractors are entitled to interim payments if the scheme is anticipated to exceed 45 days

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12
Q

Can a contractor the suspend works for non-payment?

A

Yes, under the Construction Act 2009, a Contractor can suspend their works, and all other obligations under their contract, for non-payment

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13
Q

What is a Parent Company Guarantee?

A

Parent company guarantee is when a contractor, who is managed by a larger, more financially stable company, can obtain confirmation from their parent company, that if anything was to happen to them, the parent company would step into complete the works

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14
Q

When might a parent company guarantee be required?

A
  • when a small contractor forms part of a larger, financially stable organisation
  • Can be used in lieu of a performance bond
  • gives the client comfort that if the smaller contractor goes insolvent, the parent company will meet all obligations under the contract on behalf of that smaller company
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15
Q

What do you understand about the contracts (rights of third parties) act 1999?

A
  • The act allows third-party to a contract to enforce the terms of that contract
  • the third parties must be a beneficiary under that contract to enforce those terms (under NEC, beneficiaries can be named within the contract data)
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16
Q

What are the advantages and disadvantages of the third-party rights act?

A

Advantages:
- No separate documents required, such as collateral warranties, so time and cost are saved
- Provides certainty from the contract execution, rather than collateral warranties which may not be agreed until the end of the works

Disadvantages:
- Lack of flexibility: any provisions explicit under the third-party rights act (including amendments) would be applicable to all third parties under that contract. Any provisions have been included for one third-party, that provision would apply to all, therefore it could lead to problems

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17
Q

Why might the third-party rights act be used instead of a collateral warranty?

A
  • If a lot of collateral warranties are required under a contract, there can be a lot of administration and cost involved
  • Third-party right are easier to get in place because there’s no separate document required
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18
Q

What is a collateral warranty?

A

The collateral warranty is contractual link between two parties, where one would not otherwise exist

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19
Q

Can you provide an example of how a collateral warranty could be used?

A

If employer and contractor have a design and build contract, and contractor has a subcontract with an MEP subcontractor, then a collateral warranty could be executed between the employer and that MEP subcontractor

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20
Q

Why might a collateral warranty be requested from the client?

A

To provide a contractual link to a subcontractor who was undertaken specialist design, so they can hold that subcontractor accountable for defective workmanship or defective design

A collateral warranty might be requested in the event of a contractor going into solvent, there would be a contractual link between the subcontractor and the employer

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21
Q

What ways can benefits be transferred to 3rd parties under building contracts?

A
  • assignment
  • third parties act
  • collateral warranty
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22
Q

What is assignment under building contracts?

A

Assignment is when the benefit of a contract contract is transferred from one party to another, but the burden of that contract remains with the original party

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23
Q

Who might want benefits under a construction contract, in relation to assignment?

A
  • Bank
  • Funders
  • Tenants
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24
Q

What is a bond?

A

Construction bonds are taken out for protection against non-payment or lack of performance in the event a party were to default under the contract

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25
Q

Can you name some types of bond?

A
  • Advance payment bond
  • tender bond
  • Performance bond
  • Retention bond
  • Off materials bond
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26
Q

What is a tender bond?

A

A tender bond can be requested by the employer in the event a successful tender fails to enter into contract

It can help prevent idle tendering

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27
Q

What is an offsite material bond?

A

An offsite material bond is used if the employer pays for offsite materials, and the subcontractor or contractor goes bust, monies can be claimed on the bond for the goods paid for

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28
Q

What is an advanced payment bond?

A

Protects advanced payments made to the contractor before the works have been completed

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29
Q

What is a retention bond?

A
  • if the contractor fails to perform its duties for remedying defects, bondsman will pay the employer the full retention value
  • Can be adopted in pool market conditions to assist with contractor cash flow
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30
Q

What are the disadvantages of using a retention bond?

A
  • Employer would have to pay the premium for the bond
  • Can disincentivise contractors to complete works promptly and properly
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31
Q

Are you aware of any alternatives to a retention bond?

A
  • Retention clauses under NEC and JCT can be executed to withhold monies
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32
Q

What is a performance bond?

A

The performance bond is if the contractor is unable to complete their obligations under a contract, the employee can recover the costs associated with this under their bond

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33
Q

What is the value of a performance bond?

A
  • Usually around 10%
  • The exact cost of performance bonds were vary on the project they are being executed on
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34
Q

Why might the employer want a performance bond?

A
  • if the contractor is new or unapproved
  • If there are concerns around the contractors financial
  • The economy is heading into a recession, that could be an increased risk of insolvency
  • Employer may wish to protect their commercial standing
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35
Q

What are the risks of not having a performance bond?

A
  • Employer will be liable for all costs associated with contractors non-performance
  • Costs for sourcing a new contractor would lie with the employer, which is likely to attract a premium
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36
Q

What types of performance bonds can be executed?

A

On demand:

  • Monies are available available immediately without justification required

Conditional:

  • Requires the employer to provide evidence that they have suffered a loss due to contractor non-performance
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37
Q

What are antiquities?

A
  • Historical artefacts
  • Bones and fossils
  • Archaeology
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38
Q

What should the contractor do if they discover antiquities on site?

A
  • Cease work and seek advice prior to proceeding
  • take necessary measures to preserve in the existing location and condition
  • Inform the contract, contract administrator or project manager of the discovery and location of the artefact
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39
Q

When an object of interest is discovered on site, who is liable to pay for the delay and expense incurred?

A
  • This would depend on what was specified in the contract, however, this risk is usually retained by the client
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40
Q

What is a defect?

A

A defect is something that has been constructed properly due to poor workmanship, design or materials

NEC defines defects as something not accordance with the scope, or, not an accordance with the law or design

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41
Q

What is a patent defect?

A

A defect that can be discovered through reasonable inspection. For example.:

-Missing tiles
-Broken windows

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42
Q

What is a latent defect?

A

Something that cannot be discovered through reasonable inspection.

This would include issues with the frame or foundations

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43
Q

Why is the defect rectification period typically 12 months?

A

12 months allows the building to go through all seasons of the year, therefore, most defects will become apparent within this period

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44
Q

What is novation?

A
  • Where the obligations and deliverables of one party is transferred from one party to another party, by agreement of all parties involved.
  • For example, a design team who has a contractual obligation to a client, may then be moved to work directly for the contractor, and therefore their obligations and rights have transferred to the contractor
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45
Q

Are novation agreements required under traditionally procured projects?

A

Not usually, because the designers are typically retained by the employer to carry out the design all the way up until construction

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46
Q

What are the advantages and disadvantages of novation?

A

Advantages:

  • reduced learning curve due to familiarity with project, team and client
  • Reduce contractual risk for employer, as design liability is transferred to the contractor

Disadvantages:

  • employee will require execution of collateral warranties to the designers
  • Potential conflict of interest as designers may feel obligated to still support the client and maintain that relationship, and also may find it difficult to critique their own design
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47
Q

What is retention?

A

Retention is a percentage of the sum certified retained by the employer

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48
Q

What is the role of retention in construction contracts?

A

Retention is used as assurance for the client, of the projects completion, and rectification of any defects

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49
Q

Are you aware of any guidance associated with retention?

A

I’m aware of the RICS retention guidance note

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50
Q

What can the employer use retention monies for?

A
  • Correct any defects
  • Incentivise contractor to return to correct defects
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51
Q

How is retention released to the contractor?

A

Typically done in two stages. In my experience:

  • 50% Retention released on completion
  • Remaining 50% retention released after defects period
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52
Q

Who typically benefits from interest accruing on retention money?

A

The client

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53
Q

Are there any alternatives to holding retention?

A

A retention bond

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54
Q

How does the release of retention work with sectional completion?

A

It would depend on the contract conditions, and when retention is due to be released.

I could refer to the contract data and schedule of amendments.

Typically, I would expect sectional completion to release some retention, ie 25% (half of half retention for section)

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55
Q

What is Contractor Design Portion (CDP)?

A

Typically used on traditionally procured projects, where design responsibility for specific elements of the building is transferred to the contractor

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56
Q

Can you list some typical Contractor Design Portion elements which the employee may wish to transfer to the contractor?

A
  • MEP
  • steel work connections
  • Cladding
  • Roofing
  • Design of temporary works
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57
Q

What is the difference between traditional procurement with Contractors Design Portion (CDP) vs Design & Build?

A

Traditional & CDP:
- design responsibility lies with the employer except for certain elements that would be transferred under CDP

Design and build :
- Contractor would be liable for whole design

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58
Q

How are Contractor Design Portions (CDP) elements executed?

A
  • At tender
  • performance specification will be provided and contractor would provide the design proposal in their response
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59
Q

What is professional negligence?

A

When a professional fails to perform their responsibilities to the required standard and breaches their duty of care.

This could result in financial loss, physical damage or injury of their client

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60
Q

How can an employer recover the loss if a consultant or contractor is professionally negligent?

A

Claim through their professional indemnity insurance

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61
Q

What is public liability insurance?

A

Protects against liabilities for injury to 3rd parties or their property

For example, if a brick fell on someone’s car, or if a member of the public tripped over an unsecured cable

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62
Q

What is employer liability insurance?

A

Can pay the compensation amount and legal costs if an employee claims compensation for work related illness or injury

For example, if someone fell from height on site

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63
Q

What is product liability insurance?

A

Protects the policyholder against liability, resulting in defective products

For example, faulty cladding panels

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64
Q

What is contractors all risk (CAR) insurance?

A

Coverage for the costs associated with repairing or redoing construction works that have been damaged by any insured event

For example, heavy rainfall damages materials or a fire damages part of the works

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65
Q

What are domestic subcontractors?

A

Subcontractors chosen by the contractor to execute a package of works.

Cannot be influenced by employer or their consultants

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66
Q

What are named subcontractors?

A

Name subcontractors is when the employer provides a preapproved list of subcontractors to undertake a package of works

Once appointed by the contractor, they would become a domestic subcontractor

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67
Q

What are the advantages of naming subcontractors?

A

Provides the employer with control to for who is appointed, but still provides the contractor with an element of choice as to who they wish to ultimately appoint

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68
Q

What are nominated subcontractors?

A

Selected by the employer to carry out an element of works. Usually imposed upon the contractor.

69
Q

What are the advantages and disadvantages of nominated subcontractors?

A

Advantages:
- Their work should be of high-quality and acceptable to the employer

Disadvantages:
- Contractor and subcontractor may have conflicting procedures, ethics, attitudes
- Contractor may be able to object under a certain conditions, such as safety reasons, but generally the subcontractor is imposed on the contractor

70
Q

What are delay damages? And liquidated damages?

A

Delay damages, or liquidated damages, are a genuine pre-estimate of loss offered by the employer because of late completion of the works.

71
Q

What sort of expenses can an employer include in their damages calculation?

A
  • Loss of rent or other income
  • Additional professional fees
    -Cost of not having a facility (eg - storage, rent)
  • Associated legal costs
72
Q

What would you do if your client told you their damages are £100,000 per week?

A
  • Exercise due diligence; check they do believe their damages are £100,000 per week and it is a genuine pre-estimate of loss
  • Explain the dangers that damages might be construed as a penalty and therefore may not be enforceable in a court of law
73
Q

Under JCT contracts, what contractual documents should be in placed before damages can be deducted?

A
  • Non-completion certificate should be issued
  • Contractors should be notified that the employer may begin to deduct damages
  • A pay less notice can be served
74
Q

What is a delay damages holiday or free period?

A
  • a period of time in which contractors do not have any commercial liability to pay damages
  • This would be stipulated in the contract, for example, contractors do not need to pay delay damages for the first two weeks post completion
75
Q

What are the implications of leaving the damage clause blank?

A

The employer can calculate damages when and if required

76
Q

What is the implication of inserting ‘nil’ or £0 in the damages clause?

A

The client cannot pursue the contractor for any damages associated with a delay

77
Q

If an extension of time is issued, what affect with this have a delay damages?

A
  • Damages would start to be deducted from the revised completion date
78
Q

Can the employer levy liquidated damages if they do not actually incur the loss identified in the initial calculation?

A

Yes; that’s for the contract stipulates, and it was a genuine pre-estimated loss at the time of contract execution

79
Q

What is partial possession?

A

Partial possession is when, after the contract has been signed, the client wishes to take over a section of the works.

This can only be agreement with the contractor, and they are fully entitled to decline partial possession on the basis of health and safety reasons

80
Q

Is partial possession an entitlement for the client?

A

No; partial possession is only by agreement with the contractor. They are fully able to decline the client taking over the section of the works, for example, if they were health and safety concerns

81
Q

How would partial possession change the works? What would be the process for partial possession in relation to insurances, retention, defects period?

A
  • Half retention would be released (or an apportionment for the area)
  • Contractor no longer needs to ensure the works
  • Liability for liquidated damages ends (for that specific area)
  • Defect period commences
82
Q

What is sectional completion?

A

A pre-planned / defined in the contract as an area that the client will take over before the whole works is complete

83
Q

Would a contractor be liable to pay liquidated damages for not achieving sectional completion?

A
  • this would be stipulated in the contract, but generally if sectional completion is required by the client, liquidated damages would be agreed upfront
84
Q

What provisions does NEC offer with regards to taking over part of the works?

A
  • takeover
  • NEC provides provision for the client to take over the works if the contractor finishes ahead of schedule
  • client does not have to take over the works, and this would be clearly defined in the contract data if they would or would not take over early
85
Q

What is insolvency?

A

Insolvency is concerned with the inability to pay debts

86
Q

What can be done at tender to avoid potential contract insolvency on a project?

A
  • Dunn & Bradsheet report
  • Credit checks, eg Experion
  • Check for frontloading in tender submissions
  • Request bond for client comfort
87
Q

What is termination?

A

Termination is when parties to the contract no longer need to perform their obligations under the contract

88
Q

Can the contractor suspend works for non-payment?

A
  • Yes
  • under the construction act, the contractor can suspend their performance and all of their obligations under the contract, which could include ensuring the works
  • The client would also be entitled to pay a ‘reasonable amount’ for their re-mobilisation
89
Q

What do you mean by reevaluating interim evaluations on the Kingsway?

A
  • works should be reevaluated with each interim valuation, and should not be based on the previous valuation conducted
90
Q

Why do we conduct interim valuations?

A
  • to advise the payment certifier what is due to the contractor
  • To ensure legal compliance with the construction act for contractors entitlement to interim payments
  • Support contractor and client cash flows for payments throughout the project
91
Q

What steps would you take if a contractor went insolvent whilst on site?

A
  1. Stop all pending payments
  2. Take possession of the site
  3. Take possession of off site materials
  4. Value the works completed and the amount due
  5. Terminate the building contract
  6. Inform bondsman
  7. Appoint new contractor to complete the works
92
Q

What are the risks to the Client if a contractor goes insolvent?

A
  1. Works will be delayed
  2. Client will pay a premium for another contractor to come on board and complete the works
  3. If not in possession of collateral warranties, would not provide any contractual link to subcontractors who have undertaken design, i.e MEP
  4. Can be a lengthy process appointing another contractor
93
Q

Can you provide an overview of the NEC contracts?

A
  • New Engineering Contract
  • Various forms of contract, eg PSC, ECSC, ECC, Options A-F
  • Lump sum, remeasurable, cost reimbursable and target cost options
  • The NEC principle is based around prompt approach to risk, based on mutual trust and collaboration
  • Contract is very heavy on administration and time restrictions are in place to agree compensation events swiftly
  • No QS - PM / SM administer contract on behalf of Client
94
Q

Can you name some of the NEC X clauses?

A
  • X1 - Fluctuations
  • X4 - Ultimate Holding Company Guarantee (PCG)
  • X7 - Delay Damages
  • X13 - Performance Bond
  • X16 - Retention
95
Q

What documents make up an NEC contract?

A
  • Contract conditions
  • Contract data
  • Schedule of Amendments
  • Scope / Works Information
  • Activity Schedule / BOQ
  • Programme
  • Bonds / Insurances
96
Q

What kind of information would you expect to find in CD Pt 1?

A

Information to be provided by the Client:
- Client details
- PM / SM details
- Delay Damages
- Retention amount / %
- Key dates / completion
- Start / access date
- Payment intervals / details
- Share % (NEC Option C - E)

97
Q

What information would you expect to find in CD Pt 2?

A

Information to be provided by the Contractor:
- Contractor details
- Fee %
- Tendered total of prices
- Programme included in contract

98
Q

When might you use the Shorter Schedule of Cost Components? What would be included?

A
  • Used in Options A and B contracts
  • Used to assess the value of Compensation Events
  • May include people, equipment, plant and materials, subcontracted works, design & fee %s
99
Q

When might you use the Schedule of Cost Components?

A
  • Used in Options C, D and E
  • Used to assess the value of Compensation Events, and each interim application
  • May include people, equipment, plant and materials, subcontracted works, design & fee %s
100
Q

Who are the key parties under an NEC PSC?

A
  • Service Manager (instead of PM)
  • Consultant (usually the contractor)
  • Client
101
Q

What should an NEC contract programme contain? What would you expect to see on a programme?

A
  • Access Date / Start date
  • Key dates (for critical path)
  • Completion date
  • Total float / time risk allowances
102
Q

What conditions can you withhold money from the contractor, under an NEC contract?

A
  • If the contractor does not submit their first programme, 1/4 of the prices of work done to date can be withheld
  • If the contract conditions state monies can be withheld, for example, if collateral warranties have not been provided
103
Q

What is the timeline for payments under an NEC contract?

A
  • Assessment date as per contract data (can be agreed between contractor and PM)
  • The assessment period is then conducted for 7 days until the due date
  • On the due date, the payment would be certified by the PM, but I am aware the construction act states this can be certified p to 5 additional days after the due date
  • The final date for payment would be made 14 days after the due date, but in my experience, this has been adjusted to 21 days after due date to create a 28 day payment cycle
104
Q

What happens if a contractor / consultant does not submit a payment application?

A

PM can assess the payment due to the contractor, which would be the lesser of:
- Amount SM / PM assess as due at the assessment date, as if the contractor had submitted an application
- Amount due in less application

105
Q

What would classify as a Compensation Event under an NEC contract?

A
  • Change in Scope
  • Client retained risks
  • Any changes in decision
  • Resolving an ambiguity or inconsistency
106
Q

What are the timelines for agreeing a Compensation Event under an NEC contract?

A
  • Depending what the CE is, it could start with an EWN
  • From issuance of an EWN, parties should attend a risk reduction meeting to discuss the risk and ways in which its impact can be reduced or mitigated
  • Within 8 weeks of an EWN, an Notice of CE should be issued to notify the other party of a change to the contract
  • Within 1 week of the NCE issuance, the PM should reply requesting a quotation or outlining the reasons they do not believe the event is a valid CE
  • If PM instructs for quotation, contractor has 3 weeks to provide that quotation
  • Once quotation is submitted, PM has further 2 weeks to either agree quotation, request revised quotation, or makes an assessment
  • If PM fails to reply, contractor must notify
  • If PM still fails to respond after a further 2 weeks, quotation treated as accepted
107
Q

When would you assess a Compensation Event from?

A

The Dividing Date

The dividing date is defined as the date in which the communication of a CE was initiated, i.e the NCE issue date

108
Q

What would be included within a Compensation Event?

A
  • Time related preliminaries (if applicable)
  • Programme to demonstrate delay (if applicable)
  • Resource thickening
  • Plant & material costs
  • Design fees
  • Subcontract works
  • Fee %
109
Q

Who are the key parties under an NEC Option A ECC?

A
  • Client
  • Contractor
  • Project Manager
  • Supervisor (witnesses tests & inspections, and ensures works are compliant with scope, law & contract)
110
Q

How are searching & rectifying defects dealt with under NEC Option A ECC?

A
  • Supervisor can request search for a defect to contractor which can involve opening up and inspecting works
  • If it is found there is a defect, Contractor must bare the costs associated with searching & rectifying that defect
  • If it is found there is no defect, the contractor can claim a CE
111
Q

What would classify as a defect under NEC?

A
  • Something that is not aligned with the scope of the works
  • Something that is not in accordance with law or;
  • Not in accordance with Contractors Design that the PM accepted
112
Q

What is the defects date?

A

The defects date would be outlined in the contract, and would be the last date of the defects rectification period

113
Q

What options are available to the client if the works complete early?

A
  • Aware under JCT this can be “partial possession”
  • Aware under NEC this is “takeover”
114
Q

Under an NEC contract, if the contractor is due to finish early, what implications would this have on the Client?

A
  • Client would need to start insuring the building
  • May affect Client’s cash flow, depending on how early the contractor is due to finish
  • Defect period would commence earlier
  • Bonds and warranties are likely to expire once completion has been achieved
  • 1/2 retention would be released
115
Q

Under an NEC contract, if the contractor was due to finish early, does the client have to take over the building early?

A
  • Depends what has been stated in the contract data
  • Client can chose whether or not they would like to take over the building early, but they do not have to
116
Q

Under an NEC contract, when is the final payment made?

A
  • 4 weeks after supervisor issues defects certificate
  • 13 weeks after termination certificate is issued
117
Q

Under an NEC contract, when is the defect certificate issued?

A
  • The later of the defects date OR;
  • When the last defect is rectified
118
Q

In relation to an NEC Option C contract, can you name an additional X clause available?

A
  • X22 - Early Contractor Involvement
119
Q

In relation to an NEC Option C contract, how do payments to the contractor work?

A
  • Payments to the contractor are made up of the defined cost, less the disallowed costs, plus the forecast of works to be completed before the next assessment date, plus the fee
  • Payment terms / provisions work on the same basis of an NEC A (i.e Assessment date + 7 days = Due date, + 14 days = final date for payment)
120
Q

Under NEC Option C, what is a disallowed cost?

A

A cost that is not due to the contractor due to reasons outlined in the contract. For example:
- Not justified by contractors records or accounts
- Should not have been paid to a subcontractor in accordance with their contract
- Was only incurred because the contractor didn’t give an early warning or do something in accordance with the scope

121
Q

Under an NEC Option C, what is the share percentage for?

A

The Target Cost contract is a basis for sharing commercial risk of the scheme, which is used to incentivise parties to deliver the scheme within budget

If the scheme runs over the target, the contractor will take some of the “pain”, i.e they will be liable to pay a % for the works

If the scheme comes in under the target, the contractor will get some of the “gain”, i.e they will have a lump sum issued for the % stated in the contract

122
Q

What circumstances would you recommend an Option C contract to a Client?

A
  • If they do not require a lump sum for the works and they wish to share that financial risk with a contractor
123
Q

Can you give us a comparison of NEC 3 vs 4

A
  • Terminology has changed, i.e “Employer” now “Client”, “works info” now “scope”, “risk register” now “early warning register”
  • NEC4 has introduced new contracts, including the Alliance Contract and Design, Build & Operate contract
  • NEC3 didn’t address what happens if a PM does not accept a programme (i.e just forgets), whereas NEC4 states contractor must prompt for a response if nothing has been received in 2 weeks, and if no response is received after a further 1 week, programme is deemed as accepted
  • NEC3 did not put onus on the contractor to submit a payment application, and the PM would have to assess the works. Now in NEC4, it puts a positive obligation on the contractor to submit a payment application, as the PM can assess the lesser of two options: what was due at previous application, or what is due at this application as if contractor had submitted by assessment date
  • NEC3 did not allow contractors to recover the cost of preparing CE’s whereas not allows for this cost to be recovered
  • NEC3 only provided provision for Retention %, whereas NEC4 allows for the option of a Retention Bond
124
Q

Why might clients or contractors still use NEC3?

A
  • If the contracts are still named under long standing frameworks
  • If the project is still live utilising that contract, eg PCH
125
Q

Can you give us a comparison of NEC Option A vs C

A
  • Option A is lump sum, whereas Option C is Target Cost
  • Both use Activity Schedule
  • Option A payments are defined cost + fee, Option C is Defined Cost, less Disallowed Costs, plus Forecast up until next Assessment Date, plus fee
  • NEC Option A uses SSCC, Option C uses SC
    • NEC Option A provides client with cost certainty, whereas Option C uses a “pain/gain” share mechanism to incentivise contractor to economically construct, but could exceed target cost
126
Q

Can you give us a comparison of NEC ECSC vs ECC.

A
  • NEC ECSC is short form contract, so much more streamlined than the full ECC
  • ECSC does not have provision for PM / SM, only Client
  • ECSC has no formal EW register or meetings contrary to the ECC
  • ECSC does not include for any secondary options, i.e W/X/Y clauses
  • No provision for take over or acceleration under ECSC
  • Under ECSC, it is the contractor that assesses the amount due, and the Client can correct. Under ECC, it is the PM who assesses the amount due, and contractor only issues payment application
  • Contractor is required to provide a forecast of the completion date on a weekly basis, whereas ECC ensures contractor updates and submits their programme for acceptance every 4 weeks
  • ECSC has Retention and Delay Damages as core clauses, whereas ECC has these as X options
  • Where ECC has NCE and CE as two separate stages, ECSC states contractor must submit their NCE + CE quotation together
  • ECSC states if Client does not respond to Contractor within 2 weeks of NCE / CE, it is treated as accepted. In ECC, contractor should prompt the PM, and if a response is still not received after a further 2 weeks, CE is then treated as accepted
127
Q

What JCT contracts are you aware of?

A
  • JCT Standard Building Contract (with / without / with approximate quantities)
  • JCT D&B
  • JCT Minor Works
  • JCT Major Works
  • JCT Intermediate Contract
128
Q

What types of contract are JCT Standard Building Contract, with quantities, without quantities and with approximate quantities?

A
  • With Quants = Lump Sum
  • Without Quants = Lump Sum
  • With Approx Quants = Remeasurable
129
Q

What are the two methods of payment under a JCT contract?

A
  • Alternative A = Staged Payments (like Activity schedule - in stages ie when a “stage” is completed, payment can be received)
  • Alternative B = Interim Payments (default - monthly)
130
Q

What documents make up a JCT contract?

A
  • Contract Conditions
  • Schedule of Amendments
  • Employer’s Requirements
  • Contractors Proposal
  • Contract Sum Analysis
131
Q

What is included in a JCT contract?

A
  • Recitals
  • Articles
  • Contract Particulars
  • Contract Conditions
  • Schedules
132
Q

What are “recitals” in a JCT contract?

A
  • Outlines nature / type of works
  • Outlines documents included in contract, ie Contract Sum, ER’s, Contractors Proposals
133
Q

What are “articles” under JCT contracts?

A
  • Contract Sum
  • Employer’s Agent details
  • Principal Designers details
  • Principal Contractor details
134
Q

What are the “contract particulars” under a JCT contract?

A
  • The “fill in the blanks” section
  • Equivalent to Contract Data in NEC, ie damages / fluctuations / retention / start & completion dates
135
Q

What are the “contract conditions” under a JCT contract?

A
  • These are equivalent to the NEC Core Clauses
  • Sets out terms for payments
  • Dealing with Changes
  • Defects and how to deal with them
  • Definitions
136
Q

How are changes dealt with under JCT?

A
  • Time and cost are dealt with separately
  • Known as “relevant events” and “relevant matters”
137
Q

What are Relevant Events?

A
  • Something that may entitle the contractor to additional time
  • Examples include:
    Variations / instructions
    Force Majeure
    Exceptionally adverse weather affects
138
Q

What is Force Majeure? Can you give some examples?

A
  • Something that happens out of the control of the contractor and the Client
  • Examples include:
    War
    Terrorism
    Strikes
    Riots
139
Q

How long should a Relevant Event take to be incorporated into the contract?

A
  • No longer than 12 weeks, the CA / EA should make an assessment and fix the new completion date
140
Q

What are Relevant Matters?

A
  • Something that entitles the contractor to additional monies
  • Where loss and expense has been incurred
141
Q

Under Relevant Matters, how should the costs be assessed? Against the BOQ / CSA?

A
  • No
  • Costs for Loss & Expense should be actual costs, which may differ from the Contractor’s CSA / BOQ
142
Q

Can you give some examples of what would classify as Loss & Expense?

A
  • Disruption caused by the employer
  • Failure to give contractor possession / access to the site
  • A change in scope / ER’s
143
Q

How would you assess a Loss & Expense claim? What can the contractor claim, and how would you know?

A
  • Heads of Claims (prolongation, finance charges, cost of compiling claim)
  • Outlines a variety of elements in which the contractor can claim reasonable and incurred loss from
144
Q

What are the Heads of Claims? Can you give some examples?

A
  • Prolongation (prelims, i.e people costs, equipment costs)
  • Additional works subcontracted
  • Finance charges on borrowed funds
  • Cost of compiling claim
  • Disruption (to plant and labour than cannot be used efficiently)
145
Q

Can you provide a comparison between NEC and JCT contracts.

A
  • NEC drafted in plain english, whereas JCT uses heavy legal jargon
  • NEC deals with time and cost together (CE’s), JCT deals with them separately (Relevant Events and Relevant Matters)
  • NEC has PM, JCT has EA / CA
  • NEC has programme as contractual document, JCT only requires master programme, and this holds no contractual weight
  • NEC does not recognise provisional sums, whereas JCT does
  • NEC is heavy on contract administration with tight time periods of reply, whereas JCT time frames are a lot longer
146
Q

What are bespoke contracts?

A
  • Contracts that are drafted specifically for a project
147
Q

What are the advantages and disadvantages of Bespoke Contracts?

A

Advantages:
- Flexibility
- Tailored to meet the needs of the project

Disadvantages:
- Can conflict with legislation if not properly drafted
- Can be expensive
- Can have conflicting clauses
- No experience of lessons learnt as the contract is new
- Risk may be unevenly distributed between parties

148
Q

What are the advantages and disadvantages of Target Cost Contracts?

A

Advantages:
- Both parties incentivised to reduce the cost
- Encourages collaboration and risk sharing

Disadvantages:
- Commercial risk exposure due to “pain / gain” share mechanism
- May not be easily understood by all parties which could lead to conflict

149
Q

What are the advantages and disadvantages of Lump Sum contracts?

A

Advantages:
- Employer gets a fixed price for the works, so has cost certainty
- Contractor takes the risk of cost of the works, but also has the potential to benefit from increased profits

Disadvantages:
- Tender prices may be higher due to risk allowances
- Risk for contractor to lose on the scheme if it is not properly estimated

150
Q

What are the advantages and disadvantages of a Cost Reimbursable contract?

A

Advantages:
- Flexibility in works
- Contractors have comfort in knowing all payments will be actual cost

Disadvantages:
- No cost certainty for client
- No incentive for contractor to seek best prices for works or be efficient with monies

151
Q

What would you include in a final account if you needed to?

A
  • Summary
  • Measured Works / Activity Schedule / BOQ
  • Compensation Events / Variations
  • Any adjustments to provisional sums
  • Total of all previous payments made to the contractor
  • Plus 1/2 retention upon completion (or whatever the contract conditions state)
  • OH&P
  • Any delay damages, if applicable
  • Total Final Account
  • I would also provide a final account statement to the contractor
152
Q

What is a final account statement? What would you say in your statement?

A
  • Client and Contractor details
  • What the final account is
  • Excludes contractual obligations ie defects, warranties and retention
  • Signed by both parties
153
Q

When can a client cash out on any bonds?

A
  • When the contractor defaults their obligations under which the bond covers
  • Would be able to cash out either conditionally or unconditionally
154
Q

What is a conditional bond?

A
  • Where the client must demonstrate the loss to obtain the commercial cover
155
Q

What is an unconditional bond?

A
  • Where the client does not need to demonstrate the loss and can claim on the bond
156
Q

What kind of payments are you aware of under a construction contract?

A
  • Contractor and Consultant payments
  • Advanced payments
  • Staged or Interim payments
  • Final payment / final account
157
Q

What certificates are you aware of under an NEC contract?

A
  • Termination
  • Take over
  • Payment
  • Defects
  • Completion
158
Q

What is the NEC Assessment Interval?

A
  • The interval in which payment assessments must be made
  • In my experience, these have been either calendar months or 4 weeks
159
Q

What are the W clauses under NEC?

A
  • Options for resolving disputes
  • In my experience this has always been Option W2 - when the construction act applies
160
Q

What are the X clauses under NEC?

A
  • Optional clauses that can be incorporated into the contract
  • Some common clauses adopted, in my experience, are retention, delay damages, PCG and performance bond
161
Q

What are the Y clauses under NEC?

A
  • PBA
  • HGCRA
  • Rights of Third Parties Act
162
Q

What are Z clauses under NEC?

A
  • Additional amendments that can be made to the contract
163
Q

What would you expect to see in a collateral warranty?

A
  • I would not review a collateral warranties content and this would also be reviewed by a professional who is competent to ensure it has been executed correctly
164
Q

What is the purpose of Extension of Time (JCT) for contractors and clients?

A

Clients:
- Prevents time at large
- Provides them with a new contract completion date

Contractors:
- Excuses them from delay damages
- Allows for resequencing of works

165
Q

How are payments made back to the client when an advanced payment bond is executed?

A
  • Mechanism for repayment would be determined in the contract
  • Repayment can be deducted from monthly valuations
  • Repayments may not start until contract has elapsed / completed a certain amount of works, eg 20% CSA is to be paid before contractor starts paying back
  • repayments must be made before contract completes
166
Q

What are the insurance options under a JCT contract?

A
  • Option A - New build - All risks insurance taken out by contractor in Joint Names
  • Option B - New Build - All risks insurance taken out by the Employer in Joint Names
  • Option C - Refurb - All risks insurance taken out by Employer in Joint Names
167
Q

What are specified perils?

A

High risk items listed in the contract, including fire, lightning, storms, floods, earthquakes

Insurance can be obtained for them

168
Q
A

RICS APC (19 decks)

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