Contract Practice

Question 1

What does CDM stand for?

Answer 1

Construction Design Management

Question 2

What is a QS defined as under CDM Regulations?

Answer 2

A designer

Question 3

What is a Parent Company Guarantee?

Answer 3

A PCG is a guarantee given by one contracting party’s ultimate or intermediate holding company in favour of the other contracting party to secure and underwrite the performance of that party’s obligations under the contract.

Question 4

What are the 5 types of bond?

Answer 4

Performance bond
Retention bond
Off-site materials bond
Advance payment bond
Tender bond

Question 5

What is a performance bond?

Answer 5

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.

Question 6

What bond type would you recommend to your client?

Answer 6

PCG if available

Question 7

Why would you recommend a PCG?

Answer 7

A performance bond is a finite sum of money where the damages claimed may be higher than the sum. A PCG is not limited.

Question 8

What are Third Party Rights?

Answer 8

The third Party rights act 1999
The act allows third parties to enforce terms of contracts that they are not party to, but which benefits them in some way, or which the contract allows them to enforce.

Question 9

What is a collateral warranty?

Answer 9

Forms a contractual link between two parites where one would no usually be present.

Question 10

When is a collateral warranty used?

Answer 10

Employer —> Main Contractor –> sub-contractor

^

—

> Sub-contractor

Question 11

What is the difference in co-operation principles between the two? (JCT & NEC)

Answer 11

NEC is considered a more collaborative approach to working. Parties are required to work in the spirit of “mutual trust and co-operation”

Question 12

What happens if you don’t issue a completion/non-completion certificate?

Answer 12

Time is at large – LDs are unenforceable.

Question 13

What is required to issue a completion certificate?

Answer 13

1. PC is a term under the JCT form of contract. This is the point at which the contractor has completed the project and hands over to the client.
2. Its is called “practical completion” because it is fit for purpose. The project is sufficiently complete for the employer to take over in that nothing remains outstanding that prevents the employer from using the works, although there may be some outstanding works or defects which remain to be completed.
3. Works are so substantially complete that the building can be put to its intended use with safety and convenience.
   NOTE
4. It is common practice for PC to be granted when the works are substantially complete – i.e. there may be minor defects or omissions BUT nothing that would prevent the employer taking occupation.
   NOTE
5. The PC certificate cannot be rescinded once issued
   ONCE ISSUED
   a. 50% retention is released (subject to the contract)
   b. The 12-month defect period starts
   c. The client needs to start insuring and securing the building
   d. The ability to impose LDs is ceased.

Question 14

What is the process for issuing a non-completion certificate?

Answer 14

1. Issued by the CA/EA to certify that the works/section has not been completed by the contractual completion date.
2. The employer has the right to withhold liquidated damages (a pay less notice is also required)
3. Certificate of non-completion is required
4. Employer must write to the contractor notifying them of the intent to withhold LDs
5. Employer to issue pay less notice.

Question 15

What is time at large?

Answer 15

The need for comprehensive EOT provisions in construction contracts was illustrated by early case law, e.g. Holme v Guppy (1838) – ‘an act of prevention’ (handing over the site late) in the absence of an EOT clause, results in time becoming ‘at large’. With time at large, the liquidated damages provisions are unenforceable.

Question 16

What is meant by the term “Prevention Principle”

Answer 16

Prevention Principle – one party may not enforce a contractual obligation against the other party where it has prevented the other party from performing that obligation. If a contract contains a specified completion date but no EoT provisions, the prevention principle prevents the Employer from enforcing the date for completion where it has caused the delay (e.g. issuing an instruction). If this occurs, time becomes at large; and the original completion date falls away, and any LADs regime falls away and the contractor will only be obliged to complete within a ‘reasonable time’.

Question 17

What happens once PC is achieved?

Answer 17

Half of retention is released
12-month defects period starts
Client needs to start insuring and securing the building
The ability to deduct LDs is ceased

Question 18

What is required for Final account?

Answer 18

Certificate of Making Good defects
Certificate of Practical Completion
Final account Statement

Question 19

How was this contract executed?

Answer 19

As a deed

Question 20

In what capacity did you issue the Practical Completion Certificate?

Which contract, were you CA? Engineer?

Answer 20

As contract administrator on a minor works contract

Question 21

What is the contractor required to do to achieve Practical Completion?

Answer 21

Works are to be substantially completed so that the building can be put to its intended use with safety and convenience.

Question 22

What is Assignment?

Answer 22

Transferring

Question 23

What if the client tells you the LADs are you be £100,000 per week?

Answer 23

• I would check that the LAD figure is based on a genuine pre-estimate of financial loss and explain that in the event LADs are to be applied, they would need to substantiate this figure.
• I would also explain that if the figure inserted into the contract is shown to be punitive and not based on genuine financial loss it is not likely to be enforceable.
• In this scenario the employer will have to pursue the Main Contractor for any actual direct loss that can be substantiated through a formal dispute resolution procedure.

Question 24

What are extensions of time?

Answer 24

Extensions of time adjust the completion date and relieves the contractors liability to pay liquidated damages for the period of the extension.

Question 25

What is the importance of a relevant event?

Answer 25

A relevant event is one that impacts the programme of the works by the MC. For example a variation or instructions, or deferment of possession of the site.

Question 26

What impact could a relevant event have on the price of a project?

Answer 26

A delay to the works and therefore an extension of time could be granted.

Question 27

What is a delay to the works?

Answer 27

The purpose of an EOT is when the delay is caused by events that are the employer’s responsibility:
1. to allow the contractor to recover delay costs;
and/or
2. to avoid liability for LADS.

Question 28

What are relevant events?

Answer 28

Variations
* Instructions (e.g. discrepancies, expenditure of provisional sums, opening-up for inspection or testing).
* Deferment of the possession of the site
* Suspension by the Contractor of the performance of any or all of his obligations under the contract
* Works by Statutory Undertakers
* Delay in receipt of any necessary permission or approval for the purposes of development control requirements
* Any impediment, prevention or default, whether by act or omission, by the Employer or any of the Employer’s Persons, except to the extent caused or contributed to by any default, whether by act or omission, of the Contract or of any of the Contractor’s persons.
* Exceptionally adverse weather conditions
* Loss or damage occasioned by any Specified Peril
* Civil commotion or the use or threat of Terrorism
* Force Majeure

Question 29

What are relevant matters?

Answer 29

Contractor is entitled to claim additional costs or losses it suffers as a result of a ‘Relevant Matter’ under the contract. A RM is a breach of contract that comes with damages for delay or disruption to the regular progress of the works.
‘Relevant Matters’:
Events which are either the fault of the Employer, or which the employer bears the risk contractually, which cause delay.
Clause 4.22 deals with Relevant Matters:
* Variations (excluding those where the amount of loss and/or expense has been agreed by Confirmed Acceptance of a Variation Quotation or Acceleration Quotation)
* Instructions (e.g. discrepancies, expenditure of provisional sums, opening-up for inspection or testing).
* Instruction relating to the insolvency of a Named Specialist
* Delay to works as a result of Antiquities
* Any impediment, prevention or default, whether by act or omission, by the Employer or any of the Employer’s Persons, except to the extent caused or contributed to by any default, whether by act or omission, of the Contract or of any of the Contractor’s persons.
* Exceptionally adverse weather conditions
* Loss or damage occasioned by any Specified Peril
* Civil commotion or the use or threat of Terrorism
* Force Majeure

Question 30

What is required for a contractor to ask for and Extension of Time?

Answer 30

Delay Notices: Clause 2.27 of the JCT contract requires the contractor to give notice if and whenever it becomes reasonably apparent that the progress of the works is being or is likely to be delayed.
The notice must set out ‘the material circumstances’, including the cause or causes of the delay, and must specifically identify any event that is considered to be a Relevant Event. The contractor must also give particulars (showing cause and effect) of the expected effects of the delay upon the completion date, either in the original notice or in writing as soon as possible thereafter.

Question 30

What compensation does an EOT claim?

Answer 30

Can incur prelims costs but just because an EOT has been granted does not automatically incur prelims, may incur partial prelims.

Question 31

What are liquidated damages?

Answer 31

• a predefined sum to be payable in the event of delay and are thus recoverable without proof of loss.
• must be a genuine pre-estimate of the loss at the time of entering the sum within the contract documents.
• Usually expressed per week or part thereof and identified in the contract.
• Damages must not be construed as a penalty.

Question 32

How would you go about advising the client on the level of LADs to insert into the contract?

Answer 32

• Loss of rent or income
• Additional professional fees
• Additional finance costs
• Storage costs
• Fees and fines imposed by third parties
• Any other justifiable costs

Question 33

What happens if ‘Nil’ is inserted into the contract and what happens if it is left blank?

Answer 33

1. Nil means there are no damages and the client is not entitled to deduct if the contract overrun.
2. Blank means the client would still be able to deduct damages but would need to do so through the courts.

Question 34

What is Loss or Expense?

Answer 34

Loss and expense is the direct loss and expense which would not be reimbursed by a payment under other contract provisions. These are additional costs or losses the contractor suffers as a result of an employer-driven event, act, omission or default. The contractor is entitled to recover that loss and expense in order to put him or herself back in the financial position that he or she would otherwise have been in.

Question 34

Under what conditions can the employer terminate the contract?

Answer 34

Termination by the Employer:
1. Default by Contractor
* Suspension without cause/abandonment of the works
* Fails to proceed regularly and diligently
* Refusal to comply with an instruction requiring removing works/goods not in accordance with the contract/failure to remedy defects
* Assigns rights under the contract or sub-contracting without the consent of the Employer
* Failure to comply with the CDM Regulations
The Contractor may also have a right to suspend works as implied by statute: see s.112 of the Housing Grants, Construction and Regeneration Act 1996 as amended.
2. Insolvency of Contractor
* If the Contractor is insolvent, the Employer may at any time give notice to terminate their Employment.
* As from the date the Contractor becomes insolvent, whether or not the Employer has given such notice of termination:
o The consequences of termination apply, such as no further sum becoming due to the Contractor, as if such notice has been given.
o The contractor’s obligations under Article 1 and these conditions to carry out and complete the works and the design of the CDP shall be suspended
o The employer may take reasonable steps to ensure that the site, the Works, the Site Materials are adequately protected, and such site materials are retained on site; the contractor shall not allow or not hinder the delay the taking of those measures.

3. Corruption and regulation 73(1)(b) of the PC Regulations (where should have been excluded on mandatory exclusion grounds before contract award)
   * The Employer shall be entitled by notice to the Contractor to terminate the Contractor’s employment under this or other contract with the Employer if, in relation to this or any other such contract, the Contractor or any person employed by him or acting on his behalf shall have committed an offence under the Bribery Act 2010, or where the Employer is a Local or Public Authority, shall have given any fee or reward the receipt of which is an offence under sub-section (2) of section 117 of the Local Government Act 1972, or where this contract is one to which regulation 73(1) of the PC Regulations applies, the circumstances set out in regulation 73(1)(b) of the PC Regulations apply.

Question 35

Under what conditions can the contractor terminate the contract?

Answer 35

1. Default by Employer
   * Non-payment and/or any VAT properly chargeable on that amount;
   * Interferes with or obstructs the issue of any certificate.
   * Assigns rights under the contract without the consent of the Contractor
   * Failure to comply with the CDM Regulations
   * If the works are suspended for a continuous specified length of time (2 months unless otherwise stated) caused by:
   − Discrepancies between documents
   − Instructions requiring variations
   − Postponement of work by the CA
   − Any act of prevention by the Employer.
   (but in either case excluding instructions required as a result of the negligence or default of a statutory undertaker) then unless in either case that is caused by the negligence or default of the Contractor, the contractor may give notice specifying the event or events (a ‘specified’ suspension event or events).
   If a specified default of specified suspension event continues for 14 days from the receipt of notice, the contractor may on or within 21 days of the expiry of that 14-day period by a further notice to the Employer terminate their employment under the contract.
2. Insolvency of Employer
   * If the Employer is insolvent, the contractor may by notice to the Employer terminate their employment under the contract.
   * As from the date the Employer becomes insolvent, the contractor’s obligations under Article 1 and these conditions to carry out and complete the Works and the design of the CDP shall be suspended.

Question 36

What is sectional Possession?

Answer 36

Information stated within contract explicitly for each section:

• First recital – description and section addresses
• Contract sum is the whole sum
• Description of sections – e.g. section 1, 1A, 2A, 2B with descriptions of the address and areas e.g. basement
• Dates for completion of sections by section
• Dates for possession of section by section
• Deferment of possession of section by section
• Rates of liquidated damages (LD’s) for each section
• Section Sums
• Rectification periods for each section

Question 37

In a minor works is it EA or CA?

Answer 37

CA - Contract Administrator

Question 37

How does the Application For Payment work within sectional Possession/Completion?

Answer 37

The sections are applied for separately.
The sections have their own retention amounts and section sums.

Question 38

What is sectional completion?

Answer 38

Differences between Partial Possession and Sectional Completion
1. Sectional Completion is LISTED in the contract, whereas PP is INFORMAL
2. Contractor’s Consent is required (although must not be unreasonably withheld)
3. Effects of SC are more certain than PP as parties have already agreed the practical consequences:
▪ LADs are agreed so no arguments over the proportionate reduction
▪ Section Sums are agreed so there are no arguments over retention release
4. A section must have achieved completion in SC; no such target date exists in the contract and the relevant part just needs to be ‘Deemed’ to be complete.
Effect of PP
1. The LADs are reduced to the proportionate value of that part.
2. The rectification period is deemed to have begun, for the part taken into possession, on the date in the written statement.
3. Half the retention for the part must be released.
4. The contractor’s obligation to insure the part ceases (this is crucial because the responsibility becomes the employer’s).

Question 39

Difference between Intermediate Contract and Minor Works?

Answer 39

1. No provision for sectional completion or partial possession
2. No provision for collateral warranties
3. Loss and expense not expressly provided for in MW (within each assessment of change)
4. No list of relevant events in MW (just beyond the control of the contractor)
5. MW doesn’t detailed rules for valuation of changes (fair and reasonable assessment)
6. MW doesn’t have provision for sub-letting to named specialists
7. MW doesn’t have provision for advance payment
8. MW doesn’t have detailed provision for new buildings insured by the Employer
9. MW has no provision for testing and opening up of the works
10. No requirement for a QS

Question 39

How can you price variations?

Answer 39

• Where the work is of ‘similar’ character to work in the original contract documents then the valuation shall be consistent with the rates and prices in the Priced Document
• Shall include a fair allowance to reflect any change in conditions under which the work is carried out and/or significant change in the quantity of work.
• Where the work is not of similar character to the work set out in the contract documents, it shall be valued at fair rates and prices.
• Allowance shall be made in such Valuations for the addition or omission of the relevant design work.
• o Allowance where appropriate shall be made to any addition or reduction of preliminary items of the type referred to in the Measurement Rules

Question 40

What is Daywork?

Answer 40

This is a method of valuing additional or substituted work which cannot properly be valued by measurement (it basically cannot be quantified!).
Employer’s dislike dayworks as invariably it will be far more expensive than the measure and value alternatives. It is seen as a valuation method as a last resort in most standard forms of contract when all other approaches have been ruled impossible. It is intended for short-duration, limited scope activities.
E.g:
− Minor additions of quantity to completed works
− Opening-up works for inspection
− Repair and reinstatement of damage
− Emergency works immediately proceeding loss or damage to the work

Question 41

What must be in place before LDs can be deducted?

Answer 41

• A non completion certificate
• A withholding notice

Question 42

What if the employer actually suffered no loss or damage?

Answer 42

• It doesn’t matter
• The damages can still be deducted at the value stated in the contract

Question 43

What happens when “time is at large”?

Answer 43

• There is no set completion date
• The contractor only has the obligation to complete the works in a reasonable time
• Liquidated damages cannot be claimed as there is no date to take them from
• The employer would have to try and prove that the contractor had not completed in a reasonable time.

Question 44

What contract amendments did you have on hopton street?

Question 45

Can you name 5 key documents in your contract docs?

Answer 45

JCT contract
Employers Requirements
CSA
Insurances
Existing building information
Survey information

Question 46

What type of contract was used on hopton street? Who is meant to issue PC?

Question 47

Why did the asbestos works constitute a relevant event?

Answer 47

Because it was a variation to the contract works issued as an instruction.

Question 48

What is the difference between Relevant Event and Relevant Matter?

Answer 48

Relevant Event: Entitles the contractor to claim an extension of time.
Relevant Matter: Entitles the contractor to claim direct loss or expense.

Question 49

What is the Contracts (Rights of Third Parties) Act 1999?

Answer 49

For many years, the only option available to third parties was to secure collateral warranties from the contractor and each member of the professional team, but with the introduction of the Contracts (Rights of Third Parties) Act 1999 (the Act) over fifteen years ago, those who were not party to a contract could potentially benefit directly from its terms. This led to hope in the industry that collateral warranties would become redundant as purchasers, tenants, funds and other potential beneficiaries could start to use the Act to benefit directly from the terms of a building contract or professional appointment, rather than needing protection under a separate collateral warranty.

Question 50

What are the advantages of the Contracts (Rights of Third Parties) Act 1999?

Answer 50

Benefits of using the Act
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.
Ability of a developer to comply with its primary obligations: Even with the support of a diligent project manager and legal team, a developer will often find itself in the position of having to agree to procure and deliver collateral warranties before they have actually been returned by a contractor or consultant. The risk of the warranties never materialising means the developer faces being in breach of its own undertaking. Under the Act (assuming that the building contract or appointment is already in place), the developer simply issues a notice to a contractor or consultant confirming the identity of the third party upon whom the third party rights are being conferred, thereby retaining control of the process.
Sub-contractors: The third party rights process can also be extended into sub-contracts, so that (provided the relevant building contract and sub-contract are drafted accordingly) an employer can confer third party rights in relation to work done by sub-contractors unilaterally. Again, this avoids the need to chase large numbers of individual warranties.

Question 51

what are the disadvantages of the Contracts (Rights of Third Parties) Act 1999?

Answer 51

Disadvantages of using the Act
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.
Enforceability of step-in rights: Concerns have been expressed that the Act does not allow funders or forward purchasers to invoke step-in rights as it does not permit third parties to assume obligations (in particular, the obligation to pay) under an underlying building contract or appointment. The general view is that this argument is misconceived, as the third party rights schedule can be drafted to deal with this. Our experience is that a number of funders, forward purchasers etc will now accept third party rights in place of warranties and those who have not traditionally accepted third party rights are becoming more willing to consider them.
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.

Question 52

What is subrogation?

Answer 52

A legal technique where the insurer steps into the shoes of the insured in order to take benefit of any legal rights or remedies they may have against the third party responsible for the loss.

Question 53

What are the options for NEC Contracts?

Answer 53

1. Option A: Priced contract with activity schedule.
2. Option B: Priced contract with bill of quantities.
3. Option C: Target contract with activity schedule.
4. Option D: Target contract with bill of quantities.
5. Option E: Cost reimbursable contract.
6. Option F: Management contract.
7. Option G: Term contract (for the appointment of a consultant based on a priced schedule of tasks).

Question 54

What is an activity schedule in NEC?

Answer 54

Activity Schedule – A list of activities (prepared by the contractor), which they expect to carry out while providing the works. Each activity is linked to a price (prepared by the contractor) to be paid by the client.

Question 55

What is a BOQ?

Answer 55

Bill of Quantities (BoQ) – A document that lists specific measured items of work identified by the drawings and specifications. Each item will be allocated a price.

Question 56

What happens when “time is at large”?

Answer 56

• There is no set completion date
• The contractor only has the obligation to complete the works in a “reasonable time”
• Liquidated damages cannot be claimed as there is no date to take them from
• The employer would have to try and prove that the contractor had not completed in a reasonable time

Question 57

What are Relevant Events in a JCT standard form of contract?

Answer 57

They are events that entitle the contractor to an Extension of Time

Question 58

What are the Relevent Events in a JCT Contract?

Answer 58

There are 13 Relevant Events:
- Variations
- Instructions
- Execution of an approx. quantity that is not a reasonably accurate forecast
- Deferment of possession of site
- Suspension by the contractor for non-payment
- The carrying out of work by statutory authorities
- Impediment, prevention or default by the employer
- Loss or damage occasioned by the Specified Perils
- Exceptionally adverse weather conditions
- Strike or Lock out
- Civil commotion or terrorism
- The exercise of any statutory power after the base date by the UK Gov.
- Force Majuere

Question 59

What are the main elements you would include within an interim valuation?

Answer 59

• Preliminaries
• Measured Work
• Variations
• Materials on site
• Materials off site
• Loss and Expense
• Retention

Question 60

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

Answer 60

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

Question 61

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

Answer 61

• Proof that ownership will transfer to the employer upon payment (vesting certificate)
• Insurance until materials arrive at site
• Materials are clearly labelled as for the site and set apart from other materials
• A materials off site bond has been provided if required

Question 62

What is a retention of title cluase?

Answer 62

• Where the subcontractor or supplier retains ownership of materials until they are paid for them by the contractor
• This highlights the importance of vesting certificates as the employer may subsequently pay for materials that are not owned by the contractor
• The legal principle can lead to disputes in the even of insolvency