Contract Practice

Question 1

What is a contract?

Answer 1

A contract is a legally binding promise by one party to fulfill an obligation to another party in return for consideration

Question 2

What are the components of a legally binding contract?

Answer 2

Offer
Acceptance
Consideration - the promise made by both sides to do something e.g. providing a building in return for money
Intent - the intent to create legal relation, could be in the form of a letter of intent

Question 3

What are ‘express’ terms?

Answer 3

Terms which are expressly stated and agreed within a contract

Question 4

What are ‘implied’ terms?

Answer 4

A contractual term which is not expressly stated or agreed within the contract but has been implied into the contract by common law or statute

Question 5

What is the difference between statutory provisions and contract provisions?

Answer 5

Statutory provisions are set out by the law and must be complied with regardless
Contract provisions relate to the specific contract and only apply to the project at hand

Question 6

What are the different types of subcontractors?

Answer 6

• Domestic - selected by the main contractor to carry out a package of works designed by someone else
• Named - the employer provides a list of pre-approved and named subcontractors, the main contractor then selects one form this list through the tendering process
• Nominated - selected by the employer to carry out an element of works, employed by the main contactor. Usually imposed upon the main contractor

Question 7

Why do main contractors sublet works?

Answer 7

Complexity and specialisation
Avoids need to maintain directly employed operatives
Reduces supervision and admin costs
Flexibility as large volumes of work can be carried out

Question 8

What is novation?

Answer 8

A process by which contractual rights and obligations are transferred from one party to another

Question 9

What are the two main procurement routes?

Answer 9

Traditional
Design and Build

Question 10

What is a letter of intent?

Answer 10

A document expressing an intension to enter into a contract at a future date but creates no contractual relationship until that future contract has been entered into.

Question 11

What is typically included within a Letter of Intent?

Answer 11

• The agreed contract sum
• Reference to tender documents
• Site possession date
• Proposed form of contract, including warranties and performance bonds

Question 12

Why are LOIs used?

Answer 12

They can be used to mobilise construction prior to a formal contract being executed.

Question 13

What are collateral warranties?

Answer 13

A formal contractual agreement which runs alongside another contractual agreement, creating a contractual relationship between two parties which otherwise would not exist

Question 14

What are JCT contracts?

Answer 14

JCT is a standard form of contract; Joint Contracts Tribunal

Question 15

Name some examples of contracts within the JCT family.

Answer 15

Minor Works Building Contract
Intermediate Building Contract
Standard Building Contract
Design & Build Contract

Question 16

What are the key project characteristics which influence which JCT contract is used?

Answer 16

• Size, value and type of project
• Need for contractor design
• Certainty on final cost
• Client experience
• Programme requirements

Question 17

When would you use a JCT Minor Works Contract?

Answer 17

• Smaller, basic construction projects where works are of a simple nature
• Where the procurement route is traditional
• Where the Client is responsible for design

Question 18

Describe the Works insurance provisions within a JCT Minor Works Contract.

Answer 18

5.4 Option A - The Contractor shall effect and maintain with insurers approved by the Employer a Joint Names Policy for All Risk Insurance for the full reinstatement value of the Works
5.4 Option B - The Employer shall effect and maintain: a Joint Names Policy in respect of Existing Structures Insurance, and a Joint Names Policy for All Risks Insurance.
5.4 Option C - Allow parties to use whatever alternative insurance arrangements they wish.

Question 19

When would you use a JCT Intermediate Contract?

Answer 19

• Construction project involving all recognised industry trades and skills
• Detailed contractual provisions are required but without complex building services or specialist work
• Suitable for projects following the traditional procurement route
• The need to complete the work in sections (Sectional Completion)

Question 20

What is a Joint Names Insurance Policy?

Answer 20

An insurance policy typically held jointly by the employer and the contractor. The key feature of this policy is that the insured parties are unable to claim against one another in respect of an insured loss.

Question 21

What are the benefits of a Joint Names Insurance Policy?

Answer 21

• Neither party needs to take out its own insurance policy which unnecessarily increases the project’s total insurance cost.
• It can avoid costly litigation between the jointly-insured parties who may otherwise try to claim against each other.

Question 22

Describe the Works insurance provisions within a JCT Intermediate Contract.

Answer 22

Option A - Applicable where the Contractor is required to take out a Joint Names Policy for All Risks Insurance of the Works for NEW WORKS
Option B - Applicable where the Employer has elected to take out a Joint Names Policy for NEW WORKS
Option C - Employer to insure where the works are being carried out within, or as an extension to an existing building

Question 23

When would you use JCT Design & Build Contracts?

Answer 23

• For projects where the contractor carries out the design and construction works
• Where the contractor’s design requirement go beyond that of a traditional contract with a ‘Contractors Design Portion’

Question 24

What is the difference between a relevant event and a relevant matter?

Answer 24

Relevant event - An event on or off site that causes delay to the completion of works, entitles the contractor to claim additional time
Relevant matter - a matter for which the client is responsible that materially effects the progress of the works entitles the contractor to claim for additional costs (loss and expense)

Question 25

What is an example of a relevant event?

Answer 25

• Variations
• Instructions
• Late possession of site
• Adverse weather

Question 26

What are liquidated damages?

Answer 26

A genuine pre-estimate of loss suffered by the employer because of late completion of the works
Not a penalty
Can be based on loss of rent or income, additional professional fees, etc

Question 27

Under JCT, what contractual documents must be in place before damages can be deducted?

Answer 27

• A non-completion certificate
• The contractor should be notified that the employer may require the payment of / deduction of LD’s
• A pay less notice should be served

Question 28

What is an extension of time?

Answer 28

A contractor’s entitlement whereby the completion date can be deferred due to a relevant event

Question 29

What are some risks to the Employer associated with LOIs?

Answer 29

• No formal contract is signed.
• All tender documents should be produced and appended to the LOI.

Question 30

What is single-stage tendering?

Answer 30

When the client issues a tender for the whole project with all relevant information provided at the point of issue. Usually issued to multiple contractors

Question 31

When is single-stage tendering typically used?

Answer 31

Appropriate when the Employer’s requirements are sufficiently defined to enable the work to be priced.

Question 32

What is ‘two-stage’ tendering?

Answer 32

Involves an initial information stage, facilitating early collaboration between client and contractor. For more complex projects, this is useful to obtain input before there is sufficient information available for the main contract.

Question 33

What pre-construction services in the first stage are carried out by the contractor under a ‘two-stage’ tender?

Answer 33

• Helping the design team develop the design, or the contractor undertaking all the design development themselves.
• Helping the design team develop the method of construction
• Obtaining prices for work packages from sub-contractors or suppliers on an open book basis.

Question 34

When is ‘two-stage’ tendering typically used?

Answer 34

Generally reserved for complex projects where the Employer’s requirements have not been clearly defined and contract/specialist input is required.

Question 35

What are some benefits of ‘two stage’ tendering?

Answer 35

• Can allow a project to progress before the design is complete.
• Early involvement of the contractor should also improve buildability and cost-certainty of the design.
• Allows the Employer to transfer design risk to the contractor

Question 36

What is a Pre-Construction Services Agreement (PCSA)?

Answer 36

The PCSA will define the services that are required of the contractor during the pre-construction phase. It should make clear whether the contractor is undertaking design work, whether they will have any design liability, and what will happen to this liability if they are not appointed for the second stage. It should also set out method of payment, and any provisions for deferred payment.

Question 37

Names some different contracts within the industry.

Answer 37

JCT (The Joint Contracts Tribunal)
NEC (The New Engineering Contract)
ACA (Association of Consultant Architects)

Question 38

What is a Performance Bond within a JCT Contract?

Answer 38

A bond issued in favour of the Employer and provides a fixed amount which can be claimed upon should the Contractor fail.