CONTRACT PRACTICE Flashcards
What is a contract
A legally binding agreement to provide goods and services within a specified timeframe.
What are the 3 conditions that need to be in place for a contract to be in place
Offer
Acceptance
Consideration
What are the 3 conditions that need to be in place for a contract to be in place
- Offer
- Acceptance
- Consideration
- Intention
- Legality
- Capacity to make agreements
- Consent
- Possibility of performance
What are the main suites of construction contracts and what do they stand for
JCT. - Joints Contracts Tribunal
NEC 3 & 4 - New Engineering Contract
ECC. - Engineering and Construction Contract
ICE. - Institution of Civil Engineers
FIDIC. - (International Engineers Federation) Federation internationale des ingenieurs civils.
Name the main types of JCT Contracts
a. Minor works
b. D&B
c. SBC (with and without quants)
d. Intermediate
e. Construction Management
f. Management Contract
g. Intermediate
What are the main parts of the JCT contracts
• Recitals.
• Articles.
• Contract Particulars.
• Attestation.
• Conditions divided into 9 sections (7 for minor works).
• Schedules.
Name the 9 sections under the main section of the JCT
Section 1 - Definition and interpretation.
Section 2 - Carrying out the works.
Section 3 - Control of the works.
Section 4- Payment.
Section 5 - Variations.
Section 6 - Injury, damage and insurance.
Section 7 - Assignment, Third Party Rights and collateral Warranties.
Section 8 - Termination.
Section 9 - Settlement of disputes.
How is a contract executed?
Under hand, signed by both parties, 6 year limitation period. Means that a party must bring about any claim for breach of contract within 6 years of the breach taking place. Any later and the claim will be time-barred.
Under Seal (as a deed), signed and witnessed, 12 year limitation period. Valuable consideration not required,
Why use standard forms of contract?
They are cheaper than getting a bespoke contract drawn up
Offer a level of familiarity between the parties
Tried and tested contracts in court, therefore you should be able to predict the outcome in the courts
Why would you not use a bespoke contract?
They are costly to produce and time consuming
Contractors do not like them, as they usually put alot of the risk onto the contractor
They are not tried and tested like a standard form
What should you consider when selecting the contract
The criteria of the client
The procurement method you are going to use
Nature and value of the works
Timings, are the works required to start quickly or do you have time to produce robust set of docs
When is a JCT minor works suitable for recommendation
The project is fairly simple.
The project should last no more than 12 months
The client is responsible for procuring the design, including drawings, a specification
. Contractor’s design portion is required
When is a JCT Intermediate Contract suitable?
Works are of simple content involving the normal, recognised basic trades and skills of the industry
Works are designed by the Employer
Fairly detailed contract provisions are necessary
Can you provide more information on the JCT Design and Build Contract 2016?
Client must produce the Employers Requirements
Contractor is not only to carry out and complete the works, but also to complete the design
Can you provide more information on the JCT Management Building Contract?
Used when a management contracting route is chosen on large-scale projects requiring an early start.
Works are designed by the client and used by experienced clients
It is not possible to prepare full design information before the works commence
Can you provide more information on the JCT Construction management contract?
Used when a CM route is chosen on large-scale projects requiring an early start.
Works are designed by the client and used by experienced clients
It is not possible to prepare full design information before the works commence
What is the main contractor responsible for
The construction of the project, through either direct labour or sub-contracted labour
What are domestic subcontractors
This is a standard appointment of a Subcontractor by the Main Contractor.
What are named subcontractors
Clients provide the Main Contractor with a choice of named Sub Contractors for a portion of the works.
Additional names may be added if approved by all parties.
This allows the client a level of control over the quality of the works packages and in some cases cost.
The named sub-contractor becomes a domestic sub-contractor, they are paid by the main contractor and the main contractor is responsible for their works
What is the “date for completion” and how does it differ from the “Completion date”?
Date for completion is the contract agreed completion date
Completion date is the out turn effect after any EOT and delays
What happens if ‘time is at large’
There is no set completion date
The contractor has to complete the work in reasonable time
LDs cannot be claimed or it would be upto the client to prove the contractor didn’t complete work in reasonable time to recover damages
What is an extension of time
An adjustment to the contract completion date. In this period the Contractor is relieved of paying LDs.
What is the mechanism under the contract for an extension of time
Contractor should put delay notice in writing to advise the CA/EA of delay at the start of delay or when they delay becomes apparent
The contractor should state the cause of delay and identify the relevant event
CA has 12 weeks to assess the period of extension
Contractor should do what they can to mitigate the delay
What are Relevant Events under the JCT
They are events which would entitle the contractor to EOTs
What are the Relevant Events listed
o Variations.
o Instructions.
o Execution of an approx. quantity that is not a reasonably accurate forecast. (Undefined Prov Sum)
o Deferment of possession of the site.
o Suspension by the contractor for non-payment.
o The carrying out of work by statutory authorities.
o Impediment, prevention or default by the employer.
o Loss or damages occasioned by the Specified Perils.
o Exceptionally adverse weather conditions.
o Strike or lock out.
o Civil commotion or terrorism.
o The exercise of any statutory power after the base date by the UK gov.
o Force majeure.
What are the benefits of being able to grant an EOT
a. It relieves the contractor’s liability for paying LDs for delays they didn’t cause
What is a concurrent delay?
Concurrent delay refers to a situation where a delay to completion is caused by two or more events
How do you assess concurrent delay?
If a dominant cause can be identified, this must be the relevant event.
If no dominant cause can be identified, an apportionment should be made in a fair and reasonable way.
Note EOT is not allowed if the contractor is already delayed through their own fault.
What should a contractor do if they discover Antiques or come across an archaeological discovery?
Contractor should notify the client and continue working around the discovery
Client should notify the relevant authorities and contractor to be accommodating
What entitlements does a contractor have when they discover Antiques or come across an archaeological discovery
Entitled to Extension of Time and any associated Loss and Expense
What are liquidated damages
A genuine pre-estimate of the loss incurred if the completion date is not met
What must be in place before LDs can be deducted
A non-completion certificate
A pay less notice
What are Un-liquidated damages?
Unliquidated damages are damages that are payable for a breach, the exact amount of which has not been pre-agreed. The sum to be paid as compensation is said to be ‘at large’ and is later determined by a court
What is a fixed price contract?
Where adjustments of the contract sum are limited to changes in statutory contributions, taxes and levies.
What is a fluctuating price contract?
Where the contract sum is adjusted for changes in the costs of materials and labour as well as statutory contributions, taxes and levies.
What are the main elements you would include within an interim valuation?
a.Prelims
b.Measured work
c. Variations
d. Materials off site
e. Materials on site
f. Loss and Expense
g. Retention
What needs to be in place to include materials on site
a. Materials for the works
b. They should be adequetly protected
c. Delivered to programme
d. In a reasonable quant
What needs to be in place to include materials off site
a. Vesting cert (proof that ownership will transfer to client after payment)
b. Insurance
c. Materials need to be labelled
d. A bond has been provided
e. There is a provision in the contract
What is a retention of title clause?
Where the contractor retains ownership of materials until they are paid for them by the contractor.
This legal principle can lead to disputes in the event of insolvency.
How do you evaluate interim payments
a. Go to site to value measured works
b. Evaluate materials on and off site
c. Value prelims
d. Value variations and claims
e. Prepare payment notice
f. Share recommendation for payment with CA for issue
What should be included within interim valuations?
Assessed Gross Valuation, less retention, less previously paid equals net valuation
Can you explain the payment under the JCT D&B 2016
Contractor submits his interim application
Due Date occurs 7 days after
Quantity Surveyor values the works and issues a valuation before the due date expires
Contractor Administrator Issues the Payment Certificate within 5 days after the Due Date
Contractor has right to issue Payment Notice, if the CA fails to issue a Payment Certificate
Client can issue a Payless Notice 5 days before the Final Day for Payment
The final date for payment is 14 days after the due date
What happens in the situation where there is a failure to issue an interim certificate
Where the contractor has made an interim application 7 days before the due date, The interim application shall become an interim payment notice
Where the contractor hasn’t made an interim payment notice, the payment mechanism hasn’t been triggered
What is a payless notice?
Is issued by the employer is situations where they disagree with the payment notice
Can a client issue a payless notice after they have received a payment notice?
Yes they can issue a payless notice after receiving a payment notice.
What happens if the final date for payment is missed and no payment made?
The contractor is entitled to interest payment as per HGCRA 1996
What is retention
A percentage of each interim certificate deducted and retained by the employer from each interim payment to the contractor.
What is the purpose of retention
It provides an incentive for the contractor to rectify any defects within the contract defects liability period.
It provides some financial security to the client in the event of a contractor default.
When is the retention released to the contractor
50% is released in the interim certificate after Practical Completion (at the issue of the PC Cert)
The remaining retention is released in the final certificate after the certificate of making good is issued.
What is a typical retention percentage under JCT contracts
Between 3-5%
What works value does retention
apply to?
Preliminaries
Measured Works
Variations
Materials on-site
Materials-off site
What works value does retention not apply to?
Statutory fees and charges..
Cost of opening up and testing the works.
Loss and/or expense claims
Fluctuations
What is loss and or expense under JCT Forms of Contract
Entitles the contractor to claim for losses and expenses incurred as a result of additional work or a breach of contract
What is the loss and expense mechanism under the JCT
- Contractor to notify employer as soon as a relevant matter becomes apparaent
- Contractor should submit assessment of initial loss incurred
- EA has 28 days to assess or request more info/substantiation/assess and agree
- After further information has been recieved, EA provides assessment within 14 days
What are the procedures for claiming loss and expense under JCT Forms of Contract
As soon as the the contractor becomes aware of any other matter that would cause them to incur loss and expense, they should notify the architect in writing.
The contractor should submit any further information as requested by the architect.
The contractor should also submit any further information as requested by the Architect or QS to enable the amount of loss and expense to be ascertained.
Under the JCT what entitles the contractor for the claim of loss and expense?
Relevant matters listed in payment section 4
What are Relevant Matters under JCT Forms of Contract
There are 5 relevant matters:-
1. Variations.
2. Instructions.
3. Execution of an approximate quantity that was not a reasonably accurate forecast of quantity (undefined prov sum)
4. Suspension by the contractor for non-payment.
5. Any impediment, prevention or default by the employer.
What is the key thing to remember when assessing loss and expense claims?
It should be the actual loss incurred by the contractor
What are the common heads of claim in loss and expense
applications (what can they claim for)
• Prolongation.
• Thickening of preliminaries for example extra supervision required due to variations.
• Disruption causing plant or labour to be underemployed.
• Increases in labour or material costs during the period of delay.
• Head office overheads.
• Loss of profit.
• Finance charges.
• Acceleration costs.
• Claim preparation costs.
What is a bond
Financial guarantees provided by a third party.
Usually written as a deed, for a period and specified amount of money
A surety bond is a guarantee from the surety in favour of the employer that the contractual obligations will be fulfilled by the main contractor.
The bond will provide financial compensation up to a stated value if the other party does not fulfill their obligations under the contract.
It does not guarantee the completion of the works.
