Contract Practice Flashcards
What is an LoI?
Letter of Intent
What are the types of LoI?
1) Comfort Letter
2) Instruction to proceed
3) Recognition of contract
What are the advantages of a LoI?
Promotes trust & enables earlier start on site.
What are the disadvantages of a LoI?
1) Not legally binding
2) Can provide a false sense of security
3) If left too long, the contractor may no longer wish to sign the contract
What is a Parent Company Guarantee?
A guarantee provided by the contractor’s ultimate parent or holding company to answer for the debt, default or miscarriage of the contractor.
Who issues a LoI?
The Client or any party authorised to enter into contract on behalf of the Client.
What is a performance bond?
A bond obtained by the contractor which will provide the client with a sum or % of the contract sum if/when the Contractor fails to comply with their obligations under the contract.
What are the ways to protect the client from contractor default?
1)Performance bond (Conditional or On-Demand)
2) Parent Company Guarantee
What is a collateral warranty?
Creates a contractual link between parties where one does not already exist, such as a Client and Subcontractor, or Client and Novated designers.
What is the difference between “Novation” and “Assignment”?
Novation is a transfer of both Rights and Responsibilities (Obligations), whereas Assignment is just a transfer of Rights.
What are the 5 types of bond?
1) (T)ender Bond
2) (R)etention Bond
3) (A)dvanced Payment Bond
4) (M)aterials off-site Bond
5) (P)erformance Bond (Conditional or On-Demand)
(TRAMP)
What is meant by “Deferment of Possession of the site”
Cl. 2.5 in JCT SBC - Entitles the client to defer giving the contractor possession of the site for a period of up to six weeks unless a shorter period was stipulated in the contract particulars.
What Clause does “Deferment of Possession” refer to in the Contract?
JCT SBC Cl. 2.5.
What makes a Contract legally binding?
1) Offer
2) Consideration
3) Intent to create legal relations
4) Certainty of terms
5) Legality
6) Acceptance
7) Capacity to make agreement
What are the advantages of using standard forms of Contract like JCT?
1) The contracts have been tried and tested and parties have experience in using them.
2) Bespoke contracts are time consuming to put together and expensive, the Contractor is also likely to inexperienced with the Contract which could lead to disputes / less people wanting to tender for the project.
What are the key payment timelines under JCT?
1) Due Date
2) Payment Certificate - 5 days after the Due Date
3) Final date for a pay less notice is 5 days before the final date for payment.
4) Final Date for Payment is 14 days from the Due Date (unless amended)
What must a Contract Administrator state in their Certificate?
1) The sum he considers to be due to the Contractor at the Due Date.
2) The basis of which the sum has been calculated.
What is the purpose of a Vesting certificate?
Vesting is a tool used to help the Contractor’s cashflow. A vesting agreement transfers the ownership of the materials over to the Client.
What documents may be required to pay for materials off site?
1) Signed vesting agreement.
2) If there is a materials off-site bond, make sure this has been purchased by the Contractor.
3) Check to make sure materials you’re paying for align with the rates in the Contract.
If the Client delays the Contractor’s start on site date by more than 6 weeks, what is the Contractor entitled too?
Terminate the Contract.
What is a retention bond?
A bond that will pay the client a percentage of the contract price if the contractor were to default or fail to correct defective work.
Why would you extend the liability period?
For example, a student accommodation can only do inspections out of term time.
What are the advantages of novation?
1) Reduced learning curve
2) Transfer of design risk to the Contractor.
What are the disadvantages of novation?
Requires a good relationship between the Contractor and Architect.