Contract Practice Flashcards
What is a construction contract?
It is an agreement between two parties to carry out works
It must be:
- An offer
- An acceptance
- Consideration
- Intention to create legal relations
What are the documents that make up an NEC Contract
Form of agreement
- Conditions of contract
- Contract Data
- Work information
- Site information
- Prices, activity schedules, BoQ
What are the differences between collateral warranties and third party rights?
- Collateral warranties are agreements with a third party for a duty of care to be extended by one of the the contracting parties
- Third party rights Y(UK)3 invokes the Contracts Act 1999, which allows people that are not party to a contract to enforce a term of contract
What are liquidated damages?
- A genuine pre-estimate of the the likely loss incurred by the Employer should the completion date not be hit
What is a performance bond?
- It is a guarantee from a bondsman that the contractual obligations of the Contractor are fulfilled
- If called upon the bond will be provide financial compensation up to a stated value
- They are the most common form of bonds used in the construction industry and the standard value is 10% of the contract value
What is the Defects Liability period?
- The defects liability period is set out in CD Pt1, usually the Defects Date is 52 weeks after completion of the works
- If the Contractor fails to do so they may be in breach of contract
- In this solution others may be employed to rectify the defects and the cost will be deducted from the retention
What is a Parent Company Guarantee?
- NEC X4
- It is an arrangement where the contractual performance of one company or cooperate group is underwritten by other members of the cooperate group
What is retention?
- Clause X16
- Provides an incentive for the Contractor to rectify the defects within the defects liability period
- Half of the retention is released upon completion
- Second half released 4 weeks after the defects certificate issued
What is the arguments against bonds?
- They shouldn’t be required if the tender process is completed effectively
- Brings unnecessary premiums are added to the contract sum
When might bonds be appropriate?
- If the Contractors is new and unproven
- In a difficult economical climate
What are the pro’s and con’s of parent company guarantees?
- Not as secure as bonds because of the financial risk between the parent company and subsidiary
- They do not need to be paid for, they can be unlimited and they can make the parent company responsible for performance as well as financial guarantee
What recovery would a third party have if you prevented them access
- The Contractor would not pay delay cost directly with a third party as they are not in contract with them
- The Client would apply CL 25.2 if they have received additional costs from a third party as the Contractor would not be providing the services they are to provide in line with the works information
What is limititation of liability?
- Limitation of liability caps the amount of liability one party can recover from the other
- Secondary Option Clause X18
What is the fitness for purpose obligation?
- The obligation that goods or services must be capable of being used for its intended purpose
- For example the NEC states that the Contractor must provide the works in line with the works information
- The JCT states the Contractor must use reasonable skill and care
What is a Deed of Variation
- A Deed of Variation is a legal document that varies or changes one or more clauses of a former contractual agreement
- I would seek guidance from my companies legal team and commercial director before giving any advise on a Deed of Variation
