Contract Practice Flashcards
RICS guidance note
Defining completion of construction works
What is the standard recertification period
6 months, standard ammendment is to 12 months
Types of JCT contract
Minor works - less than £500k (traditional procurement)
Intermediate- £500k-£1m (traditional procurement)
Standard building contract -£1m+ (design & build or traditional procurement)
Standard retention
3%, minor works is 5%
Why have retention
Withheld from contractor.
At PC drops to 1.5% of contract sum
To incentivise contractor to complete the works
Retention held so if contractor walked away there would be money to cover the cost of completing the defects
Contract under hand
Doesn’t have to be in writing
Money to be validated
Limitation period is 6yrs
Contract deed
Has to be in writing
Limitation period is 12yrs
Needs a witness
5 requirements of contract
Offer
Consideration
Acceptance
Intent to create legal relations
Agree
Who signs the practical completion certificate
Contract administrator (traditional) or employers agent (d&b)
How is PC achieved
Awarded If fully functional and signed off from parties & building regulations - use practical completion checklist
What is sectional completion
Must be detailed in contract amendments
IDF rooms are 4 weeks prior to PC
Has the same mechanisms as PC in terms of retention & insurances
What is partial possession
Not detailed in the contract
Project may be delayed so a section is handed over
Releases same mechanism as sectional / practical completion
What happens if PC isn’t awarded
Non completion certificate is issued
With detailed reasons why PC wasn’t achieved
Revised PC date
Client can claim liquidated damages if set out in contract
What are liquidated damages
Pre determined calculation of loss
What are Damages
Not set out in contract
Actual loss
Eg if Tesco pc was delayed by a month, damages are a month of revenue
After signing PC what happens
PC certificate is handed over to
Retention is released
Client notifies insurance company
What are rectifications
Point in time from PC when the contractor has to rectify snags
What are limitations
Point from PC that contractor/ client can sue each other (6 or 12yrs)
Latent defects
Notice later on (not obvious) eg cracks in foundations
Can claim within rectification period - why amended to 12months to ensure the project has gone through all seasons
Patent defects
Obvious defects. Notice them straight away eg carpet is cut
What is a relevant event
Delay
Eg delay in completion due to exceptionally adverse weather
Can’t claim money only extension of time
What is a relevant matter
Money
Loss & expense claim
Eg if client wanted to cut open the works to see if something was complete, contractor could claim to make good the area
Employers agent
Design & build contracts
Administer contract in behalf of the client
Can exist before the construction contract is executed
What is a contract administrator
Traditional
CAs administer contractor impartially
Role only exists once construction contract is executed
What is a parent company guarantee
Parent company will sign up to deliver contractual obligations if the contractor goes bust
What is a performance bond
Financial guarantee that the contract will be undertaken
10% of contract sum - so project can be retendered if the contractor went bust
Get choice over who gets the contract if retendered
What is advance payment bond
Protects client in case of contractor deferring in the contract
Have one with ergonom
When materials are off site what do you have
Vesting certificate
Evidence of transfer of payments of goods stored off site
Used for insurances to protect the client
Retention bond
Alternative to holding retention
Good if contractor has Cash flow issues
Insurance company provides the bond
Not often used
What are collateral warranties
Legal document (separate to contract) where 3rd party with an interest to the project has rights
Client may have one with design consultants as they have rights over design
Step in rights
Allow party to take place of another eg funding party steps into shoes of insolvent party to complete project
Third party rights
Statutory right, same as collateral warranties but in the contract
3 ways benefits can be transferred in JCT contract
Novation
Assignment
Collateral warranties
Example of assignment
Contractor assigning their right to receive payment to a third party eg a bank. Then bank (third party) is then entitled to receive the payment
express v implied terms
express- clear in contract agreed by both parties (contractual)
implied- not set out in the contract but implied by common law/ statute
local democracy, economic development and construction act 2009
came into force in 2011
amendment from housing grants and regeneration act 1996
key provisions of LDED
contracts:
requirement for construction contracts to be written
payments:
pay when certified clauses can no longer be used to prevent paying a subcontractor
payment notices:
contract must specify that either the payer or payee will issue a payment notice contract requirements:
this must be issued no later than 5 days after the payment due date and paid before the final date for payment identified in the contract
must clarify the sum that the payer/ee considers due
a payment notice must be issued even if the payment is nil
payment notices default of payers notice:
if the payer is required to issue the payment notice and doesnt the payee is entitled to issue a default payment notice
a default payment notice obliges the payer to pay the amount due and allows the payee their statutory right to suspend performance for non payment
payless notice:
paying parties are required to pay the notified sum or default payment notice by the final date or serve an effective pay less notice. the payer can amend the sum due if its later discovered or the amount notified turns out to be unsound.
suspension of performance for non payment:
contractors right to suspend carrying out work in the event of non payment
types of letter of intent
comfort letter- expresses party’s intention to act in a particular way
instruction to proceed with consent to spend- instructs work to proceed, sometimes referred to as an if contract. similar to NTE
recognition of contract- letter of acceptance, used in FIDIC to formally execute the contract itself. usually marks completion of negotiation between parties
letter of intent case law
ampleforth abbey trust v Turner & townsend
contractor never signed the contract, whole works were procured using letter of intent. the trust wasnt able to claim liquidated damages under the contract due to late completion of works.
difference between bond and collateral warranty
bond is a financial commitment backed up by a third part, collateral warranty passes on contractual obligations
bonds are within the contract
CW are a side agreement out of the contract
case law for collateral warranties
laing o’rouke v parkwood leisure
The Court was required to determine whether a collateral warranty was a “construction contract” within the meaning of section 104 of the Housing Grants, Construction and Regeneration Act 1996. Akenhead J found that there was no doubt that this particular collateral warranty was to be treated as a construction contract under section 104.
typical clauses of assignment
standard to allow assignment of rights twice without consent
should be notified in writing to the other party
5 bonds you might use on a project
performance bond
retention bond
off site materials bond
advance payment bond
tender bond
on demand v conditional performance bond
on demand- money immediately available without needing to meet any preconditions
conditional- provide evidence that the contractor hasnt performed to obligations and that they have suffered a loss as a consequence
what is a tender bond
provides security against risk of successful bidder failing to enter into contract
prevents idle tendering
SOE- says you reviewed the collateral warranties tracked and advised where some werent signed - why werent they signed
Collateral warranties need to be signed within 3 weeks of that specific contract being let, this hadnt yet lapsed
insolvency - contract termination
have to formally notify the insolvent party of why you are terminating contract
(insolvency is a specified default of the contract)
insolvent party has 14days to rectify the contract default
if this cant be done the contract is terminated
the process of administration
Termination of contract, corporate
recovery and insolvency guidance note
Administration involves the adoption of a
procedure that allows a company unable to
pay its debts to continue to trade for a
further period, during which its assets are
protected
Difference between CA and PM
CA- named in construction contract
PM- scope of services in own contract (not named in JCT)
Types of Letter Intent
limitations
pricing mechanism of the contract
types of contract
NEC
FIDIC
main difference between JCT and NEC
JCT is more traditional, structured, and risk-focused, suitable for straightforward projects with a clear separation of design and construction responsibilities.
NEC is more modern, flexible, and collaborative, ideal for complex projects requiring ongoing project management, communication, and adaptation to change.
JCT V NEC (payment provisions)
JCT:
Standard payment mechanisms typically based on monthly valuations or milestones.
Variations or adjustments can be more time-consuming and formal.
NEC:
Payment is typically linked to the completion of activities or specific deliverables rather than time-based progress.
More flexible with compensation events, which allow for a structured approach to changes in the work or unforeseen circumstances.
JCT V NEC (Flexibility and Innovation)
JCT:
Tends to be more rigid and traditional, with less room for mid-project changes or flexibility without specific variation clauses.
Generally used for projects where the design is fully completed before construction begins, with less flexibility for innovation during the build phase.
NEC:
Much more flexible, allowing for changes and adjustments during the project without needing to amend the entire contract.
The design may evolve during the project, allowing for more innovation and problem-solving on the go.
JCT V NEC (Dispute Resolution)
JCT:
The contract is more likely to lead to disputes, with dispute resolution processes often requiring formal legal mechanisms (arbitration, adjudication, etc.).
Clear legal boundaries on performance and deliverables can create conflicts if there is a mismatch between expectation and execution.
NEC:
Focuses on early warnings and preventive actions, aiming to avoid disputes from arising in the first place.
The collaborative nature of NEC contracts generally leads to fewer disputes, and when disputes do arise, they are more likely to be resolved through negotiation.
JCT V NEC (Risk Allocation)
JCT:
Generally allocates more risk to the contractor, but it is also more clear-cut in defining each party’s responsibilities.
Disputes often arise when the contractor feels that they are being forced to take on risks they didn’t anticipate.
NEC:
Encourages a shared approach to risk management. The use of risk registers and early warning mechanisms allows for risks to be identified and managed collaboratively.
The aim is to avoid disputes by resolving issues before they escalate.
JCT V NEC (Approach)
CT:
Traditional, risk-averse, and based on a more adversarial approach.
Clearly defines the roles and responsibilities of the parties and assigns the risk accordingly.
Focuses on the clarity of obligations, often with strict processes to resolve disputes.
Designed around the idea that the client provides most of the information, and the contractor’s role is to build to the client’s specifications.
NEC:
Collaborative, proactive, and flexible approach.
Emphasizes teamwork and mutual cooperation between all parties.
Designed to prevent disputes through good management practices, encouraging early warnings and cooperation.
Allows for more flexibility and adjustments during the project.
key differences between JCT 2016 &2024
Building Safety Act 2022 and Fire Safety Act 2021: JCT 2024 is expected to address key legislative changes arising from the UK’s focus on improving building safety. Compliance with these acts may be woven into contractual obligations, especially in the context of design responsibility and risk
electronic signatures
Extensions of Time and Force Majeure Clauses:
The pandemic highlighted gaps in force majeure and extensions of time provisions. JCT 2024 may provide more explicit guidance on unforeseen events, pandemics, or delays due to public health crises.
There may be clearer triggers for entitlement to extensions in circumstances beyond a contractor’s control.
difference between reasonable skill and care and fitness for purpose
When demonstrating a reasonable skill and care obligation, all the contractor/consultant is required to show is that they exercised the standard of care to be expected of a reasonably competent professional in their field.
fitness for purpose is an absolute obligation and provided the obligation is clearly established or defined by the contract document
case law for reasonable skill and care and fitness for purpose
Mt Hojgaard A/S v E.On Climate and Renewables.
if traditional, can a contractor be held responsible for a design error
yes, as they should be able to demonstrate reasonable skill and care
who holds the risk of adverse weather
the client, unless the contract is ammended
if work is called off due to adverse weather can the contractor raise a loss and expense claim?
no, its a relevant event so could request an extension of time
types of termination of a construction contract
voluntary and involuntary
