Contract Practice Flashcards
What is a contract?
Offer, acceptance, consideration and intent.
Express terms vs implied terms?
Express are written into the contract. Implied are in the contract by common law.
What is tort?
Tort is a civil wrong causing a claimant to suffer loss or harm.
Statutory provisions vs contract provisions?
Statutory must always be complied. Contract are only applied to specific project.
Opinion on oral contracts?
While they are legally binding, it’s difficult to prove t&cs. Written is preferred.
What is breach of contract?
Occurs when one party fails to deliver on their agreement.
What is the Local Democracy, Economic Development, and Construction Act 2009?
Amended HGCRA 1996.
Key provisions of LDEDC Act?
Oral contracts now covered.
Payment.
Payment notices.
Pay less notice.
Suspend performance for non-payment.
What is a letter of intent?
Asks contractor to begin works before formal contract is executed.
What is included in a letter of intent?
Scope of works.
Date for possession and completion.
Insurances.
Letter expiration.
ADR method.
Advantages of letter of intent?
Work commences before main contract is agreed and signed.
Disadvantages of letters of intent?
Leads to complacency.
Less robust.
Employer negotiation strength reduced.
Who issues the letter of intent?
Employer.
When to use letter of intent?
Need to commence work as soon as possible.
Materials have long lead periods.
Can you draft a letter of intent?
It should be drafted by a legal or contract professional.
Types of Letter of intent?
Comfort Letter - expresses party’s intention to act in a particular way at some point in the future.
Instruction to proceed with consent to spend - Works can proceed up to a certain value.
Recognition of contract - Issued when the contract is substantially agreed and marks completion of negotiation.
Case laws related to letters of intent?
Ampleforth Abbey Trust v Turner & Townsend.
T&T never signed the contract and the entire works that were late, were done under the letter of intent.
What is a PCG?
Parent company guarantee - security that may be required by clients to protect them in event of default.
When is a PCG useful?
When a small contractor is part of a large, financially stable group of companies.
Are there any acts governing 3rd party rights?
Contracts (Rights of Third Parties) Act 1999.
What does the contracts act 1999 do?
Allows 3rd parties to enforce terms of contract that they are not party to.
Advantages of third party rights?
Time and cost - Does not require warranties to be organised.
Certainty - Once rights are agreed, don’t need to revisit.
Subcontractors - employer can confer 3rd party rights in relation to subcontractors.
Disadvantages of third party rights?
Lack of Flexibility.
Need for careful drafting.
Why use third party rights instead of collateral warranties?
Collateral warranties can be admin heavy.
3rd party rights are easier to get into place.
What is a collateral warranty?
Formal contractual agreement running alongside another contractual agreement.
Example of how a collateral warranty would be used?
Many sub-contractors with no direct links to the employer. They can create obligations if they want to.
Difference between a bond and a collateral warranty?
Bond is a financial commitment backed by third party, collateral warranty passes on contractual obligations.
Three ways of transferring benefits under a contract?
Collateral Warranties.
Third Party rights.
Assignment.
Case law related to collateral warranties?
Parkwood Leisure vs Laing O’Rourke.
It should be treated as a construction contract under HGCRA 1996.
In D&B contract, why might you need a collateral warranty?
Design team under contractor creates a link between the employer and the design team.
What is assignment?
Benefit of a contract is transferred, but the burden remains with the original party to the contract.
Assignment example?
Assign benefit to purchaser or tenant.
Banks will often take assignment as party of security in the event of employer defaulting.
Typical assignment clauses?
Assignment of rights twice without consent.
Assignment notified in writing.
What is a bond?
Construction bonds are protection for owner against non-payment, lack of performance, default etc. Backed by a third party.
List some different types of bonds on projecs?
Retention bond.
Performance bond.
Off-site materials bond.
Tender bond.
Advanced payment bond.
What is a performance bond?
Makes a payment to employer in case where contractor defaulted under contract.
Why would you use a performance bond?
New or unapproved contractor.
Concern over contractor’s finances.
Economy concerns.
Commercial exposure.
Difference between on-demand and conditional performance bonds?
On-demand - money available on demand without needing to satisfy preconditions, unless it is fraudulent.
Conditional - requires evidence of non-performance and subsequent loss.
Typical value of performance bond?
10% of contract sum.
Typical cost of performance bond?
Depends on stability of contractor and previous claims.
Risk of not having a performance bond?
Employer is liable if contractor becomes insolvent.
What is a tender bond?
Provides security against risk of bidder failing to enter contract.
What is an off-site material bond?
Covers risk of off-site materials, if contractor is insolvent.
What is a retention bond?
Type of performance bond - pays employer if contractor doesn’t fulfil obligations or remedy defects immediately.
Disadvantages of retention bond?
Employer has to pay premium, reduces contractor incentive to complete work promptly.
What is an advanced payment bond?
Protects an advance payment made before a contract commences.
What should the contractor do if antiquities are discovered?
Stop works, seek advice.
Preserve in location and condition.
Inform PM.
Who is liable for delay and expense if antiquities are discovered?
Depends on the contract risk allocation.
What are defects?
Problems in workmanship, design, materials or systems used.
Patent defect vs latent defects?
Patent are discovered by reasonable inspection.
Latent may not be apparent for several years after completion.
Why is defect rectification period 12 months?
Goes through all seasons in the year, so most defects will become apparent.
What is novation?
Under D&B. Design consultants contracted to client but then novated to contractor.
Are novation agreements required under traditional procurement?
Not usually, as designers retained by employer.
Advantages of novation?
Design team understands client requirements.
Reduced contractual risk.
Disadvantage of novation?
Generally requires collateral warranties after novation.
Potential for conflicts of interest.
What is retention?
Percentage of sums certified for payment under the construction contract, typically 3-5% held by employer.
RICS Guidance for retention?
Retention 2012.
What is the purpose of retention?
Used as assurance of project completion, and against defects.
What can employer use retention money for?
To hire another contractor if contractor doesn’t rectify defects.
How is retention released to the contractor?
At time of issuing completion statement, first half.
Second half released upon expiration of rectification period.
Who benefits from interest on retention?
Employer.
Alternatives to holding retention?
Retention bond to cover retention otherwise deducted.
What is professional negligence?
When a professional fails to perform their responsibilities to the required standard or breaches a duty of care.
How can employers recover a loss when consultant is negligent?
Claim on PII.
What is product liability insurance?
Protects policyholder against liability resulting from manufacturer/supplier defects.
What is public liability insurance?
Protects against liabilities for injury to third parties or their property.
What is employer liability insurance?
Pay compensation and legal costs for employee claiming work-related injury or illness.
What is Contractor Design Portion?
Used on traditional procurement routes, where design responsibility for specific elements are with the contractor.
Difference between traditional procurement with CDP and design & build?
Traditional with CDP - design responsibility lies with employer.
D&B - All responsibility lies with contractor.
How are CDP elements executed?
A performance spec is provided at tender. Design proposals from contractor are reviewed by design team.
List typical CDP elements to transfer?
Steelwork.
Cladding.
Roofing.
Temp Works.
MEP.
What is a domestic subcontractor?
Chosen by the contractor.
What are named subcontractors?
Employer provides a list of pre-approved subcontractors. They become domestic once appointed.
Advantages of naming subcontractors?
Employer has more control with elements of choice.
What are nominated subcontractors?
Selected by employer and imposed on contractor.
Disadvantages of nominated subcontractors?
Contractor can object under right conditions.
Conflicting ethics and attitudes.
Advantages of nominated subcontractors?
If employer has nominated them, their work should be acceptable to the employer.
RICS guidance with subcontracting?
Subcontracting 2021.
What can be done at tender stage to identify potential contractor insolvency?
Check financial statements.
Check for front-loading of tender.
Bank references.
Credit checks.
What is termination?
When a contract is terminated, parties do not have to perform obligations.
Can contractor suspend work for non-payment?
LDEDCA 2009 - Yes.
What are delay damages/liquidated damages?
Pre-estimate of loss suffered by late completion, inserted into contract before signing.
Not a penalty.
Employer calculates the figure.
What expenses/costs can employer include in liquidated damages?
Loss of income.
Professional fees.
Cost of not having a facility.
Legal costs.
What if your client tells you damages are 100k per week?
Due diligence.
Damages not enforceable if seen to be a penalty.
Under JCT, what contractual documents should be in place before damages can be deducted?
Non-completion notice in place.
Contractor is formally notified that employer will do so.
Pay less notice served.
What is a LD holiday or LD free period?
Grace period with no commercial liability.
Implication of inserting nil or £0 against damage clause?
Can prevent employer from pursuing the contractor for ULD.
Implication of leaving the damage clause blank?
The employer can pursue the contractor for ULD.
Difference between LD and ULD?
LD - agreed in contract beforehand.
ULD - granted by courts based on assessment.
If date for completion is adjusted, what effect would this have on delay damages?
Damages cannot be deducted from original date; damages are levied from revised date.
Can employer levy LD if they don’t actually occur the loss?
Yes as long as:
- Damages are not a penalty.
- OG calculation is a genuine pre-estimate of loss.
What is a pre-construction services agreement?
Contract for pre-con services.
When might a PCSA be used?
Two-stage tender approach to facilitate early contractor involvement.
How can PCSA benefit the project?
Improve buildability and cost certainty.
Reduces dispute likelihood.
What activities can PCSA be used for?
Design process.
Buildability.
Cost planning.
Construction methodology.
Planning applications.
What should be considered when drafting the PCSA?
Arrangements do not commit employer to entering into the building contract.
Scope is unambiguous.
What are the main forms of building contracts?
NEC
JCT
FIDIC
Bespoke
Considerations when selecting construction contract?
Client.
Cost, time, quality, risk.
Procurement.
Value.
Public/private.
Complexity.
What is a bespoke contract?
Contracts tailored to fit specific requirements.
Advantages of standard forms over bespoke contracts?
Written by legal experts.
Rights and obligations of each party are set out to required level of detail.
Parties should be familiar with the contract.
Disadvantages of bespoke contracts?
Expensive to draft.
Poorly drafted.
Clauses untested in court.
Unappealing to contractor.
When would a bespoke contract be appropriate to use?
When standard contracts are insufficient.
Have you amended a standard contract?
We do not have legal training so do not amend the contract ourselves.
All amendments should be drafted by the legal team.
Risks associated with amending standard contracts?
Legal uncertainty.
Cost premium to tenders.
Must comply with legislation.
What does JCT stand for?
Joint Contracts Tribunal
What are some of the JCT forms of contract?
Standard Building Contract
Intermediate Building Contract
Minor Works Building Contract
Major Project Construction Contract
Design & Build Contract
Characteristics that could influence which JCT contract is used?
Size/value.
Contractor designed?
Appetite for risk ownership.
Employer experience.
Programme requirements.
When would you use JCT Minor Works?
Small, basic projects with simple nature of work. Suitable for traditional procurement.
Key features of JCT Minor Works?
- Employer responsible for design.
- Not suitable when a BoQ is required and is complex.
- Administered by architect or contract administrator.
When would you use JCT Intermediate Contract?
- Project requires all recognised trades in the industry.
- Suitable for traditional procurement.
When would you use JCT Standard Building Contract?
- Large or complex projects.
- Employer responsible for design, but could have CDP.
When would you use JCT Major Project Construction Contract?
- Large scale.
- Work done by experienced contractors, willing to take risks.
- Suitable for D&B.
Key features of JCT Major Project Construction Contract?
- Novation agreements often in place.
- Contractor responsible for design.
- Carried out in sections.
When would you use JCT D&B Contract?
- Contractor carries out design and construction. Can vary in scale.
Key features of JCT D&B?
Scale of work can vary greatly.
Contractor completes design.
Design requirements and responsibility goes beyond cover in traditional contracts.
When would you use JCT Prime Cost contract?
Designed for projects that require early start on site.
Nature and extent of work not known until project is underway.
Traditional procurement.
When would you use JCT Measured Term Contract?
Designed for use by employers who have regular maintenance and minor works.
Traditional procurement.
When would you use JCT Construction Management Contract?
Construction Management.
Used where employer appoints separate trade contracts for works.
Management method procurement.
When would you use JCT Management Building Contract?
Large/complex projects with early start on site.
Management Contracting.
What are relevant events?
Events that cause delays to completion date of works.
Examples of relevant events in JCT?
Variations/instructions.
Possession of site.
Suspension due to non-payment.
Weather conditions.
What is force majeure?
Events defined as certain acts, events or circumstances beyond control of parties.
What are relevant matters?
Employer is responsible. Affects progress of works.
Difference between relevant event and relevant matter?
Relevant events entitle time claims.
Relevant matters entitle cost claims.
What is a loss and expense claim?
Associated with delays, or any event, where contractor incurs loss due to employer failure.
Common heads of claim in loss and expense?
Prolongation.
Preliminaries.
Disruption.
Finance charges.
What is partial possession?
Building contract may allow employer to take partial possession of works.
Key points of partial possession?
Not agreed in advance (before signing).
Voluntary agreement between parties.
Can contractor refuse partial possession?
Yes, if it hinders ability to finish other areas.
What is Sectional Completion under JCT?
Allows multiple completion dates for multiple areas.
Difference between partial possession and sectional completion under JCT?
Sectional completion is pre-planned in contract.
Main options for insuring works under JCT?
Option A - Contractor insures.
Option B - Employer insures.
Option C - Refurb and alterations to existing, employer insures.
What are specific perils?
Significant events that would cause damage to the works. i.e. fire, explosions, earthquakes.
What is subrogation?
Insurance company that has paid a loss can step into shoes of insured party and sue the party responsible for loss.
Key differences between JCT and NEC?
NEC drafted in plain English.
NEC has early warning process.
JCT includes provisional sums.
JCT variations - NEC CE’s.
Contract Administrator vs Project Manager.
NEC is more collaborative.
Key updates from NEC3 to NEC4?
All language is gender neutral.
Employer is now Client.
Works Information is now Scope.
Risk Register renamed Early Warning Register.
Contractor must submit AfPs, rather than PM assessment.
Can you give me an overview of NEC4 ECC?
Suitable for any sector.
Developed by ICE.
Collaborative approach.
No references to QS in contract.
PM assumes full authority.
Generates a lot of admin.
Advantages of NEC4 ECC?
Clarity.
Flexibility.
Collaboration.
Risk allocation.
Dispute avoidance/resolution.
6 main NEC4 ECC options?
Option A: Priced contract w/ activity schedule.
Option B: Priced contract w/ BoQ.
Option C: Target Contract with activity schedule.
Option D: Target Contract with BoQ.
Option E: Cost re-imbursable.
Option F: Management contract.
Overview of NEC Option A?
Uses activity schedule, when scope is well defined.
Payments based on completed activities.
Contractor takes on risk.
Lump sum contract.
Overview of NEC Option B?
Uses BoQ.
Payments based on completed quantities at agreed prices.
Suitable when detailed and specific pricing is desired.
Overview of NEC Option C?
Target contract w/ activity schedule.
Financial risk shared between parties, motivates the contractor.
Made up of defined cost per the contractor plus a fee to cover OHP.
Pain/Gain mechanism.
Overview of NEC Option D?
Target cost with BoQ.
Choice between C and D depends on detail required, complexity, and risk allocation preferences.
Overview of NEC Option E?
Includes any level of design.
Ideal when scope is not properly defined at the outset and client carries most risk.
Overview of NEC Option F?
Cost-reimbursable contract.
Contractor acts as management contractor and financial risk taken by the client.
Which NEC option carries most risk?
Option E, then F.
Secondary options under NEC4 ECC?
X, Y, Z.
List some X clauses please?
X1 - Inflation.
X2 - Changes in law.
X3 - Multiple currencies.
X4 - Ultimate holding company guarantee.
X5 - Sectional Completion.
X6 - Bonus for early completion.
X7 - Delay Damages
X8 - Undertakings to client or others.
X9 - Transfer of rights.
X10 - Information modelling.
X11 - Termination by client
X12 - Multiparty Collaboration.
X13 - Performance bond.
X14 - Advanced payment.
X15 - Contractors design.
X16 - Retention.
X17 - Low performance damages.
X18 - Limitation of liability.
X20 - KPIs.
X21 - Whole life cost.
X22 - ECI
Dispute resolution options under NEC4 ECC?
W clauses: 1, 2 and 3.
W2 most commonly used.
What are Z clauses?
Bespoke contract amendments. i.e. nuclear indemnity.
Problems with Z clauses in NEC?
They can conflict with the core clauses.
Untested in court of law.
Can be ambiguous if drafted poorly.
Type of float on NEC4 ECC?
Total Float.
TRA.
Terminal Float.
What is total float?
Time an activity can be delayed without delaying planned completion.
What is TRA?
Float added to activities to allow for risk of delays.
Owned by contractor.
What is terminal float?
Duration between planned completion and contractual completion date.
Can completion date be changed?
Yes, by CE or acceleration.
Can planned completion date be changed?
Yes, anything can change it.
With reference to programme, how does NEC differ from JCT?
Programme is not a contract document under JCT.
What is scope under NEC4 ECC?
Extent and boundaries of works required under the contract. Should be a complete and precise statement.
Which of NEC ECC are D&B?
Intended to be suitable no matter what procurement route is chosen.
What is site information under NEC4 ECC?
Past and present site conditions.
What are compensation events?
Events that are usually not fault of contractor and change cost of work or time taken to complete.
What are CE’s detailed in NEC4 ECC?
Clause 60.1
- PM gives instruction to change scope.
- Site access.
- PM does not reply to communication from contractor.
- Antiquities.
- PM certifies take over of works before completion dates.
What happens if a contractor notifies a CE 12 weeks after becoming aware?
- Not entitled to change under 61.3. Must be within 8 weeks.
- Exceptions if it comes from the PM.
What are Early Warning notices?
Both parties must notify the other as soon as they can if it:
- Increases total of prices.
- Causes delays.
- Impairs performance of works.
Under clause 15.
Name Contract Documents relevant to NEC suite of contracts?
Form of agreement.
Contract conditions.
Contract data part 1 and 2.
Prices, activity schedules/BoQ.
Works Information.
Site Information.
What are the nine core clauses of NEC4 contracts?
GCTDPCTLT
General
Contractor Responsibilities
Time
Defects/Quality Management
Payment
CE’s
Title
Liabilities/insurance
Termination
What is the mechanism for closing one contract and opening another?
De-scope using a CE, when not terminating. Then final account.
Impacts of inadequate forecasting?
Unable to plan for future spending requirements, and future cash flow position.
Timeline for CE process?
8132
Contractor 8 weeks to notify.
PM 1 week to accept or reject CE.
C 3 weeks to quote.
PM 2 weeks to respond to quotation.
Acting as both QS and PM/Contract administrator, how would you mitigate this conflict?
I have worked in an NEC environment and have not acted as Project Manager or Contract Administrator, I have advised the PM on the best option in such circumstances.
What is PWDD under Option C?
Defined cost + Forecast + fee.
What is contractor’s share under Option C?
Part of the pain/gain calculation completed under Option C. Final price against target cost and is split according to pre-agreed percentages, some to contractor and some to client.
Difference between SSCC and SoCC?
SSCC only used for Option A and Option B, only to assess CE’s.
SoCC used for C-E, used for payments and CE’s.
Examples of disallowed costs?
Training, insurances, work claimed when not working.
In a fixed price contract, is it right to say that all risk falls on the contractor?
Not necessarily, depends on clauses used as part of option E contract.
How are 3rd party rights applied under NEC?
Y(UK)3
Does consideration have to be fair?
No.
What are some reasons for termination under NEC?
R1-10 Insolvency applying to both parties.
R11-15 failed to comply with obligations.
R16 terminate if not received payment in 13 weeks.
R18-20 work suspended for more than 13 weeks following PMI.
R21 prevention event (effectively force majeure).
R22 corruption.
What are some reasons for a contract becoming void?
Non-authority
Illegal
Undue influence
Duress
Ambiguity
Defined Cost under different Options?
A/B - Shortened SCC
CDE - Long SCC
Disallowed cost under different options?
A/B - N/A
CDE - clause 11.2
Reasons for disallowed cost?
Not justified by contractor records.
Not following procurement procedure.
Should not have been paid to subcontractor.
Cost of items not used to provide the works.
Cost of preparing for adjudication.
Cost of rectifying defects after completion.
How would you calculate amount due?
PWDD + Other amounts - Retention.
How would you calculate PWDD?
A - Completed activities.
B - quantities x rates.
CDE - Defined cost + Forecast + Fee.
Where is forecasting within the contract?
under section 2 for contractors main responsibilities.
What are some key differences between ECC and TSC under NEC4?
A TSC is for maintaining and operating and asset, compared to ECC which is about building an asset.
What is the difference between X16 in NEC3 and NEC4?
In NEC4, there is an additional clause related to retention bonds being used.
What are the reasons for a PMA under NEC4?
- Missing submission deadline.
- Incorrect assessment.
- Omission of programme alterations.
- Latest contractor programme not accepted.
What kinds of risk would you find under employers other risk?
External risks.
