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.
