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RICS APC > Contract Practice > Flashcards

Contract Practice Flashcards

1
Q

What is a contract?

A

A construction contract is a legally binding agreement between parties involved in a construction project that outlines the terms and conditions under which the construction work will be carried out

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2
Q

What are the elements of a contract?

A

Offer, acceptance, consideration, certainty of terms, intent to legal relations

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3
Q

What are the elements of a contract in terms of construction setting?

A

Tender - Invitation to treat
Tender return - Offer
Formal acceptance/ Contract - Acceptance

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4
Q

What is the difference between deed and contract?

A

The limitation period for claim under deeds can be brought within 12 years whereas under contract is within 6 years

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5
Q

What are the sources of laws relating to contracts?

A

BGB, VOB/B, BauGB, EU Directives (i.e Public Procurement)

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6
Q

What is LOI? Is it legally binding?

A

An LOI is a document that outlines the preliminary terms and intentions of the parties involved in a potential agreement. while a Letter of Intent is typically not legally binding, its status can vary based on its language and the intentions of the parties involved. Parties should clearly specify the binding or non-binding nature of an LOI and seek legal advice to ensure clarity and manage expectations.

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7
Q

What is the recognition of contract? What is consent to spend?

A

Recognition of contract - Letters recognising the existence of a binding contract between the parties may be used to execute the contract before the formalities of copying, binding and signing the contract have been completed.

Consent to spend - If contractor commence works pending preparation of the contract documents, then client will reimburse the contractor’s reasonable costs should the contract not be entered into.

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8
Q

What is VOB/B?

A

It is part of the VOB (Vergabe- und Vertragsordnung für Bauleistungen – Teil B), which governs various aspects of construction contracts in Germany. VOB/B specifically deals with the general terms and conditions for construction contracts.

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9
Q

What is BGB?

A

It provides the legal foundation for contract formation, performance, liability, and termination, while VOB/B offers detailed terms specific to construction projects.

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10
Q

What is a standard form of contract? What are the advantages and disadvantages of its usage?

A

A standard form of construction contract is a pre-drafted template used to establish the terms and conditions for construction projects.
Advantages - Consistency, efficiency, legal and industry expertise, reduced costs, user familiarity
Disadvantages - Lack of customization, potential party bias, over-reliance, local enforcement, potential disputes

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11
Q

What is a bespoke contract? What are the advantages and disadvantages?

A

It is a custom-designed agreement tailored specifically to the needs and requirements of a particular construction project
Advantages - Customization, risk management, better alignment with project goals
Disadvantages - Higher costs, complexity, limited precendent, potential for negotiation challenges, difficulty in handling changes.

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12
Q

What are the common forms of contract?

A

VOB/B: Commonly used in Germany
FIDIC: Internationally recognized, used for large and complex projects.
JCT: Widely used in the UK, suitable for various types of construction projects.
NEC: Emphasizes clarity and flexibility, used in the UK and internationally.

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13
Q

How would you advise the selection of contract? What factors influence the selection?

A

Factors include: Project Scope and Complexity, Risk Allocation, Project Duration and Schedule, Budget and Financial Considerations, Legal and Regulatory Requirements, Relationship and Collaboration, Project Type and Sector.
For Germany projects, the industry standard is VOB/B

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14
Q

What is the order of precedence of contract documents under FIDIC?

A

Contract documents (if any)
Letter of Acceptance
Letter of Tender
Particular conditions
General conditions
Specifications
Drawing
Other Documents

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15
Q

What is termination? What are the grounds for termination? Should surveyor consider breach of contract right away?

A

It is the formal end of a construction contract before its completion. Grounds for termination typically include material breaches, non-payment, insolvency, force majeure, and specific contractual provisions.
A surveyor should carefully assess and document any breaches, consult the contract terms, communicate with the involved parties, and seek professional legal advice before considering termination. Immediate termination may not always be the best option, and resolving issues or seeking remedies could be more advantageous depending on the situation.

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16
Q

What is the role of a surveyor in insolvency?

A

These can include measurement, financial costing, procurement/retendering, claims, payments and valuations. The chartered surveyor is therefore well placed to assist an insolvency practitioner at both the pre- and post-insolvency situations.

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17
Q

What are the other forms of FIDIC contracts?

A

Red Book: Conditions of Contract for Construction (for building and engineering works).
Yellow Book: Conditions of Contract for Plant and Design-Build (for engineering works designed by the contractor).
Silver Book: Conditions of Contract for EPC/Turnkey Projects (for projects where the contractor has full responsibility).

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18
Q

What is reasonable skill and care? Fit for purpose?

A

Reasonable Skill and Care refers to the standard of performance expected from professionals or contractors.
Fit for Purpose means that a product, service, or work meets the specific requirements and objectives for which it was intended.

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19
Q

How would you deal with interim payments under VOB/B and FIDIC?

A

VOB/B: Payment is due after 21 days after receipt of invoice, typically monthly
FIDIC Red book 2021:
1) Contractor submits payment application
2) Engineers review and issue payment certificate (28 days after receipt of payment application)
3) Payment is released after 28 days from issue of payment certificate
4) Employer must notify pay less notice within 7 days from issue of payment certificate. Contractor can respond to the notice to resolve the issue.

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20
Q

How would you deal with changes/variations under VOB/B and FIDIC?

A

VOB/B - Order/instruction must be issued by the client. If possible, cost of additional works must be agreed before execution
FIDIC - Instruction is issued by Engineer. Request contractor proposal in respect of variation.

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21
Q

Can contractor object to a variation?

A

VOB/B - yes if contractor is not equipped to execute works
FIDIC - if the goods are not readily available, notify asap.

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22
Q

What is change control procedures? why is it important to monitor changes?

A

Change control procedures are essential for managing alterations which involve identifying, documenting, assessing, approving, implementing, monitoring, and documenting changes. Monitoring changes is crucial to maintain project alignment with objectives, manage scope and costs, adhere to schedules, handle risks, and ensure efficient resource use.

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23
Q

How would you report and document changes?

A

Change request form, impact analysis, change approval, implement change, log changes, report changes

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24
Q

What is the difference between employer’s agent, and contract administrator?

A

The Employer’s Agent represents the interests of the client or employer in the project. The Contract Administrator (often referred to as the “CA”) is responsible for administering the construction contract, ensuring that all parties comply with the contract terms.

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25
Q

Which parties are involved in a contract?

A

Contractor, employer, Contract admin/employer’s agent, subcontractor

26
Q

What are the typical construction security and performance documents in a project?

A

PCG, bonds, third party rights, payment security, direct agreements

27
Q

What are the forms of payment security?

A

escrow accounts, project bank account

28
Q

When is performance bond issued?

A

VOB/B - typically before commencement
FIDIC Redbook - within 28 days after receipt of letter of acceptance

29
Q

What are bonds? What are the types of bonds used?

A

Bonds are undertakings given by one party – a bondsman – to another to pay money if a third party defaults.
Advance payment bond, retention bond, tender bond

30
Q

What are details to be checked in bond?

A

Check the issuer’s details, beneficiary’s details, contractor’s details, the bond amount, validity period, terms and conditions, and ensure that the bond complies with the contract’s requirements.

31
Q

What are insurances? What are the common insurances used?

A

It provide financial protection against potential losses, damages, or liabilities that may arise during the course of a project.
- CAR, Public liability, Employer liability, Professional Indemnity

32
Q

What are the pillars in resolving dispute?

A

Negotiation, mediation, adjudication

33
Q

What are the dispute mechanism under VOB/B and FIDIC?

A

FIDIC
- Engineer to consult both parties. Engineer will make fair determination if agreement is not reached.
- If dissatisfied, Dispute Adjudication Board takes over.
- Binding decision will be made withi timeframe. If dissatisfied, parties must attempt amicable settlement.
- Arbitration takes over otherwise with binding decision.
VOB/B
- Both parties can agree on dispute resolution procedures
- Client should register dispute, inform contractor.
- Contractor will be given opportunity to discuss with authorties.
- Authorities will issue decision within 2 months

34
Q

In the carpark building project, can you outline the payment process?

A

FIDIC
- For each month, contractor submits statement.
- Engineer verifies the statement (28 days)
- Engineer issue payment certificate
- Employer issue payment (56 days after contractor submission)

35
Q

How are materials off-site and on-site treated valued under contract?

A

VOB/B - Onsite Yes, to be included in the invoice with proper documentation, Offsite does not explicitly say.
FIDIC - Onsite and Offsite Yes for materials/plant listed under appendix, to be payment application with proper documentation, 80% of the determined or agreed value of materials/plant

36
Q

What are the documents to support materials off-site and on-site?

A

Materials onsite - PO, delivery notes, invoice, testing certificates, inspection pass
Materials offsite - Inspection on storage, testing certificates, insurance, clearly and visibly marked at storage, vesting certificate, bonds and guarantees

37
Q

In Diriyah Square, what is the procedure when dealing with changes? How did you assess the extent of changes?

A

In this project, the contractor provided their assessment of changes in steel reinforcement design. I checked first if there is VO in place including its supporting documents. And then I verified and valued the changes from the contract drawings and the latest shop drawings attached in the VO, using the existing contractual rates, add and omit exercise. Finally, I verified the whether the % progress of the changes executed onsite.

38
Q

What is the difference between your assessment and the contractor’s?

A

Contractor: circa 3.1M SAR Consultant: Circa 2.7M SAR Difference: 400k SAR

39
Q

How did you assess the value of works on site?

A

I review first the contract documents such as drawings, specifications and BoQ. Then I review the contractor’s payment application. Then inspect the quality and quantity of the works onsite and value against the contractual rates and % progress.

40
Q

Is there preliminaries on the works? How would you value prelims?

A

Yes. For time-related items, valued against programme. For fixed-priced valued against setup, maintenance and removal costs.

41
Q

How do you recover the advance payment?

A

VOB/B - % of advance payment and recovery to be agreed.
FIDIC - % of advance payment and recovery stated in appendix to tender
If not stated, deductions start when certified interim payments exceed 10% of the contract amount (less Provisional Sums). Deductions are made at 25% of each Payment Certificate until the advance payment is repaid.

42
Q

In an office development in Germany, how did you resolve the issue of insufficient substantiation of invoice? What are the documents needed in the verification?

A

To enable quicker and verifiable value of works, I recommended that the contractor must submit an invoice with proper supplementation as outlined in §14 of the VOB/B, which includes quantity calculations with drawing markups of the actual work done against the contract bill of quantities, photographs, supporting detailed calculations, supporting documents for materials onsite.

43
Q

Which paragraph mentions about payments?

A

§14 of the VOB/B

44
Q

What is retention and how is it treated in valuation?

A

Sum of money held by employer to safeguard against defect or non-conformance of works executed
VOB/B - 5-10% (half is released after abnahme)
FIDIC - 5-10% is held every interim payment
2.5% is released after issue of TOC. 2.5% after DLP, 12 months after issue of performance certificate.

45
Q

In fitout refurbishment project, After the issue of taking over certificate, is there anything that client needed to do after?

A

Client needs to be aware that after taking over,
- client should take liability on insurance of works taken over
- half of retention monies can be released

46
Q

Has the sectional completion been achieved? What would you do if the sectional completion has been missed?

A

In this project, there is no sectional completion stated under contract. However, client and contractor on the arrangement of going to a partial possession of 1st and 2nd floor, issuing a taking over certificate. However, this permits to release of the half of the retention against the 1st and 2nd floor works only, and insurance of the works started from there.

If the sectional completion is likely to be missed, I would assess if there’s EOT claim applicable, otherwise engineer must notify LD to contractor. However, to mitigate further delays, considering acceleration and renegotiating terms are also options to resolve the delay.

47
Q

What would you have done if it looked like the contractor was going to miss the sectional completion date?

A

Notify early warning to enable early mitigation. I would assess if there’s EOT claim applicable, otherwise engineer must notify LD to contractor. However, to mitigate further delays, considering acceleration and renegotiating terms are also options to resolve the delay.

48
Q

If these were missed was the client entitled to LDs, if so how are these calculated? Did you advise the client what these should be?

A

LD value is pre-estimated costs (financing, profit loss, overhead costs, third party claims) of loss, “not a fine”, due late taking over of the works. Detailed calculation of the LD should be retained in case challenged in the later. QS is not in a position calculate solely as it holistic development costs.
It is calculated based on the conditions of contract, typically per day for FIDIC.

49
Q

What does FIDIC states on partial possession? What is the difference compared to sectional completion?

A

If the contract specifies partial possession or if a section of the works is completed, the employer may take over that part after joint inspection. The Engineer issues a Taking Over Certificate for the completed section

Partial possession is not set under contract wherease sectional completion is set under contract.

50
Q

If the delay is at employer’s fault, what should the contractor do?

A

If there is an applicable EOT claim, time-related prelim items such as overhead, supervision, utilities, should valued by the extension set in the EOT.

51
Q

If the delay is at employer’s fault, what should the contractor do?

A

The contractor must notify Engineer and Employer of the potential delay attributed from the Employer, and if deemed applicable, submit an EOT claim.

52
Q

What are the grounds for extension of time?

A

Variation and changes, employer-driven delays, force majeure, late delivery of materials, unforeseeable ground conditions, suspension of works, changes in law.

53
Q

When remaining of the works are completed, what should be exceuted by parties?

A

Conduct join inspection and request for taking-over certificate. Employer assumes the insurance of the completed works. Release of half of retention monies. DLP starts,

54
Q

How is the work completion treated under contract?

A

When all pending rectification works have been completed and inspected, employer will issue final certificate of completion, contractor must submit a draft final account claim, subject to review and agreement of both parties.

55
Q

What is final account? What are the expected content of final account?

A

The final account is the conclusion of the contract sum (including all necessary adjustments) and signifies the agreed amount that the employer will pay the contractor. Contains, contract sum, less risk allowances, plus omission/additions from instructions

56
Q

How is final account treated under contract?

A

once final completion is obtained, contractor will submit a draft statement of final account. Once reviewed and agreed, engineer will issue final payment certificate

57
Q

What is the link between cost report and final account?

A

The last formal cost report presented by the PQS should provide a very good indication of where the final account is likely to be settled.

58
Q

What is defects liability period? When does it starts?

A

The defects liability period (DLP) is a specified timeframe during which the contractor is responsible for correcting defects or deficiencies in the completed work. It starts when the taking over certificate is issued.

59
Q

What are the DLPs under contract?

A

Typically 1 year for FIDIC. 4 years under VOB, 5 years BGB

60
Q

What is Collateral Warranty?

A

Is an additional or “side” agreement connected to a main contract. It provides a direct legal promise between a third party (like a contractor, designer, or supplier) and someone who benefits from their work but isn’t part of the original contract.

61
Q
A

RICS APC (18 decks)

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