Contract Practice Flashcards
Technical Competency
What is a contract?
A Contract is a legally binding promise (written or oral) by one party to fulfil an obligation to another party in return for consideration
What are the key requirements for a basic binding contract?
- Offer
- Acceptance
- Consideration
- Intent to create legal relations.
Please define ‘express terms’.
- Express tersms are the terms of the agreement which are expressed agreed between the parties.
- Ideally they will be written down in a contract between the parties but where the contract is agreed verbally, they will be the terms discussed and agreed between the parties.
Please define what is meant by ‘implied terms’.
A contractual term that has not been expressly agreed between the parties but has been implied into the contract either by common lay or by statue.
What is tort?
- A tort is a civil wrong.
- Part of the civil law.
- A claim in tort is concerned with loss or harm.
How do statutory provisions and contract provisions differ?
- Statutory provisions are set out by law and must be complied with regardless.
- Contract provisions related to the contract in question and therefore only apply to a specific project.
What is your opinion of oral contracts?
Whilst they are legally binding, the difficulty lies in proving the specific terms and conditions of the agreement. Having a written contract is always the preferred option.
What is a breach of contract?
A breach of contract occurs when one party on a binding agreement fails to deliver according to the terms of the agreement. A breach of contract can happen in both a written and an oral contract.
What is the Local Democracy, Economic Development and Construction Act 2009?
- October 2011 - the Local Democracy, Economic Development and Construction Act 2009 (the ‘2009 Act’) came into force in England and Wales.
- The Act amended the Housing Grants Construction and Regeneration Act 1996 (The Construction Act).
- The Act changed the way construction contracts are entered into and in particular, introduced an amended regime for payment and adjudication.
What are the key provisions under the 2009 Act?
- Contracts
- Payment
- Payment Notices: Contractual Requirements
- Payment Notices: Payee’s Notice in Default of Payer’s notice
-Pay less notice
What are the key provisions under Contracts under the 2009 Act?
The LDEDC Act repeals the requirement for construction contracts to be in writing therefore, contracts that are partly in writing or wholly oral are now covered. This will allow parties to go to adjudication even if their involvement is not formally recognised in writing.
What are the key provisions under Payment under the 2009 Act?
- Under HGCR Act a construction contract must have an ‘adequate mechanism’ for determining what payments are due and when they become payable.
- Pay-when-certified clauses can no longer be used to prevent paying a subcontractor on the basis that a certificate in the main contract is yet to be issued.
What are the key provisions under Payment Notices: Contractual requirements under the 2009 Act?
- The construction contract must specify that either the payer or the payee (but not both) will issue the payment notice.
- This must be issued not later than 5 days after the payment due date and paid before the final date for payment identified by the construction contract (the parties being free to agree how long the period is between the date the sum becomes due and the final date for payment).
- The payment notice must specify the sum the payer/payee considers to be due at the payment due date and the basis on which that sum was calculated. A payment notice must be issued, even if the amount of the payment notice is nil.
What are the key provisions under Payment Notices: Payee’s notice in default of payers notice under the 2009 Act?
- If the payer is required by contract to issue a payment notice and fails to serve that notice in the required form or in the set timeframe, 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.
What are the key provisions under Pay Less Notices under the 2009 Act?
- Paying parties are required to either pay the notified sum specified in either the payment notice or default payment notice, by the final date for payment or serve an effective pay less notice. This allows the payer to amend the sum due if it is later discovered that work covered, or the amount notified within the payment notice turns out to be unsound.
- To be effective, a pay less notice must specify the sum that the paying party considers to be due on the date the notice is served, the basis on which that sum is calculated and be served no later than the prescribed period prior to the final date for payment.
What are the key provisions under Suspension of performance for non-payment under the 2009 Act?
- The LDEDC Act clarifies the contractor’s right to suspend carrying out the work in the event of non-payment.
- To validly suspend performance of its obligations by reason of non-payment, a default notice must be issued and there must have been failure to pay. The party in default (the party who has not paid) is liable to pay to the payee (contractor stopping work) a reasonable amount by way of costs and expenses incurred by exercising the suspension of all or part of the work.
What is a letter of intent (LOI)?
- Typically used to describe a letter from an employer to a contractor (or from a main contractor to a subcontractor) indicating the employer’s intention to enter into a formal written contract for works described.
- The letter of intent typically asks the contractor to begin those works before the formal contract is executed.
What information is typically included in a letter of intent?
- Detailed description of the work to be completed.
- Contract sum (if agreed).
- Date for possession.
- Date for completion.
- Insurance provisions required.
- Method of payment.
- Expiry date of letter.
- Typically states employers’ right not to award the main contract for whatever reason.
- ADR (Alternative Dispute Resolution) Method.
What are the advantages of a letter of intent?
Allows works to commence (or place orders) before the main contract is agreed/signed.
What are the disadvantages of a letter of intent?
- May lead to complacency and disincentivise both parties from signing the main contract.
- Contractually less robust than the main contract.
- The employer loses incentive in negotiations of the main contract.
Who issues the letter of intent?
The employer
In what circumstances might a letter of intent be used?
- Where the employer needs to commence works before a certain date.
- Where materials have long lead times and early procurement would aid the programme.
- Starting construction works might trigger early founding.
Who usually signs the letter of intent?
Both the employer and the contractor.
What would you say if the client asked you to draft a letter of intent?
It is a legally binding agreement like a contract; therefore, we would NOT draft a letter of intent.
What is a comfort letter?
A comfort letter is a letter expressing a party’s intention to act in a particular way at some point in the future, or at the time of issuing the letter.
What are the different types of letters of intent?
- Comfort letter.
- Instruction to proceed with consent to spend.
- Recognition of contract
What is an Instruction to proceed with consent to spend?
A letter with instructions to proceed and consent to spend is sometimes referred as an “if” contract. This type of letter allows work to proceed up to a certain value while the contract itself is being finalised.
What is a recognition of contract?
This type of letter is also referred to as a letter of acceptance and is used by some forms of contract (such as FIDIC) to formally execute the contract itself. Generally, such a letter will be issued only once the contract has been substantially agreed and usually marks the completion of negotiations between the parties.
Are you aware of any case law relating to letter of intent?
Ampleforth Abbey Trust v Turner & Townsend (2012)
The defendant project managers were retained by the Trust in relation to project to build new accommodation at a school. The defendant’s retainer included obligations ‘facilitating, assisting and being involved in the procurement of the building contractor and the building contract’. The contractor never signed the building contract and the whole of the works (which were completed late) were procured using letters of intent. The effect of this was that the Trust was not able to claim liquidated damages under the building contract for the late completion of the works.
HHJ Keyser QC held that the defendant had been negligent in failing to take the steps reasonably required of a competent project manager for the purpose of finalising the building contract between the Trust and the Contractor.
What is a parent company guarantee?
A parent company guarantee (PCG) is a form of security that may be required by clients to protect them in the event of default on a contract by a contractor that is controlled by a parent company (or holding company). Typically, such a default might be caused by the insolvency of the contractor.
In what circumstances may a parent company guarantee be required?
PCGs can be particularly useful where a small contractor is part of a large, financially stable group of companies. The guarantee is given by the parent company to the client and in the event the contractor defaults on their obligations, the parent company is required to remedy the breach, meeting all the contractor’s obligations under the contract (and / or covering loss and expense incurred by the client).
Are there any Acts which govern third party righrs?
Contracts (Rights of Third Parties) Act 1999./
What is the overarching purpose of the Act?
- The Act allows third parties to enforce terms of contracts that they are not a party to, but which benefit them in some way, or which the contract allows them to enforce.
- It also gives parties access to various remedies if those contract terms are breached.
What are the advantages of third-party rights?
- Time and Cost
- Certainty
- Subcontractors
What are the advantages of Time and Cost under third-party rights?
Since no separate document (i.e collateral warranty) is being entered into, using the Act cuts down on the time and cost associated with warranties being drawn up, signed and circulated.
What are the advantages of Certainty under third-party rights?
Once the rights to be conferred on third parties are negotiated and agreed by all parties, there is limited room to revisit the wording when protection is required as is often the case when new collateral warranties are circulated for signature.
