Contract Practice

Question 1

Why did you advise on an Intermediate Subcontract with subcontractors’ design (ICSub/D)?

Answer 1

1. The terms of the Intermediate Subcontract offered parity with the main contract, which was an Intermediate Building Contract with the contractor’s design.
2. The appointed sub-contractor had design responsibility.
3. The subcontract allowed for adjustments in the form of variations.

Question 2

Why did you go against your director’s advice when issuing a contract on the Caerphilly Ffos market?

Answer 2

1. The subcontractors’ tender was so commercially advantageous compared to second place that it made sense commercially for LS to deviate from our standard terms to secure the Subcontractor’s use.
2. The cost/risk-benefit of using a standard form sub-contract was a reasoned decision.

Question 3

What was so contentious in Lancer Scott’s Terms and conditions that the subcontractor wasn’t willing to inherit?

Answer 3

The terms were issued with the tender pack, but the tender response from the Subcontractor was offered on the basis of their standard terms, which LS could not accept; as such, the subcontractor’s offer rejected Lancer Scott’s terms at the time of tender.

Question 4

Was there anything in particular they contended against or was it the entire document?

Answer 4

The subcontractor had taken legal advice and opted not to agree to the document in its entirety.

Question 5

So why would Lancer Scott opt to use their standard terms and conditions as opposed to using a subcontract if that option existed anyway?

Answer 5

The bespoke form has been drafted to favour Lancer Scott’s commercial interests and is the standard template for use on projects.

Question 6

Why do you think bespoke forms of contract shouldn’t be used?

Answer 6

Non-standard bespoke contracts create many legal issues throughout drafting, review and negotiation. They are costly and time-consuming to produce and are untested in court.

Question 7

What advantages do standard forms offer?

Answer 7

They are cost-effective, tested in court and drafted by clients, consultants and contractors alike. They are also updated based on case law.

Question 8

What underpinned your advice about recommending an advanced payment bond?

Answer 8

1. An advance payment would improve cash flow, allowing materials to be purchased.
2. A bond would give the client security if Lancer Scott did not fulfil its obligations and protect against non-delivery of goods or services.
3. The manufacturer would not offer credit terms due to the custom-cut ceramic stone made specifically for this project.
4. The cost of the raw material specified by the client was high.
5. I recommended an advance payment bond (APB) to reduce financial risk for both the employer and Lancer Scott.
6. I also suggested early procurement of materials to secure a fabrication slot and ensure project timelines are met.

Question 9

When did the bond expire?

Answer 9

The bond expired on the completion date outlined in the contract or repayment of the bond value.

Question 10

How was the advanced payment repaid?

Answer 10

The advanced payment was repaid via deductions from Interim Payments.

Question 11

What were the other options for repaying the bond?

Answer 11

1. Repayment via Milestones.
2. Lump Sum Repayment.
3. Reduction from Final Payment.
4. Set-off Against Future Payments.

Question 12

What was the mechanism for this?

Answer 12

Adjusting the previously paid to include the value of material delivered to site.

Question 13

Why did you go with deductions from interim payments?

Answer 13

Deductions from interim payments was a fair and reasonable option for maintaining cash flow and provided surety for the employer.

Question 14

What would be the risk for Lancer Scott if the employer had called off against the bond.

Answer 14

It could damage credit rating or prevent lancer Scott from getting a bond in the future, or increase the cost of future bonds.

Question 15

With that in mind why did you still recommend it?

Answer 15

1. The material type was specified by the employer because we were governed by planning, it was a non-material amendment.
2. The only way we could procure the material was through an advanced payment to the material manufacturer.
3. An advanced payment would mean that Lancer Scott would not have to use its cash to do this.

Question 16

What are the things you considered when offering the bond?

Answer 16

1. Cost of the bond.
2. Creditworthiness of the Surety/Bond Provider.
3. Repayment Schedule and Mechanism.
4. Bond Duration and Expiry.

Question 17

Who paid for the bond?

Answer 17

The client paid for the bond because they were getting the benefit of it.

Question 18

How was the cost of the bond repaid?

Answer 18

Through the interim payment mechanism.

Question 19

Where was that included?

Answer 19

Below the line summary.

Question 20

What other things are exempt of retention?

Answer 20

Things like loss and expense costs would not be subject to retention.

Question 21

You talked about preparing and issuing contract document, can you talk me through some of the contract documents you issue.

Answer 21

The contract documents would typically include:

1. A subcontract or professional appointment.
2. Any warranties required.
3. The programme.
4. Any information to support how the contract sum was established, drawings, quotes, ITT documents, etc.

Question 22

Why did you use a letter of intent to your groundwork’s contractor?

Answer 22

1. Lancer Scott was operating under a letter of intent.
2. The client’s letter of intent allowed initial spending but did not constitute a formal contract, so I decided it was unsuitable to issue a subcontract in these circumstances.

Question 23

What are the different types of letters of intent available?

Answer 23

1. Comfort letter
2. Consent to spend – legally binding.
3. Recognition of the existence of binding contract - legally binding.

Question 24

Would you recommend their use?

Answer 24

Typically, I would recommend agreeing the main contract before commencing work on site if that is an option. However, I understand this is not always achieve able in practice.

Question 25

What did your letter of intent include?

Answer 25

1. Overview of the works.
2. Details of the parties to the letter of intent.
3. What form of main contract will be in place.
4. Authorised activities to be completed under the LOI.
5. Maximum sum not to be exceeded.
6. Start on site date.
7. Payment terms.
8. Insurance requirements.

Question 26

Why did you use bespoke and JCT contracts?

Answer 26

1. The JCT for was for the shipping container contractor.
2. Lancer Scott’s bespoke forms of appointment were used for all other contractors.

Question 27

Why didn’t you see any value in having all subcontracts the same?

Answer 27

1. The bespoke form has been drafted to favour Lancer Scott’s commercial interests and is the standard template for use on projects.
2. There are mitigating circumstances such as the example of the shipping container subcontractor where the subcontractors’ tender was so commercially advantageous compared to second place that it made sense commercially for LS to deviate from the standard terms to secure the Subcontractor’s use.

Question 28

I can see you have issued final account statements. Talk me through the final account process.

Answer 28

1. The final account process would take place following completion of the subcontract works.
2. I typically use the monthly valuation process as a rolling final account, aiming to close out variations over the course of the project as they arise.
3. For any remaining areas yet to be agreed I would make an assessment of the account and organise a meeting to negotiate any remining values.
4. Once negotiations have concluded I would draft a final account statement which is agreed and signed by both parties.
5. I would file all documents in the subcontract file and log the account as concluded on my CVR.

Question 29

When would you typically agree a subcontract account as opposed to a main contract account?

Answer 29

I would agree the subcontract accounts as the works are concluded, this would allow me to establish the full extent of my costs before entering into negotiations for the main contract final account.

Question 30

Can you talk me through how retention works on your project?

Answer 30

Under the bespoke contract, 2.5% is released on completion of the subcontract works and a further 2.5% is released 12 months following PC of the sub contract works.

Question 31

What is a collateral warranty?

Answer 31

A document which provides rights to a party (usually a developer/funder or owner) against a party with whom they have no privity of contract.

Question 32

Are there any alternatives to a collateral warranty?

Answer 32

Third party rights.

Question 33

How do third party rights and collateral warranties differ?

Answer 33

Third-party rights allow a third party to enforce specific terms of a contract without being a party to it, while collateral warranties create a separate contract granting the third party the full rights and obligations as if they were a party to the original contract.

Question 34

What is the legislation that covers this?

Answer 34

Third party rights act 1999

Question 35

What does a collateral warranty offer that third party rights don’t?

Answer 35

1. Step in rights.
2. A collateral warranty offer rights to the whole contract as opposed to specific terms.

Question 36

What is step in rights?

Answer 36

Step-in rights are contractual rights that allow a third party, usually a lender or a client, to “step in” and take over the responsibilities and obligations of one of the parties in a contract, typically in situations where that party is failing to perform its duties, such as in cases of default, insolvency, or significant breach.

Question 37

How do you assess subcontract applications on your projects.

Answer 37

1. The valuations comes in at the end of the month.
2. I undertake a desktop study to assess the movement within the month.
3. Once on site I would complete an assessment of measured works, variations, any claims for material on site / off site.

Question 38

What does the JCT say about material on site?

Answer 38

1. Material on site need to be in a state that they can be incorporated into the works.
2. They need to be set aside and adequately stored and free from damage.
3. They need to be clearly marked with the employers’ details.
4. I would ensure they are only brought to site within a reasonable time in proportion to the programme.