Contract Practice Flashcards
What are extensions of time?
Extensions of time adjust the completion date and relieves the contractor’s liability to pay liquidated damages for the period of the extension.
What if the client tells you the LADs are to be £100,000 per week?
I would check that the LAD figure is based on a genuine pre-estimate of financial loss and explain that in the event LAD’s are to be applied, they would need to substantiate this figure.
I would also explain that if the figure inserted into the contract is shown to be punitive and not based on genuine financial loss it is not likely to be enforceable.
What are liquidated damages?
A genuine pre-estimate of the likely loss incurred by the employer should the completion date not be met.
What must be in place before LDs can be deducted?
A non-completion certificate.
A withholding notice.
What constitutes a contract?
Offer
Acceptance
Consideration
Intention
Capacity
Legality
What are the NEC main options?
There are 6 main options;
A) Priced contract with an activity schedule
B) Priced contract with a bill of quantities
C) Target cost contract with an activity schedule
D) Target cost contract with a bill of quantities
E) Cost reimbursable contract
F) Management contract
What are the clause headings in a JCT Contract?
Agreement
Recitals
Articles
Contract Particulars
Attestation
Conditions
What is included in a set of Contract Documents?
Preliminaries
Schedule of Amendments
Contract Sum Analysis
Scope of Works
Specifications
Drawings
Pre-Construction Information
What are the JCT Payment Provisions?
7 days prior to due date, contractor to submit application for payment.
5 days from due date contract administrator shall issue their interim certificate.
14 days from due date is the final date for payment.
5 days prior to final date for payment employer may issue a pay less notice.
Tell me the differences between JCT and NEC contracts?
The NEC uses 6 main options whereas the JCT uses a suite of separate contracts.
The NEC is written in layman terms whereas the JCT used legal wording.
The NEC does not mention a QS, only a project manager.
The NEC uses Compensation Events whereas the JCT used Variations.
The programme is a contract document in NEC. 25% of monies due can be withheld if a compliant programme is not submitted.
JCT allows for provisional sums, NEC does not.
What other types of Contract are you aware of?
ICE - Published on behalf of the Institution of Civil Engineers
FIDIC - International Federation of Consulting Engineers
What happens at Practical Completion?
Once the Contract Administrator issues the certificate of Practical Completion:-
Liquidated Damages cease to be levied.
The Defects Rectification Period begins (usually 12 months).
Possession of the site passes to the employer.
Insurance of the works passes to the employer (if not already in their name).
Half retention is released (the remaining half is release once the Certificate of Making Good is issued/defect rectification period ends).
What is a Relevant Event?
An event on or off site that causes delay to the completion date of the works.
It would entitle the contractor to apply for an Extension of Time
Examples include:-
Variations and instructions
Exceptionally adverse weather
Force Majeure
Deferment of possession of the site by the employer
Civil commotion or terrorism
What is Loss and Expense?
Works that are materially affected by the relevant matter(s) for which the client is responsible.
What is a Relevant Matter?
A matter for which the employer is responsible, that materially effects the progress of the works.
This entitles the contractor to claim for direct loss and expense that has been occurred.
Examples include:-
Deferment of possession of the site by the employer
Disruption caused by works carried out by the employer
Failure to give the contractor access to site
Instructions for new work
What is the purpose of a Loss and Expense claim?
A claim for Loss and Expense should put a contract back into the position they would have been in, should the Relevant Matter not have occurred.
What are the Heads of Claim for Loss and Expense?
Prolongation
Thickening of preliminaries (extra site supervision)
Disruption (plant and labour to be underutilised)
Loss of Profit
Increase in material/labour costs during period of delay
Finance charges (interest)
How is a Loss and Expense claim paid for?
Contractor must give written notice of a claim as soon as it becomes reasonably apparent.
Once the total loss and expense has been ascertained, is should be added to the contract sum and paid on the next interim certificate.
Loss and expense claims are NOT subject to retention.
What are prolongation costs?
Type of financial claim made by contractors in respect of late running projects.
Typically include time related resources such as site management, site accommodation and key items of plant and machinery.
What are the payment options on a JCT Design & Build Contract?
Alternative A - Stage Payments
Alternative B - Periodic Payments
How does payment option Alternative A in the JCT Design & Build Contract work?
Alternative A is to use stage payments.
Stages are clearly identified in the Contract Particulars.
Payment for that stage is released upon completion.
This is a simplified payment option that an Architect could manage.
It can incentivise the contractor to complete stages promptly.
What is a Specified Peril?
Specified perils tend to be significant events that would cause very significant damage, such as fire, explosions, earthquakes, flooding and so on.
How do you price a Variation?
Variation is a modification to the design, quantity or quality of the work.
1) Use a contract rate - if there is a bill item of a similar nature.
2) Use a star rate - this is based on experience of what is fair and reasonable.
3) Use dayworks - Prime cost + labour + materials + plant + % additions
What is the key thing to remember when assessing loss and expense claims?
It should be actual cost incurred by the contractor.
What are some of the contracts in the JCT family?
JCT Standard Building Contract with / without / with approximate quantities
JCT Intermediate Contract
JCT Minor Works Contract
JCT Major Works Contract
JCT Design and Build Contract
JCT Management Contract
JCT Construction Management Contract
What are the drawbacks of a Bespoke Contract?
Costly.
Time consuming to produce.
Untested in court.
What are the benefits of a Bespoke Contract?
Contracts can be made simpler.
Contracts can be made easier to administer.
Contract can include incentives for contractor to reduce costs.
Would you recommend a Bespoke Contract?
No. They are untested in court.
The principle on Contra Referendum means that an ambiguous clause with be interpreted against the party who wrote it.
What do you know about the Housing Grants Construction and Regeneration Act 1996?
Intended to make sure payments are made promptly and to improve cashflow throughout the supply chain. Also intends to make sure disputes are resolved quickly.
Are you aware of the Local Democracy, Economic Development and Construction Act 2009?
It came in to force in England & Wales in 2011.
The act amended the Housing Grants Construction & Regeneration Act 1996.
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 of the Local Democracy, Economic Development and Construction Act 2009?
Contracts - Revokes the requirement for the contracts to be in writing. Will allow parties to go to adjudication even if their contract is not formally in writing.
Payment - Under the Housing Grants, Construction & Regeneration Act 1996 the contract must have an adequate mechanism for determining what and when payments are due.
Pay when certified clauses can no longer be used to prevent paying a sub-contractor on the basis that a main contract certificate is yet to be issued.
Payment Notices - Either the payer or the payee will issue the payment notice.
The payment notice must specify the sum due and must be issued if that notice is 0.
The payee can suspend performance for non payment.
Pay less notice - Paying parties are required to either pay that in the payment notice or issue a pay less notice.
A pay less notice must specify the sum the paying party consider correct and must be within the final date for payment.
What should you do before terminating a contract?
Discuss the situation with the employer and other party.
Take note of all relevant clauses for termination.
Seek expert assistance.
Write and serve notice in accordance with the contract, detailing the breach.
Prepare documents, final account, secure site, alternative contractor.
What are the timeframes for agreeing a final account?
3 months from receipt of all relevant information.
The contractor has 6 months from PC to send relevant information.
Does the JCT D&B contract include novation provisions?
No. This will need to be added to the contract as an amendment.
Who developed the NEC contracts?
The Institution of Civil Engineers (ICE).
What dictates contract selection?
The procurement route
Industry sector (JCT or NEC) - Public/Private?
Size and complexity of the works (Minor Works or SBC)
Risk and Responsibility (any CDP?)
Basis of Contract Sum (with quants, without quants or with approximate quants?)
Why is it preferable to use a familiar form of contract?
Because using an unfamiliar suite would introduce unnecessary risk.
A contractor would price this risk in their tender price.
Did your client include a schedule of amendments in the contract? If so, why?
Yes, they included their standard schedule of amendments that is drafted by their legal advisor.
These amendments have the following affects;
Alter the project risk allocation (by reducing the number of relevant matters and relevant events)
Insert additional obligations (requirement for contractor to provide bonds, collateral warranties & PCG)
Amended payment terms i.e from 21 days to 28 days
What legislation covers insolvency?
The Insolvency Act 1986 & 2000.
Where can you find information on insolvency?
RICS has published a regulation / insolvency sheet which offers advice on regulation issued and the recommended course of action for a chartered surveyor.
Companies House also produces a document that provides info on insolvency.
What is Corporate Recovery?
It is the process of bringing and actions taken to being an ailing company back to full health.
It can involve financial, restructuring, accounts and legal advice.
What is a contract?
A legally binding promise by one party to fulfil an obligation to another party in return for consideration.
Offer
Acceptance
Consideration
Intent
Please define express terms?
Terms of the agreement which have been defined in the contract.
Please define implied terms?
Terms that have not been specified in the contract but know to exist.
E.G the Sale of Goods Act 1979
What is tort?
A tort is a civil wrong.
A claim intort is concerned with loss or harm.
How do statutory provisions and contract provisions differ?
Statutory laws are set out by law and must be complied with regardless.
Contract provisions relate to the contract in question and only apply to a specific project.
What is your opinion of an oral contract?
Whilst they are legally binding, the difficulty lies with proving the specific terms and conditions of the agreement.
What is a breach of contract?
Occurs when one party in a binding agreement fails to deliver according to the terms of the agreement.
What is a letter of intent?
Typically used to describe a letter from an employer to a contractor indicating the employer’s intention to enter into a formal contract for the works.
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 works.
Contract sum.
Date of possession.
Date for completion.
Insurance provisions.
Method of payment.
Expiry date of letter.
ADR method.
Advantages of a letter of intent?
Allows work to commence before the main contract is agreed.
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.
Employer loses incentive in negotiation of the main contract.
Would LD’s still be applicable if the employer actually suffered no loss or damage?
Yes. The damages can still be deducted at the value stated in the contract.
What are the benefits of being able to grant an extension of time?
It relieves the contractor’s liability for liquidated damages for a delay that they did not cause.
It enables another completion date to be set, which maintains the employer’s ability to deduct
liquidated damages if another delay occurs.
What happens when ‘time is at large’?
There is no set completion date.
The contractor only has the obligation to complete the works in a ‘reasonable time’.
Liquidated damages cannot be claimed as there is no date to take them from.
The employer would have to try and prove that the contractor had not completed in a reasonable time.
What are the main elements you would include within an interim
valuation?
Preliminaries.
Measured work.
Variations.
Materials on site.
Materials off site.
Loss and expense.
Retention.
What needs to be in place for you to include payments for materials on site?
The materials should be labelled.
They should be adequately protected.
In a reasonable quantity.
What needs to be in place for you to include payments for materials
off site?
Proof that ownership will transfer to the employer upon payment (vesting certificate).
Insurance until materials arrive at site.
Materials are clearly labelled as for the site and set apart from other materials.
A materials off site bond has been provided if required.
What is a retention of title clause?
Where the sub-contractor or supplier retains ownership of materials until they are paid for them by the contractor.
This highlights the importance of vesting certificates as the employer may subsequently pay for materials that are not owned by the contractor.
This legal principle can lead to disputes in the event of insolvency.
How do you evaluate interim valuations?
Go to site and inspect the works to form a view on the percentage of works undertaken.
Check for materials on site and materials off site.
Value time related and fixed preliminaries items undertaken.
Value any agreed variations and claims.
The valuation amount is presented as the gross valuation, less previous payment made and retention.
Finally I would send my recommendation to the Architect or Contract Administrator for them to prepare the payment certificate.
What is the interim certificate conclusive of?
Interim certificates are not conclusive.
They carry no contractual significance to state that the quality of materials or workmanship is
satisfactory.
It is only the final certificate that is conclusive.
What is retention?
It is a percentage of each interim certificate deducted and retained by the employer from each interim payment to the contractor
What is the purpose of retention?
It provides an incentive for the contractor to rectify any defects within the contract defects liability period.
It provides some financial security to the employer in the event of a contractor default.
When is the retention released to the contractor?
Half of the retention is released in the interim certificate after Practical Completion.
The remaining retention is released in the final certificate after the certificate of making good defects is issued/end of defects period.
What is a typical retention percentage under JCT contracts?
Usually retention is between 3% or 5% depending on the form in use.
What is a retention bond?
This is a bond provided by the contractor in lieu of taking retention from interim payments.
It should be equal to the same value as the retention deducted.
The requirement for the bond should be stated in the contract particulars.
A standard form is provided in the JCT contract schedules.
What is a vesting certificate?
They certify that ownership of the goods, plant or materials listed in a schedule will transfer from one party to the other upon payment.
What happens if the contractor does not maintain the retention bond?
The employer can deduct retention from interim payments.
If the bond is subsequently taken out, the retention deducted must be repaid to the contractor.
Why might a retention bond be used?
It may be used in difficult market conditions to aid the contractor’s cashflow.
What are the disadvantages of a retention bond?
It may reduce the contractor’s incentive to complete making good defects promptly.
It reduces the employer’s cashflow.
The employer would not get the interest accruing on the amount of the retention bond.
What is acceleration?
Acceleration is the completion of works in a shorter time frame than that anticipated at tender or the act of programme recovery by the contractor if they are in delay.
What options may be considered to achieve acceleration?
Re-sequencing the works or making sequential activities parallel.
Increasing the working time by using working longer hours.
Increasing the resources employed by using larger gangs.
Increasing incentives for example offering bonus payments.
Which are the most and least efficient ways of acceleration?
Re-sequencing the works can be the most cost effective and efficient.
The least efficient is usually increasing the working time and increasing the resources employed which usually results in lower productivity.
What is a fixed price contract?
Where adjustments of the contract sum are limited to changes in statutory contributions, taxes and levies.
What is a fluctuating price contract?
Where the contract sum is adjusted for changes in the costs of materials and labour as well as statutory contributions, taxes and levies.
What is the date for completion?
The date fixed and stated in the contract particulars.
How does this differ from the completion date?
This is the date for completion of the works that may be adjusted to take into account agreed Extension of Time.
What is sectional completion?
The completion and handover of the works to the employer in agreed stages.
Do the works have to be totally completed before practical or sectional
completion is achieved?
Practical completion is a vague concept.
It is not defined in JCT.
It is reliant on the architect’s opinion that the works are complete.
It should not be conditional.
It is common practice for PC to be granted when the works are substantially complete however there may be minor defects or omissions with nothing to prevent the employer from taking beneficial occupancy.
What is partial possession?
Where the employer requests and the contractor consents to the employer taking possession of the works or part of the works before the date for practical or sectional completion.
What is the difference between partial possession and sectional
completion?
Sectional completion is a contractual obligation to hand over the section at the stated date, partial possession relies on the contractor’s consent.
What does the contract administrator have to do at partial possession?
Issue a certificate for partial possession.
Release half retention for that area of works.
Reduce LD’s proportionally.
Ensure clients insures site.
What is the rectification period?
The contractor has an obligation to make good any defects, shrinkages or other faults that arise during this period of time.
How long is the rectification period?
Typically 12 months.
What is a non-completion certificate?
This is issued by the contract administrator to certify that the works or works section have not been completed by the relevant completion date.
What are the consequences of a non-completion certificate?
The employer has the right to withhold liquidated damages, as long as a withholding notice has been given.
What are the three ways that benefits can be transferred under JCT
contracts?
Collateral warranties.
Third party rights.
Assignment.
Why are collateral warranties used?
Collateral warranties give remedies to external third parties that due to privity of contract would not otherwise have them.
Who might want a collateral warranty?
Any third party with a financial investment in a project but not party to the main contract.
The employer may want a collateral warranty with key subcontractors or suppliers, as if the main contractor were to go into liquidation, they would have no contractual link with them for redress in case of defective workmanship.
What is assignment?
Where the rights and benefits of one contractual party are transferred to a third party, but the burden of the contract remains with the original party.
What is the standard commercial position regarding assignment?
It is standard to allow assignment of rights twice without consent.
The assignment should be notified in writing to the other party.
What is novation and how does this differ from assignment?
Novation is where a new contract transfers the rights and obligations of one contractual party to a new third party.
Assignment is the transfer of contractual rights or contractual benefits only as the burden remains with the original party.
What is the key issue after a design team has been novated?
Whether the new party has the right to take action against the novated party for breaches that occurred before the novation.
How does novation affect the employer’s rights?
They lose all contractual relations with the novated party and therefore the right to take action for a breach.
It is therefore common for there to be a collateral warranty between the employer and novated party.
What is a limitation clause?
These are clauses that limit a party’s liability for potential losses i.e. Limitation to a fixed sum.
What is available to protect clients from sub-contractors failing?
Collateral warranties can be used as a direct link between the employer and subcontractor.
They could also use a performance bond.
What are step in rights and why do they exist?
They typically permit funders to step into another parties’ shoes, usually the employer.
They provide funders protection in the event employer defaults on its loans.
The funder can then take ownership of the development and sell it off if required.
What is reasonable skill and care?
The ordinary skill and care expected of an ordinary competent person carrying out the particular service.
What is fitness for purpose?
The provision of a service that is suitable for the employer’s intended purpose.
It is a more onerous obligation than reasonable skill and care.
Who signs a letter of intent?
Employer and contractor.
What would you say if the client asked you do draft a letter of intent?
It is a legally binding document, therefore we would not draft those.
What are the different types of letter of intent?
Comfort Letter - A letter expressing a party’s intention to act in a particular way.
Instruction to proceed with consent to spend - Allows work to proceed up to a certain value.
Recognition of contract - Used by contracts such as FIDIC. Only issued once the contract is substantially agreed.
Are you aware of Case Law surround Letters of Intent?
Ampleforth Abbey Trust v Turner & Townsend
The contractor never signed the building contract and instead acted under letters of intent. The Trust were not able to claim for LD’s under the building contract due to late completion.
Defendant had been negligent in failing to take the steps reasonable for a competent project manager.
What is a Parent Company Guarantee (PCG)?
It is a form of security that may be required by clients to protect them in the event of default (insolvency) on a contract by a contractor controlled by a parent company.
When may a PCG be required?
May be useful where a small contractor is part of a large financially stable group of companies.
Are there any rights which govern third party rights?
Contracts Act 1999.
What is the overarching purpose of the Contracts Act?
Allows 3rd parties to enforce terms of contracts that they are not party to, but which benefit them in some way.
It also gives parties access to various remedies if those contract terms are breached.
What are the advantages of 3rd party rights?
Time and Cost - No separate document i.e. collateral warranty is being entered into.
Certainty - There is limited room to revisit the wording on 3rd party rights.
Subcontractors - An employer can confer 3rd party rights in relation to work done by subcontractors. Avoids the need to chase individual warranties.
What are the advantages of 3rd party rights?
Time and Cost - No separate document i.e. collateral warranty is being entered into.
Certainty - There is limited room to revisit the wording on 3rd party rights.
Subcontractors - An employer can confer 3rd party rights in relation to work done by subcontractors. Avoids the need to chase individual warranties.
What are the disadvantages of 3rd party rights?
Lack of flexibility - Once the schedule of 3rd party rights has been agreed, there is limited room for negotiation.
Need for careful drafting - Ensure that all necessary rights are conferred on the 3rd party i.e. right to commence adjudication.
What is the difference between a bond and a collateral warranty?
A bond is a financial commitment backed up by a 3rd party. Bonds are contained within a contract.
A collateral warranty passes on contractual obligations. CW’s are a side agreement to the contract.
What are the three ways that benefits can be transferred under a building contract?
Collateral warranties.
Third party rights.
Assignment.
Is there any case law surrounding collateral warranties?
Parkwood Leisure v Laing O’Rourke
In light of particular wording used in the collateral warranty, there was no doubt it should be treated as a construction contract.
There is a high probability that collateral warranties will be needed under a D&B contract, can you explain why?
The design team typically sit below the contractor; therefore the employer will need to retain a contractual link with the design team.
What is a bond?
An arrangement where a contractual duty owed by one party is backed up by a 3rd party.
What form must a bond be in?
It must be in writing, it is common for it to be executed as a deed.
It will contain a duration, usually until practical completion and a financial limit.
Can you list 5 different bonds that may be used on a construction project?
Performance bond
Retention bond
Off site materials bond
Advance payment bond
Tender bond
What is a performance bond?
Performance bonds are typically provided by banks or insurance companies.
They give the employer a guarantee of payment up to a stated amount of money should they suffer a loss as a result of the contractor’s breach of his contractual obligations.
Most common type in the construction industry.
What is the standard value of a performance bond?
10% of the contract value, the premium for taking out the bond is added to the contract sum.
How can the employer call for payment on a performance bond?
They have to prove that the contractor has defaulted in their obligations under the main contract and that loss has been suffered.
What is a tender bond?
Requested by the employer when inviting contractors to tender for a contract.
A tender bond provides security against the risk of the successful bidder failing to enter the contract.
Prevent idle tendering.
What is an off site materials bond?
Covers the employer against the risk of paying the contractor for materials being manufactured off site.
If the contractor/subcontractor becomes insolvent, the employer can claim on the bond for goods paid for.
What is an advanced payment bond?
Is required to protect and support payments to contractors by the employer in advance of the works being done.
What is the standard value of a Notional Final Account?
1-5% of the tender sum.
What are the arguments against requesting bonds?
They shouldn’t really be needed if the tenderer selection process is operated effectively as only reliable and capable contractors are then selected.
Unnecessary premiums are added to the contract sum, which are unlikely to be called upon.
Where might bonds be appropriate?
If the contractor is new or unproven.
In a difficult economic climate, when the risk of insolvency is higher and PCGs are risky.
What is an ‘on demand’ bond?
An ‘on demand’ bond is one which is paid straight away upon the default occurring and request for payment. The employer does not have to satisfy the surety.
What is a Highway Bond?
A Developer who undertakes speculative housing developments will frequently be required to enter into an agreement with a Local Authority for the adoption of roads and sewers.
What is the difference between insurance and indemnity?
The purpose of indemnity is to protect against legal responsibility or to compensate, it is open ended.
Insurance is a fund that enables the indemnifying party to make any payments that may arise. It includes time and financial limits.
What is insurance?
A transfer of risk to an insurance company in exchange of a premium.
What are the two main types of insurance?
Liability and loss insurance.
What is liability insurance?
Financial cover for the legal liabilities that the insured party owes to others.
What is loss insurance?
Financial cover for losses that fall directly on the insured party.
What is subrogation?
A concept that allows an insurance company that has paid a loss to step into the shoes of its insured to then sure a party that may be responsible for causing the loss.
What does ‘joint names’ mean?
Where the employer and contractor are insured under the same policy.
What are antiquities?
Historical artefacts, pottery, coins
Bones and fossils
Archaeology
What should a contractor do if they discover antiquities?
Cease work and seek advice.
Take necessary measures to preserve.
What are defects?
Broadly defined as a defect in workmanship, design, materials, or systems used. Cause damages to people or property.
NEC defines it as:
A part of works which is not in accordance with the works information.
What are patent defects?
Those which can be discovered by reasonable inspection i.e. cracks, broken windows.
What are latent defects?
Those which cannot be discovered by reasonable inspection i.e. issues with foundations.
What is professional negligence?
When a professional fails to perform their responsibilities to the required standard or breaches a duty of care.
How can the employer recover a loss if the contractor is professionally negligent?
Make a claim on their PI insurance.
What is product liability insurance?
Protects the policy holder against liability resulting from defects in products.
What is public liability insurance?
Protects against liabilities for injury to 3rd parties i.e.. fallen brick damaged car.
What is employer liability insurance?
Can pay the compensation amount and legal costs if an employee claims compensation for a work related illness or injury.
What is Contractor Design Portion (CDP)?
Typically used on traditionally procured projects, with specific elements of design responsibility transferred to the contractor.
How are CDP elements executed?
A performance specification is provided at tender stage which the contractor provide the design proposals to in response. Reviewed by the design team and commented on.
Can you list some typical CDP elements?
Steelwork connections
Cladding
Roofing
Temporary works
Piling
MEP elements
What is a release agreement?
It lays down the terms of termination of contract.
It provides a clean unequivocal break for the parties.
What is the De Minimis Principle?
The test of completion for PC.
It means ‘concerned with small things’.
It means certification of completion should not be withheld for only minor defects.
What Insurance options are you aware of under JCT?
Option A - New Buildings - Insurance in Contractor’s name
Option B - New Buildings - Insurance in Employer’s name
Option C - Alterations/Extension - Insurance in Employer’s name
What types of Insolvency are you aware of?
Administration
Compulsory Liquidation
Administrative Receivership
Voluntary Liquidation
In what ways can a contract end?
Termination
Expiration
Frustration
Vitiation - Basis of contract incorrect
What types of breach can lead to termination?
Material breach
Repudiatory breach
What is material breach?
Where one party to a contract fails to perform as required by the contract.
What is repudiatory breach?
Where one party behaves in such a way as to indicate that it no longer intends to accept its obligations under the contract.
Who represents the client on a JCT Design and Build contract?
The employer’s agent.
What does the JCT say about acceleration?
The client can request the contractor to prepare an acceleration estimate (21 days). Contractor can stipulate how much time can be saved and for what cost.
What does the NEC say about acceleration?
The client can request the contractor to prepare an acceleration estimate to save a specified amount of time.
How long does the CA have to assess an EoT?
12 weeks.
What are the JCT fluctuation options?
Option A - Changes in taxation.
Option B - Changes in costs of labour, materials, etc (escalation).
Option C - Formula led adjustment.
What are the names of the construction Acts?
Housing Grants Construction and Regeneration Act 1996.
Local Democracy Economic Development Act 2009.
How would you calculate main contractor overheads for a loss and expense claim?
Hudson formula - head office costs included in the contract.
Eden formula - % arrived at by dividing total overhead costs by the turnover of the company.
What is the difference between and Contract Administrator and Employer’s Agent?
CA purely administers the contract.
EA acts on behalf of the client in all matters.
What is a net contribution clause?
Where specific term in contract states that two or more parties can be liable for a defect.
What is concurrent delay?
Where more than one event occurs at the same time, but where not all of those events entitle the contractor to extension of time or loss and expense.
What are domestic subcontractors?
Chosen by the contractor to execute a package of works.
What are the advantages of naming subcontractors?
Provides the employer with more control.
What are nominated subcontractors?
Selected by the employer to carry out an element of the works.
What are the advantages and disadvantages of nominated subcontractors?
Advantages:-
Their work should be of high quality and acceptable to the employer.
Disadvantages:-
Contractor can generally object under certain conditions.
Contractor and subcontractor may have conflicting procedures
What is a Pre Construction Services Agreement (PCSA)?
A contract between the employer and contractor for pre-construction services.
The PCSA documents the services the contractor will perform before signing the building contract.
When might a PCSA be used?
In a 2 stage tender approach to facilitate early contractor involvement.
How can a PCSA benefit the project?
Early contractor input can lead to improved buildability and cost certainty. Reduced likelihood of disputes.
What should be considered when drafting a PCSA?
Arrangements do not commit the employer to enter into a building contract.
The scope of service is clearly defined.
Usual programme and delay clauses are drafted by the legal team.
What sort of activities can a PCSA be used for?
Contribute to the design process.
Advise on buildability.
Advise on the selection of subcontractors.
Help develop the cost plan and construction programme.
Help develop the method of construction.
Assist with any planning matters.
What doe JCT stand for?
Joint Contracts Tribunal.
What are the key project characteristics which influence which JCT contract is used?
Size, value and type of project.
Need for contractor design.
Certainty on final cost.
Appetite for risk ownership and risk transfer.
Employer experience.
Programme requirements.
When would you use a JCT Minor Works Contract?
Designed for smaller, basic construction projects where the work is of a simple nature.
Procured via the traditional method.
What are the key features of the JCT Minor Works Contract?
Employer is responsible for design.
Contractor design can be included by a Minor Works contract with CDP would need to be used.
Minor Works is not suitable where the project is complex enough to require bills of quants, specialist work etc.
Normally administered by the Architect or CA.
When would you use a JCT Intermediate Contract?
Designed for construction projects involving all recognised trades and skills where fairly detailed contract provisions are needed.
Suitable for projects procured via the traditional method.
When would you use a JCT Standard Building Contract?
Designed for large or complex construction projects where detailed contract provisions are needed.
Suitable for projects procured via the traditional method.
Employer is responsible for the design, but also have the option of CDP.
Works can be carried out in sections.
When would you use the JCT Major Project Construction Contract?
Designed for large scale construction projects where major works are involved.
Used by employers who usually procure large scale construction work and the work is carried out by contractors with the experience to adopt a greater risk than other forms of contract.
Suitable for projects procured via the design and build method.
What are the key features of the JCT Major Project Construction Contract?
A novation agreement is put in place so that the design is completed under the responsibility of the contractor.
Project can be carried out in sections.
Contractor is responsible for design and completing the works. The scale of design work can vary.
When would you use a JCT Design and Build Contract?
Designed for projects where the contractor carries out design and construction.
Projects can vary in scale.
What are the key features of the JCT Design and Build Contract?
The scale of design work can vary.
Contractor will complete a design based on a concept provided through the employer’s requirements.
The employer uses an EA to administer the contract.
Works can be carried out in sections.
When would you use the JCT Prime Cost Contract?
Designed for projects that require an early start on site, often for alterations or urgent repair work.
Exact extent of the work is not understood until the project is underway. Full design documents are not completed until work has commenced.
Suitable for projects procured via the traditional method, using a cost reimbursement payment structure.
When would you use a JCT Measured Term Contract?
Designed for employer’s who have a regular flow of maintenance, minor works and improvements that will be carried out by a single contractor.
Suitable for projects procured via a traditional method, using a measurement payment structure.
When would you use the JCT Construction Management Contract?
For use on a project where the employer appoints separate trade contracts to carry out the works and a construction manager to oversee the completion.
Suitable for projects procured via the management method.
What are the key features of the JCT Construction Management Contract?
Works can be carried out in sections.
Contract is used where there is a separate contractual responsibility for design, management and construction.
The employer provides the design and enters into separate trade contracts with suppliers.
The construction manager is appointed by the employer to manage the works and administers the conditions of the trade contracts.
When would you use the JCT Management Building Contract?
Suitable for large, complex projects where flexibility and early start on site is required.
Construction is completed under a series of separate works contracts, which the management contractor appoints and manages for a fee.
The management contractor employs works contractors, with the works contractors directly and contractually accountable to the management contractor.
Works can be completed in sections.
The employer is responsible for design and this is usually supplied to the management contractor by the design team.
What is a force majeure?
Events that are usually defined as certain acts, events, or circumstances beyond the control of the parties i.e. natural disasters, war, terrorism, strikes etc.
What happens when a relevant event occurs?
The contractor notifies the administrator in writing, stating the particulars and extent.
The contractor must state the relevant event and detail how and why the delay is occurring.
The contractor should estimate delay.
The contract administrator responds within 12 weeks stating whether a relevant event has or hasn’t occurred.
A new completion date would be fixed if so (extension of time).
What is contractor’s all risk insurance?
This is protection against the physical loss or damage to the works being undertaken.
This will pay for the repair or replacement of the insured works following damage caused by an insured event.
What does NEC stand for?
New Engineering Contract.
What does ECC stand for?
Engineering and Construction Contract.
What are some of the advantages of the NEC ECC?
Contract is based on mutual trust and co-operation.
Encourages parties to resolve cost and programme issues up front rather than waiting to final account.
Contract is written in plain english.
What are the key points to the NEC ECC?
No reference to a QS in the contract.
PM assumes full authority on behalf of employer.
PM controls time and cost as an administrative function.
Contract is highly administrative.
Programme is a contract document.
Parties have to give early warnings.
What are the 6 main NEC3 ECC options?
A - Priced Contract with Activity Schedule
B - Priced Contract with Bills of Quantities
C - Target Cost with Activity Schedule
D - Target Cost with Bills of Quantities
E - Cost Reimbursable Contract
F - Management Contract
Can you provide an overview of NEC Option A?
Risk of carrying out the risk largely borne by the contractor.
Lump sum contract.
Project is usually well defined at tender.
Payment on completion of each acticity with interim payments.
Suitable for traditional and design and build procurement routes.
Can you provide an overview of NEC Option B?
Risk of carrying out the work is borne by the contractor, although the employer takes risk of inaccuracies in the BoQ.
As opposed to Option A, Option B allows the contractor to be paid a % of each BoQ item via interim payments. With Option A, the whole activity has to be completed.
Can you provide an overview of NEC Option C?
The financial risk is shared between the contractor and employer which motivates the contractor to deliver the works in the most cost efficient way.
The target cost is agreed between the parties, which is made up of the contractor’s estimate of ‘Defined Costs’ plus a fee which is to cover OH&P and contractor costs.
The target cost moves with compensation events.
Contract uses the pain & gain mechanism for sharing risk.
Can you provide an overview of NEC Option D?
The financial risk is shared between contractor and employer in an agreed proportion, although the employer takes risk of inaccuracies in the BoQ.
Operates in a similar way to Option C.
Can you provide an overview of NEC Option E?
The employer will largely take on financial risk, with the contractor reimbursed for all their actual costs, plus an OH&P %.
Used when the scope of work cannot be properly defined at the outset.
Can you provide an overview of NEC Option F?
The works are designed and/or constructed by multiple subcontractors who are contracted to a management contractor.
The management contractor is responsible for the work and is paid a fee, while the risk is largely taken by the employer.
Which NEC contracts carry the least and most financial risk?
Least - NEC Option A as it is fixed price
Most - NEC Option E as the contractor is reimbursed actual costs.
What are the secondary options under NEC?
Dispute resolution - W Clauses
X Clauses
Options dealing with national legislation - Y Clauses
Additional conditions - Z Clauses
What are Z clauses?
Used to amend standard forms of NEC contract. They can be inserted into NEC as a means of adding conditions or amending wording.
What issues can arise when drafting Z clauses into the contract?
Poorly drafted Z Clauses can be problematic if they do not work effectively with the core clauses.
Z clauses should only be drafted by individuals with a good knowledge of NEC contracts and who understand the intention of both parties.
What are the different types of float on an NEC programme?
Total float
Time risk allowance
Terminal float
What is a total float programme (NEC)?
The time an activity can be delayed from its early start date without delaying planned completion.
What is a time risk allowance programme (NEC)?
This is the duration (days/weeks) allowed for under each activity by the contractor to account for the risk in not completing the activity in the minimum period.
What is a terminal float programme (NEC)?
This is the duration between planned completion date and current contract completion date.
This is owned by the contractor and cannot be used to mitigate the effect of a CE.
If planned completion moves forward and the gap between planned completion and contract completion becomes greater, this can be banked as terminal float.
How can the completion date be changed under NEC?
Compensation events or acceleration.
With reference to the programme, how does NEC differ to JCT?
Under NEC it is a contract document.
The programme plays a significant role under NEC, as it assists with the CE assessment process.
What are the key responsibilities of the PM under the contract?
No CA, CoW or architect named in contract. The PM is focal point and they manage the contract on behalf of the employer.
The PM will issue instruction, notifications and any other communication.
The PM is the only person who can change the works information.
The PM monitors the execution of the project and ensures all parties adhere to the contract.
What are the key responsibilities of the supervisor under the contract?
Team responsible for the contractor’s compliance. In essence a CoW.
The supervisor raises defects notices for works not in accordance.
What are the key responsibilities of the employer under the contract?
Give site access.
Make payments in accordance with the contract.
Take out any necessary insurance provisions.
What are the key responsibilities of the contractor under the contract?
The contractor’s responsibilities are outlined in Clause 2 of the contract. To proivide the works in accordance with the works information.
What is works information (WI)?
Specifies and describes the works the contractor is to provide and sets out any constraints.
If WI is not of good quality and precise, there is a risk the contractor will interpret it differently to the employers intention.
How can you make the NEC3ECC a D&B contract?
You would specify in the WI that the contractor is responsible for carrying out all design works.
What are compensation events?
Events which are not usually fault of the contractor and change the cost of the work, or the time needed to complete it.
The contractor may be entitled to more time or money.
Where are CE’s dealt with under NEC?
CE’s are dealt with under clause 60.1.
What happens if a contractor notifies a CE 12 weeks after becoming aware?
The contractor is not entitled to a change, under clause 61.3 the CE needs to be notified within 8 weeks.
If the event arises from the PM or supervisor giving an instruction, the 8 week rule does not apply.
Will a Project manager instruction (PMI) always result in a CE?
No, for example instructing the contractor to submit a revised programme.
What are early warning notices?
A mechanism for both parties to identify potential problems to the project.
The contract states emphasises that both parties are obliged to notify as soon as they become aware of a matter that could affect time, cost, quality.
What are the key updates from NEC3 to NEC4?
NEC4 has introduced two new contracts:-
Design Build and Operate (DBO) contract - enables design, construction and operation to be procured by a single supplier.
Alliance Contract (ALC) - Foe clients who wish to enter into a single contract with several participants.
The risk register has been renamed the early warning register.
Employer becomes client, and works information becomes scope.
All contracts are written gender neutral.
A 4 week period of escalation and negotiation of a dispute has been introduced. Senior representatives meet to try and reach a negotiated solution.
L1 - How do variation requests work?
This is a typical change control process.
An instruction will be submitted and the contractor will provide a cost for the works.
This will be reviewed by the QS and either approved or declined.
If approved it will be included within the next interim valuation.
Not subject to retention.
L1 - What are the JCT suite of contract options?
JCT Design & Build
JCT Intermediate
JCT Standard Building Contract
JCT Minor Works
JCT Major Works
JCT Management Contract
JCT Construction Management
L1 - NEC alternatives?
Option A - Priced Contract with Activity Schedule
Option B - Priced Contract with BoQ
Option C -Target Cost with Activity Schedule
Option D - Target Cost with BoQ
Option E - Cost Reimbursable
Option F - Management Contract
L1 - How do the two suites of contracts differ?
A programme is a contract document under NEC.
A QS is not mentioned under NEC, just a project manager.
Compensation events are used under NEC, whilst variations under JCT.
NEC is written in lay terms.
L1 - Does a standardised form benefit a project?
Both the Client and Contractor are familiar with standardised contracts so open to less disputes.
Rights and obligations are clearly set out to the required details.
Standardised contracts have been written by legal experts perfecting the delicate balance of risk allocation.
L1 - What typical contract amendments have you encountered?
Inclusion of performance bonds, PCG’s.
Payment terms.
L1 - Do you agree with the amendments?
Yes, I have agreed with the amendments.
A performance bond gives the client a guarantee of payment up to a stated amount should they suffer a loss as a result of the contractor’s breach of his contractual obligations.
L1 - What if you were asked to provide advice on amendments?
I would advise them that it was outside my jurisdiction and consult lawyers.
L1 - What are the parties’ responsibilities and duties under a contract?
Both parties fulfil contractual obligations.
Employer - provides access to site, ensures payments are made when required.
Contractor - Fulfils their contractual obligations. Complete works ass per design.
L1 - What is the significance of the Local Democracy, Economic Development and Construction Act 2009?
It amended payment terms and the right to adjudication.
L1 - What changes did the LDEDCA bring to the construction industry?
It removed the requirement for contracts to be in writing. This enables parties to go to adjudication if their contract has not been formalised in writing.
The pay when certified clause has been removed to prevent payment of a subcontractor on the basis that a certificate in the main contract hasn’t yet been issued.
Payment notices have been amended as they must now show:
1. The sum due
2. How that figure has been derived
Payment notice must be provided no later than 5 days following due date.
Withholding notices have been replaced by pay less notices. Must be issued prior to final day of payment, or sum noted in the payment notice must be paid.
L1 - How is the LDEDCA recognised in standard forms of construction contracts?
Payment terms and adjudication.
L1 - What are the essential components of a valid contract?
Offer
Acceptance
Consideration
Intention
Capacity
Legality
L1 - By way of examples can you tell me how these requirements find their way into an JCT construction contract?
For example on the GMMH.
The contractor made an offer to undertake the work which was considered and accepted. This was written into the contract and signed.
L1 - What is the principal difference between a parent company guarantee and a performance bond?
A parent company guarantee is provided by a parent company, and they guarantees the performance of the contractor.
A performance bond is an insurance policy taken out by the contractor should they fail to perform their duties under the contract.
L1 - Can you name 2 types of performance bond?
Performance bond
Retention bond
Advance payment bond
L1 - What current challenges is Covid and/or Brexit bringing to Contract Practice?
How covid was dealt under a contract was discussed.
Delays and costs associated with covid.
Delays and costs associated with brexit and shortage of materials/transport.
L2 - Project Zeta – please explain what you included in the contract documents.
Contract
Preliminaries
Schedule of Amendments
Scope of Works
CSA
ER’s
CP’s
Drawings
Specifications
PCI
L2 - St Wilfrid’s – when you compiled the contract documents how did you ensure that the design information you collated and included was the latest revision?
I had reviewed drawing issue sheets from all consultants and produced a drawing register which allowed me to keep track of the latest revisions.
L2 - Where have you managed or been involved in change control processes?
The Change control process is managed by the CA/EA.
On Toby Carvery Chadderton Park project, the CA raised an instruction for a change in window design, the contractor provided a quotation of the works. As the QS I reviewed the quotation in the appropriate manner and come to an agreement with the contractor on the costs to which I would then notify the CA on the agreed outcome.
L2 - What is the difference between contract and tender documents?
Tender documents are issued to tendering contractors to provide a price for completing the works.
Once a contractor has been selected the client will enter into a legally binding contract with the contractor to complete the works.
L2 - Explain the content of a Letter of Intent and legality?
A letter of intent will highlight:
1. The agreed contract sum.
2. Reference to the tender documents and subsequent amendments (with dates).
3. Instruction to proceed on a certain date.
4. Site possession date.
5. Contract completion date (including details of any phases).
6. A full description of the proposed form of contract, including warranties and performance bonds.
It is a form of contractual agreement which allows the contractor to proceed with works prior to the contract documents being finalised.
L3 - Wythenshawe – when you gave advice on the choice of contract please explain the advantages and disadvantages you discussed?
The client wanted to relinquish design risk and therefore it was decided that a design and build procurement route would be most appropriate.
A JCT Intermediate contract favours a Traditional procurement route. The use of a BoQ was also discussed and the client was advised that this would prolong the tender process. Although, this would have given them cost certainty.
The use of a D&B would allow for overlapping of design and construction which was key in achieving the target programme.
L3 - Wythenshawe - Were there any other contracts that you could have suggested?
No, I don’t think so.
I believe that we considered the most appropriate contracts and no others would have suited the clients requirements.
L3 - Wythenshawe - What did the client select and on what basis?
The client selected a JCT D&B contract as they wanted to relinquish design risk. Time was also at large and the project would benefit from design and construction overlapping.
L3 - Project ZETA – how did you explain this advice regarding the payment terms to the client?
I produced a valuation schedule and highlighted the key dates. This included the interim valuation date, due date, date of payment notice, final date for payment and date for a payless notice.
What is the difference between a warranty and a guarantee?
A guarantee offered to a consumer is a ‘promise’ that problems with a product or service that occur within a specified period of time will be rectified.
A warranty on the other hand (or an ‘extended guarantee’) generally is paid for and is similar to an insurance policy.
What are the different types of bill of quantities?
Firm
Approximate
What are collateral warranties?
A contractual agreement which runs alongside another contractual agreement.
They create contractual relationships between the two parties where one would not otherwise exist.
