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RICS Revision > Contract Practice > Flashcards

Contract Practice Flashcards

1
Q

What is a contract?

A

A legally binding promise by one party to fulfil obligations to another party in return for consideration.

A basic contract should comprise: Offer, Acceptance, Consideration, and Intention to Create Legal Relations

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2
Q

Please define ‘express terms’

A

The terms which are expressly agreed between the parties. Ideally, they will be written down but where the contract is agreed verbally, they will be the terms discussed and agreed between the parties

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3
Q

Please define ‘implied terms’

A

A contractual term that has not been expressly agreed by the parties but has been implied into the contract either by common law or by statute

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4
Q

What is tort?

A

A civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability to damages

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5
Q

How do statutory provisions and contract provisions differ?

A

Statutory provisions are set out by law and must be complied with
Contract provisions relate to the contract in question and only apply to the specific project

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6
Q

What is your opinion of oral contracts?

A

Whilst they are legally binding, the difficulty lies in proving the specific terms and conditions of the agreement. A written contract is always preferred

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7
Q

What is a breach of contract?

A

When one party to a binding agreement fails to deliver according to the terms of the agreement. A breach of contract can happen in both written and oral contracts

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8
Q

What is the Local Democracy, Economic Development and Construction Act 2009?

A

The Act amended the Housing Grants Construction and Regeneration Act 1996
The Act changed the way construction contracts are entered into and introduced an amended regime for payment and adjudication

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9
Q

What are the key provisions under the LDEDCA 2009?

A

Contracts - Act repeals the requirement for construction contracts to be in writing

Payment - Construction contracts must have an adequate mechanism for payments

Payment notices - Must specify the sum due at the due date and the basis on which it was calculated

Payment notices - Payee is entitled to a default payment notice if not received

Suspension of performance - Following non payment and a default notice, the payee can suspend

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10
Q

What is a letter of intent?

A

Used to describe a letter from an employer to a contractor indicating the employer’s intention to enter into a formal written contract for the works described.

The letter of intent typically asks the contractor to begin those works before the formal contract is executed

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11
Q

What info is usually included within a letter of intent?

A

Description of the works
Contract sum (if agreed)
Date for possession
Date for completion
Insurance provisions required
Method of payment
Expiration date of the letter
Employer’s right not to award the main contract for whatever reason
ADR method for dispute resolution

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12
Q

What are the advantages of a letter of intent?

A

Allows work to commence before the main contract is agreed and signed

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13
Q

What are the disadvantages of a letter of intent?

A

May lead to complacency and disincentivise both parties from signing the main contract
Usually less robust than a main contract
Employer’s negotiation strength usually reduced

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14
Q

Who issues a letter of intent?

A

The employer

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15
Q

In what circumstances might a letter of intent be used?

A

Where the employer needs to commence work before a certain date
Starting construction work might trigger external funding
Due to the long lead-in of materials

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16
Q

Who usually signs the letter of intent?

A

Both the employer and contractor

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17
Q

What would you say if the client asked you to draft a letter of intent?

A

It is a legally binding agreement like a contract, therefore the document should be prepared by a legal professional

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18
Q

What are the different types of letters of intent?

A

Comfort letter - Expresses a parties intention to act in a particular way at some point
Instruction to proceed with consent to spend - Allows work to proceed up to a certain value
Recognition of contract - Usually marks the completion of negotiations

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19
Q

Are you aware of any case law regarding letters of intent?

A

Ampleforth Abbey Trust v Turner & Townsend - Contractor never signed the building contract and the entire works (new school accommodation) was procured under letters of intent. This meant the Trust was unable to claim LAD’s under the building contract. Judge found that T&T had been negligent.

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20
Q

What is a parent company guarantee?

A

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. Typically, such a default might be caused by insolvency of the contractor.

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21
Q

In what circumstances might a PCG be required?

A

Where a small contractor is part of a large financially stable group of companies. The parent company will be required to remedy the breach of contract.

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22
Q

Are there any Acts that govern third party rights?

A

Contracts (Rights of Third Parties) Act 1999

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23
Q

What is the overarching purpose of this Act?

A

Allows third party to enforce terms of a contract they are not party to, but that benefit them in some way.
It gives parties access to various remedies if those contract terms are breached

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24
Q

What are the advantages of third party rights?

A

Time and cost - since no separate document (collateral warranty) is being entered into
Certainty - Limited room to revisit the wording
Subcontractors - Can be extended to subcontractors, so that an employer can confer the rights

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25
Q

What are the disadvantages of third party rights?

A

Lack of flexibility - limited room for negotiation
Need for careful drafting - enforcement provisions must be clear

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26
Q

Why might third-party rights be used instead of collateral warranties?

A

To save on time and cost

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27
Q

What is a collateral warranty?

A

A formal contractual agreement which runs alongside another contractual agreement

Its purpose is to create a contractual relationship between two parties where one would not otherwise exist

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28
Q

Who might want a collateral warranty?

A

The employer may want a collateral warranty with key subcontractors or suppliers, to provide a redress for defective workmanship

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29
Q

Difference between a bond and a collateral warranty?

A

A bond is a financial commitment backed up by a third party, whereas a collateral warranty passes on contractual obligations
Bonds are contained within the contract
Collateral warranties are a side agreement to the contract

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30
Q

Are there alternatives to collateral warranties?

A

An alternate method to confer such rights is provided by the Contracts (Rights of Third Parties) Act 1999 which allows third parties to obtain benefits from contracts entered into by others.

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31
Q

What are the three ways that benefits can be transferred under a building contract?

A

Collateral warranties
Third party rights
Assignment

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32
Q

Are you aware of any case law relating to Collateral Warranties?

A

Parkwood Leisure V Laing O’Rourke
Abbey Healthcare (Mill Hill) Ltd v Simply Construct (overturned)

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33
Q

There is a high probability that collateral warranties will be needed under a D&B contract. Why is this?

A

The design team sit below the contractor on a D&B contract; therefore, the employer will need to retain a contractual link with the design team (using a collateral warranty).

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34
Q

What is assignment?

A

The process whereby the benefit of a contract is transferred from one party to another but the burden of the contract remains with the original party to the contract.

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35
Q

What are some of the typical clauses of assignment?

A

It is standard to allow assignment of rights twice without consent
The assignment should be notified in writing

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36
Q

What is a bond?

A

An arrangement where a contractual duty owed by one party to another is backed up by a third party

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37
Q

Can you list five bonds that might be used on a construction project?

A

Performance Bond
Retention Bond
Advanced Payment Bond
Off Site Materials Bond
Tender Bond

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38
Q

What is a Performance Bond?

A

A form of security provided by a contractor to a developer or employer

It consists of an undertaking by a bank or insurance company to make a payment to the employer in circumstances where the contractor has defaulted under the contract

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39
Q

When might the employer want a Performance Bond?

A

If there is concern over the contractor’s financial standing
If the contractor is new or unapproved
The economy might be heading into recession
The employer simply wants to protect their commercial exposure

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40
Q

What is the difference between on-demand and conditional Performance Bonds?

A

On demand bonds are immediately available without any preconditions being met

Conditional bonds require the employer to provide evidence the contractor has not performed their obligations and that they have suffered a consequent loss

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41
Q

What is the typical value of a Performance Bond?

A

Typically 10% of the contract sum

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42
Q

What is the typical cost of a Performance Bond?

A

The cost largely depends on the financial stability of the contractor and the number of previous claims

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43
Q

What is the risk of not having a Performance Bond?

A

In the event a contractor goes into insolvency and there is no bond in place, the employer will be liable to pay all costs to deal with the insolvency. Costs include sourcing a new contractor to complete the works and any premium that will attract

The employer will not be liable to pursue the contractor as the company will be in the process of liquidation

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44
Q

Are there any alternatives to a Performance Bond?

A

If the contractor is part of a group of companies, the employer can consider a Parent Company Guarantee

If the smaller company breaches the contract, the parent company is obliged to step in and remedy the breach

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45
Q

What is a tender bond?

A

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

It should help prevent idle tendering

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46
Q

What is an off-site materials bond?

A

Covers an employer against the risk of paying the contractor for materials being manufactured off site.

If the contractor becomes insolvent, the employer can claim on the bond for goods paid for (in the event they are not delivered to site)

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47
Q

What is a retention bond?

A

A type of performance bond - rather than withholding retention, the bond agreement confirms the surety will pay the employer up to the full retention amount if the contractor fails to perform the obligations or remedy defects immediately after contract completion

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48
Q

What are the disadvantages of a retention bond?

A

The employer will have to pay the premium of taking out a bond

May reduce the contractors incentive to complete the work promptly to the desired standard

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49
Q

Why might a retention bond be used?

A

In difficult market conditions to aid the contractors cash flow

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50
Q

What is an advanced payment bond?

A

Covers an employer against the risk of paying a contractor in advance for something which may not materialise (due to insolvency for example).

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51
Q

What are antiquities?

A

Historical artifacts, pottery and coins
Bones or fossils
Something of historical interest or values
Archaeology

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52
Q

What should the contractor do if they discover such objects?

A

Cease work and seek advice prior to proceeding
Take the necessary measures to preserve in the existing location and condition
Inform the contract administrator or project manager of the discovery

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53
Q

When objects of interest are discovered, who is liable for the delay and expense?

A

This depends on how the risk is allocated within the contract

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54
Q

What are defects?

A

Defects are aspects of the works that are not in accordance with the contract

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55
Q

What are patent defects?

A

Those which can be discovered by reasonable inspection (broken windows)

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56
Q

What are latent defects?

A

Those which cannot be discovered by reasonable inspection (settlement issues)

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57
Q

Why is the defect rectification period usually 12 months?

A

12 months will allow the building to go through all seasons of the year, therefore, most defects will become apparent during this time period

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58
Q

What is novation?

A

The process whereby the benefit and burden of a contract is transferred from one party to another - this is common under D&B contracts where the design consultants are initially contracted to the client, before being novated to the contractor.

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59
Q

Are novation agreements required under traditionally procured projects?

A

Not usually, because the designers are retained by the employer

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60
Q

What are the advantages of novation?

A

Reduced learning curve - between design team and contractor
Reduced contractual risk for the employer

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61
Q

What are some of the disadvantages of novation?

A

Following the novation of consultants, the employer will typically require collateral warranties
Potential for conflict of interest, particularly relating to the services yet to be performed

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62
Q

What is retention?

A

A percentage of the sums certified for payment under the construction contract, typically 3-5%, which are held by the employer during the construction phase

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63
Q

Are you aware of any guidance issued by the RICS associated with Retention?

A

Retention - 1st Edition

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64
Q

What is the purpose of retention?

A

To provide the client with some security the contractor will return to correct any defects which arise during the Rectification Period.

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65
Q

What can the employer use retention monies for?

A

To fund the payment of others to correct the defects (contract needs to be checked beforehand)

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66
Q

How is retention released to the contractor?

A

Typically over two stages: 50% upon practical completion, 50% upon Certificate of Making Good.

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67
Q

Who typically benefits from the interest accruing on retention money?

A

Usually the employer

68
Q

Are there any alternatives to holding retention?

A

It is possible to procure a retention bond to cover the retention that would otherwise have been deducted

69
Q

What is professional negligence?

A

When a professional fails to perform their responsibilities to the required standard or breaches a duty of care. This poor conduct subsequently results in financial loss, physical damage or injury to their client.

70
Q

How can the employer recover a loss if the consultant or contractor is professionally negligent?

A

Make a claim on their professional indemnity insurance (PII)

71
Q

What is professional indemnity insurance?

A

Insurance which provides cover against the cost of claims for loss or damage associated with professional negligence or advice provided by a business or consultant.

72
Q

What is product liability insurance?

A

Manufacturers or suppliers of products are at risk of claims being made against them for damages if defects in those products result in damage - product liability insurance protects the policyholder against such claims.

73
Q

What is public liability insurance?

A

Provides protection against liabilities for injury to third parties or their property.

For example, a member of the public could make a claim if a fallen brick damaged their car.

74
Q

What is employer liability insurance?

A

Can pay the compensation amount and legal costs if an employee claims compensation for a work-related illness or injury

75
Q

What is Contractor Design Portion?

A

Typically used on traditionally procured projects, design responsibility for specific elements of the building is transferred to the contractor.

76
Q

What is the difference between traditional procurement with CDP and D&B?

A

Traditional procurement with CDP - design responsibility lies with the employer except for certain elements.
Design & build - all responsibility for the design rests with the contractor

77
Q

How are CDP elements executed?

A

A performance specification is provided at tender stage, the contractor then provides design proposals in response. These proposals are then reviewed by the design team and either accepted, commented upon, or rejected

78
Q

Can you list typical CDP elements the employer may wish to transfer?

A

Steelwork connections
Cladding
Roofing
Temporary works
MEP elements

79
Q

What are ‘named subcontractors’?

A

The employer provides a list of named subcontractors that are pre-approved
The contractor selects one from the list through the tendering process
Once appointed by the subcontractor, they then become a domestic subcontractor

79
Q

What are ‘domestic subcontractors’?

A

Chosen by the contractor to execute a package of work
Neither the employer nor employer’s consultants influence the appointment or conditons

80
Q

What are the advantages of naming subcontractors?

A

Provides the employer with more control to the selection of a subcontractor by the contractor, whilst still leaving them with the element of choice and the responsibility of monitoring and managing their performance

Contractor can form new valued supply chain relationships

81
Q

What are ‘nominated subcontractors’?

A

A nominated subcontractor is selected by the employer to carry out an element of the work
Their selection is usually imposed on the contractor

82
Q

What are the disadvantages of ‘nominated subcontractors’?

A

The contractor and subcontractor may have conflicting procedures (ethics / attitudes etc)
Can lead to disputes over liability in the event of non-performance of the subcontractor

83
Q

What are the advantages of ‘nominated subcontractors’?

A

Given they are recommended by the employer, their work should be of high quality which is acceptable to the employer

84
Q

Are you aware of any guidance issued by RICS associated with subcontracting?

A

Subcontracting, 1st edition.

85
Q

What is insolvency?

A

The inability to pay debts

86
Q

What can be done at tender stage to identify the risk of contractor insolvency?

A

Thorough check of financial accounts for stability, via Companies House
Check for front loading within the tender submission
Using credit agencies (Dun & Bradsheet reports)
Previous references from consultants and employers
Request a bond or parent company guarantee

87
Q

What is termination?

A

When a contract is terminated, the parties are no longer obliged to perform their obligations under the contract

88
Q

Can the contractor suspend work for non-payment?

A

Yes, under the Construction Act - if the notified sum is not paid by the final date for payment, the contractor must give at least 7 days notice, before suspending works.

89
Q

What are delay damages / LAD’s?

A

A genuine pre-estimate of loss suffered by the employer because of late completion of the works. The damages are inserted into the contract prior to the signing by the contracting parties.

LD’s should not be a penalty / they provide a quick remedy without having to prove actual loss / contractor knows their liability

90
Q

What sort of expenses / costs can the employer include in the damage calculation?

A

Loss of rent or other income
Additional professional fees
Expected costs incurred by other parties
Capital salaries
Legal costs

It should not be construed as a penalty, and must be a genuine pre-estimate of loss

91
Q

How would you react if the client tells you the damages are £100,000 per week?

A

Exercise due diligence - check that they do believe £100,000 per week is a genuine pre estimate of likely loss

If there is a concern, explain the damages might be construed to be a penalty (which is not enforceable)

92
Q

Under JCT contracts, what contractual documents should be in place before damages are deducted?

A

A non-completion certificate
Formal notification of the employers intention to levy liquidated damages
A pay-less notice

93
Q

What is a LD holiday or LD free period?

A

Essentially a grace period in which the contractor has no commercial liability for delay

94
Q

What is the implication of inserting ‘nil’ against the damage clause?

A

This effectively means there are no liquidated damages. This action may prevent the employer pursuing unliquidated damages.

95
Q

What is the implication of leaving the damage clause blank?

A

If the clause is left blank, the employer can pursue unliquidated damages from the contractor.

96
Q

What is the difference between liquidated damages and unliquidated damages?

A

Liquidated damages are contract stipulated charges due on breach of contract (usually delay)
Unliquidated damages are granted by the courts based on an assessment of loss following a breach

97
Q

If the Completion Date is adjusted, what effect does this have on delay damages?

A

Damages will be levied from the revised Completion Date

98
Q

Can the employer levy liquidated damages if they do not incur the loss identified in the initial calculation?

A

Yes - provided the damages are not deemed to be a penalty, and the original calculation was a genuine pre estimate of the loss

99
Q

What is a pre-construction services agreement?

A

A contract between the employer and contractor for pre-construction services
The PCSA documents the services the contractor is due to perform before signing the building contract

100
Q

When might a PCSA be used?

A

In a two-stage tender approach to facilitate early contractor involvement

101
Q

How can a PCSA benefit the project?

A

Early involvement of the contractor should improve the buildability and cost certainty of design

102
Q

What should be considered when drafting the PCSA?

A

Arrangements do not commit the employer to entering into the building contract
The scope of services needs to be clear and unambiguous
The usual programme and delay damage clauses are carefully drafted by the legal team

103
Q

What are the main forms of building contracts?

A

JCT (Joint Contracts Tribunal)
NEC (New Engineering Contract)
FIDIC (International Federation of Consulting Engineers)
Bespoke contracts

104
Q

What are some of the considerations when selecting the appropriate construction contract?

A

Nature of the client
Priorities - time, cost, quality, risk allocation
Procurement choice
Value of work
Type of work
Public or private employer
Complexity of work
Size and location of work

105
Q

What is a bespoke contract?

A

Contracts that are tailored to fit the specific requirements of a project
Often used when standard forms are not suitable

106
Q

What are the advantages of standard forms over bespoke contracts?

A

Written by legal experts
Rights and obligations of each party are clearly set out
Parties should be familiar with provisions of form, resulting in greater consistency of application

107
Q

What are the disadvantages of bespoke contracts?

A

Lack of familiarity as they are rarely used
Expensive to draft (legal fees)
Provisions untested in court

108
Q

When would a bespoke form be appropriate?

A

When amending a standard contract will not do, the most efficient means of achieving a client’s requirements might be to create a bespoke contract

109
Q

Have you amended a standard contract? Can you explain how you did this?

A

I do not have the necessary legal training, so do not amend contracts.

All amendments should be drafted by the legal team.

110
Q

What are some of the risks associated with amending a standard contract

A

Amendments can spoil the equitable balance of risk allocation
Can create legal uncertainty
Can attract a cost premium to tenderers
Amendments must be reasonable and comply with legislation

111
Q

What does JCT stand for?

A

Joint Contracts Tribunal

112
Q

What are some of the contracts in the JCT family?

A

Standard Building Contract
Intermediate Building Contract
Minor Works Building Contract
Major Project Construction Contract
Design & Build Contract
Management Building Contract
Construction Management Contract

113
Q

What key project characteristics influence which JCT contract is used?

A

Size, value and type of project
Need for contractor design
Certainty on the final cost
Appetite for risk ownership and risk transfer
Employer experience
Programme requirements

114
Q

When would you use the JCT Minor Works Contract?

A

Designed for smaller, basic construction projects where the work is of a simple nature

115
Q

When would you use the JCT Intermediate Building Contract?

A

Designed for construction projects involving all the recognised trades and skills of the industry, where detailed contract provisions are needed, but without complex building service installations.

116
Q

When would you use the JCT Standard Building Contract?

A

Designed for large or complex construction projects where detailed contract provisions are needed, it is suitable for projects procured via the traditional method.

117
Q

When would you use the JCT Major Project Construction Contract?

A

For large scale construction projects where major work is involved

118
Q

When would you use the JCT Design & Build Contract?

A

Designed for construction projects where the contractor carries out both the design and the construction work.

119
Q

When would you use the JCT Prime Cost Contract?

A

Designed for projects that require an early start on site, often for alterations or urgent repair work.

120
Q

When would you use the JCT Measured Term Contract?

A

Designed for use by employers who have a regular flow of maintenance, minor works and improvement projects they would like to be carried out by a single contractor over a specified period.

121
Q

What are Relevant Events?

A

An event which entitles the contractor to an extension of time to complete the works.

122
Q

Can you provide examples of the Relevant Events in the JCT D&B Contract?

A

Changes, Instructions, Deferment of Posession, Antiquities, Suspension, Impediment, Weather (EA), Spec Perils, Strike, Force Majeure

123
Q

What is force majeure?

A

Certain acts, events or circumstances beyond the control of the parties - such as natural disasters.

124
Q

Can you provide some examples of a force majeure event?

A

War / acts of foreign enemies
Rebellion / revolution
Contamination by radioactivity
Riots / strikes
Terrorism

125
Q

What happens when a Relevant Event occurs?

A

Once it becomes reasonably apparent, the Contractor notifies the Employer in writing - stating the particulars and extent, stating an estimate of the delay.
The Employer shall notify decision within 12 weeks deciding the time associated with each Relevant Event.

126
Q

Assuming the Relevant Event has occurred and is accepted, is the Contractor entitled to loss and expense?

A

The Contractor will need to demonstrate a Relevant Matter has occurred to claim loss and expense.

127
Q

What are Relevant Matters?

A

A matter for which the employer is responsible that materially affects the progress of the works.
Provides entitlement to loss and expense

128
Q

Can you give some examples of Relevant Matters?

A

Failure to give possession of the site
Failure to give access to and from the site
Delays in receiving instructions
Disruption caused by work carried out by employer

129
Q

What is a loss and expense claim?

A

They arise due to Relevant Matters stipulated in the contract, and aim to put the innocent party back in the position they would have been had the matter not occurred

130
Q

What is the key thing to remember when assessing loss and expense claims?

A

It should be the actual loss incurred
The rates and prices in the pricing schedule should not be used
Refer to RICS Guidance Note - Ascertaining loss and expense - 1st edition.

131
Q

What are the common heads of claim in loss and expense?

A

Prolongation (extra preliminaries)
Disruption (unproductive time)
Increases in labour and material costs

132
Q

What are prolongation costs?

A

A type of financial claim made by contractors due to project delays - capturing the costs of time related resources such as staff, accommodation and plant.

133
Q

What is partial possession?

A

A building contract may allow the employer to take partial possession of part of the works before they have been formally completed.

134
Q

What are the key points of partial possession?

A

Not agreed in advance
Completion is deemed to occur for that section
Voluntary agreement between employer and contractor
Contractor must give consent

135
Q

Can the contractor refuse to give partial possession?

A

Partial possession can only be taken with the consent of the contractor, but that consent cannot be unreasonably withheld.

136
Q

What are the typical implications of partial possession?

A

Half retention is released (for given area)
Contractor’s responsibility for insuring works ends
Contractors liability for LAD’s ends
Employer becomes responsible for any damages
The defect rectification period commences

137
Q

What is sectional completion?

A

A provision which allows different completion dates to be set for different sections of the works.

138
Q

What is the difference between sectional completion and partial possession?

A

Sectional completion is pre-planned and defined in the contract documentation, partial possession is not

139
Q

What are the benefits of sectional completion over partial possession?

A

Sectional completion leaves less to chance, because the parties have pre-agreed the practical implications

140
Q

What are the main options for insuring the works under a JCT contract?

A

Option A - The contractor takes out and maintains joint names all risk insurance of the works for new buildings

Option B - The employer takes out and maintains joint names all risk insurance of the works for new buildings

Option C - The only option referring to refurbishment and alterations to existing structures. Where the employer takes out and maintains a joint name all risk insurance policy for the works.

141
Q

What is a joint names insurance policy?

A

A policy in the names of two or more parties

Under a joint names policy, the insurer will have no right of subrogation against any of the insured parties, even where an insured party has caused the loss for which the insurer has had to pay out.

142
Q

What is contractors ‘all risk’ insurance?

A

Policy pays for the repair or replacement of the insured works following damage caused by an insured event.

143
Q

What are specified perils?

A

Significant events that would cause very significant damage to the works, including:

Flooding / fire / explosions / earthquakes

144
Q

What is subrogation?

A

A concept that allows an insurance company that has paid a loss to step into the shoes of its insured and then sue a party responsible for causing the loss.

145
Q

What are the key differences between NEC and JCT construction contracts?

A

NEC drafted in plain English with simple language

NEC operates an ‘Early Warning’ process

JCT splits up time and cost assessment (RE’s & RM’s)

JCT: Variations, NEC: Compensation Events

NEC uses Main Options, JCT Separate Contracts

JCT allows for prov sums, NEC does not

NEC uses programme as a contract document

146
Q

What are the key updates from NEC3 to NEC4?

A

‘Risk Register’ named ‘Early Warning Register’

‘Works Information’ named ‘Scope’

All contracts are now gender neutral

Contractors now must submit AFP’s

4-week period for escalation introduced

147
Q

What are the key updates from JCT 2016 to JCT 2024?

A

‘Epidemics’ added as Relevant Event

All contracts are now gender neutral

Express exclusion of ‘fitness for purpose’

New Target Cost contract to be released

148
Q

What are the perceived advantages of using the NEC4 ECC contract?

A

Clarity and simplicity
Flexibility and adaptability
Collaboration and communication
Risk allocation and management
Dispute avoidance and resolution

149
Q

What are the six main options under the NEC4 ECC contract?

A

Option A - priced contract with activity schedule
Option B - priced contract with bill of quantities
Option C - target contract with activity schedule
Option D - target contract with bill of quantities
Option E - cost reimbursable contract
Option F - management contract

150
Q

Which NEC4 ECC main option carries the least financial risk for the employer?

A

Option A - because this is a fixed price contract

151
Q

Which NEC4 ECC main option carries the most financial risk for the employer?

A

Option E - because the contractor is reimbursed for the actual costs they incur plus an additional fee

152
Q

What are secondary options under NEC4 ECC?

A

Optional bolt-on clauses which can be applied

X and Y clauses are a selection of pre-written clauses
Z clauses are completely bespoke amendments

153
Q

Can you name 5 X clauses under the NEC4 ECC?

A

Option X1 - Price adjustment for inflation
Option X2 - Changes in the law
Option X6 - Bonus for early completion
Option X7 - Delay damages
Option X13 - Performance bond

154
Q

What are the options for dispute resolution under NEC4 ECC?

A

Option W1 - When adjudication is the method and the HGCRA does not apply (projects overseas)

Option W2 - When adjudication is the method and the HGCRA does apply

Option W3 - Dispute Avoidance Board

155
Q

What problems can arise when drafting Z clauses into the contract?

A

Poorly drafted Z clauses can be problematic if they are not drafted by experienced professionals, as they may not work with the core clauses.

156
Q

What are the different types of float on an NEC4 ECC programme?

A

Total float
Time risk allowances
Terminal float

157
Q

What is total float?

A

The time an activity can be delayed without delaying planned completion.

Owned by the Client & Contractor - depending on whoever gets there first.

158
Q

What is time risk allowance?

A

Float added to individual activities for the risk of delays arising or non-productive time occurring

Owned by the Contractor

159
Q

What is terminal float?

A

Duration between planned completion and the contractual completion date.

Owned by the Contractor

160
Q

How can the completion date be changed?

A

Via compensation events or acceleration

160
Q

With reference to the contractor’s programme, how does the NEC differ from JCT?

A

The programme is not a contract document under the JCT, under the NEC it is.

160
Q

How can the planned completion date be changed?

A

Anything can change it

161
Q

Which of the NEC ECC contracts are D&B?

A

The NEC ECC contract is suitable whether the contractor has no design responsibility, part design responsibility, or entire design responsibility.

This will be set out in the scope.

162
Q

What are compensation events?

A

Events which are not at the fault of the contractor and change the cost of the work, or the time needed to complete it. As a result, the contractor will be entitled to more time and money.

163
Q

What happens if the contractor notifies a compensation event 12 weeks after becoming aware of the event?

A

They are not entitled to any additional time or money. Clause 61 requires the contractor to notify a compensation event within 8 weeks of becoming aware

164
Q

What are early warning notices?

A

A mechanism for both parties to identify potential problems with the project. Both parties are obliged to notify the other as soon as they become aware of a matter which could:

Increase the total of the prices
Delay completion
Delay meeting a key date
Impair the performance of the works in use

RICS Revision (18 decks)

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