Contract Practice Flashcards
What is a contract?
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
Please define ‘express terms’
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
Please define ‘implied terms’
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
What is tort?
A civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability to damages
How do statutory provisions and contract provisions differ?
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
What is your opinion of oral contracts?
Whilst they are legally binding, the difficulty lies in proving the specific terms and conditions of the agreement. A written contract is always preferred
What is a breach of contract?
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
What is the Local Democracy, Economic Development and Construction Act 2009?
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
What are the key provisions under the LDEDCA 2009?
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
What is a letter of intent?
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
What info is usually included within a letter of intent?
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
What are the advantages of a letter of intent?
Allows work to commence before the main contract is agreed and signed
What are the disadvantages of a letter of intent?
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
Who issues a letter of intent?
The employer
In what circumstances might a letter of intent be used?
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
Who usually signs the letter of intent?
Both the employer and contractor
What would you say if the client asked you to draft a letter of intent?
It is a legally binding agreement like a contract, therefore the document should be prepared by a legal professional
What are the different types of letters of intent?
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
Are you aware of any case law regarding letters of intent?
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.
What is a parent company guarantee?
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.
In what circumstances might a PCG be required?
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.
Are there any Acts that govern third party rights?
Contracts (Rights of Third Parties) Act 1999
What is the overarching purpose of this Act?
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
What are the advantages of third party rights?
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