Contract practice Flashcards
What key function does a contract perform on a construction project?
A contract outlines the rights and obligations of the parties involved in a construction project.
What is a contract?
A contract is a legally binding agreement between two or more parties.
Define express terms?
Express terms are specific provisions that are clearly stated in a contract.
Define implied terms?
Implied terms are provisions that are not explicitly stated but are assumed to be included in a contract.
What six conditions need to be met for a contract to be in place?
- Offer 2. Acceptance 3. Consideration 4. Intention to create legal relations 5. Capacity to contract 6. Legality of purpose.
What are the main suites of construction contracts?
The main suites of construction contracts include JCT, NEC, FIDIC, ICE
What is tort?
Tort is a civil wrong that causes harm or loss to another person, leading to legal liability.
What are the influences which will affect contract selection?
Factors such as project size, complexity, risk allocation, and client preferences influence contract selection.
Can you name three standard forms of contracts that can be used on a construction project?
- JCT 2. NEC 3. FIDIC.
What do you understand about the following forms of contract; NEC, JCT,
These are standard forms of construction contracts that provide frameworks for project delivery and risk management.
What does JCT stand for?
JCT stands for Joint Contracts Tribunal.
Name the key components of the JCT contract suite.
Key components include the main contract, schedules, and various forms for different project types.
When was the JCT contract suite last updated?
The JCT contract suite was last updated in 2024
Tell me about some of the key changes that were made.
Key changes included updates to
language
Collaborative working
Included provision for BSA 22
Email
How was the JCT contract suite modernised through the last update?
The suite was modernised by incorporating electronic working and clearer language. BSA22 BRPD and BRPC
How does JCT facilitate electronic working?
JCT facilitates electronic working by allowing service of notices via email
How does the JCT work alongside the Construction Playbook?
JCT aligns with the Construction Playbook by promoting best practices and standardising procurement processes.
How has the JCT contract suite incorporated diversity and inclusion?
The JCT contract suite has incorporated diversity and inclusion by neutralising language
What is the JCT Fluctuations Hub used for?
The JCT Fluctuations Hub is used to manage price fluctuations in construction contracts. The minor works no longer includes fluctuations and as works under these contracts are usually relatively small and simple in nature.
Explain the JCT Target Cost Contract to me.
The JCT Target Cost Contract is a form of contract where the contractor is paid a target cost, with incentives for cost savings.
A target cost contract is a type of cost reimbursable contract under which the contractor is paid the ‘actual cost’ (usually defined in the particular contract) it incurs in carrying out the works, but subject to a target cost which is agreed by the parties at the beginning of the project.
The target cost is the cost to the contractor of completing the project, comprising:
•
the base cost of the physical works (based on the sum of prices in a bill of quantities, schedule of rates or an activity schedule), the cost of temporary works, sub-contractor costs and preliminary costs
•
overheads and profit
•
a contingency for contractor’s risks under the contract
At the end of the project, the parties will apply a mechanism/formula to calculate whether savings were made and the project delivered for less than the target cost, or whether costs overran and the cost of delivering the project was more than the target cost. The contractor will then either share the savings with the employer
What form of NEC contract might the Target Cost Contract be a good alternative for?
What are the main parts of the JCT contracts?
https://www.jctltd.co.uk/docs/MW-2024.pdf
What are the JCT schedules?
JCT schedules detail specific project information, including pricing and timelines.
How are relevant events and relevant matters dealt with under NEC?
Relevant events and matters called compensation events and there are strict procedures and time scales for addressed defined procedures for notifications and adjustments
How does NEC deal with loss and expense?
NEC provides mechanisms for assessing and compensating for loss and expense incurred due to changes.
What types of insurance are required under JCT?
JCT requires contractor’s all risks insurance and public liability insurance.
How is fitness for purpose dealt with under JCT DB / CDP?
Fitness for purpose is ensured through specific design obligations placed on the contractor.
What is the contractor’s design liability under JCT contracts (for CDP elements)?
The contractor is liable for ensuring the design meets the specified requirements and is fit for purpose.
What are the differences in procurement between JCT Standard Form and JCT with Contractor’s Design?
The Standard Form typically involves the client providing design, while Contractor’s Design places design responsibility on the contractor.
When would you use a JCT IC or MW contract?
A JCT IC or MW contract would be used for smaller projects or minor works.
Can benefits be assigned under JCT contracts?
Yes, benefits can be assigned under JCT contracts, subject to certain conditions.
When and why would you use each?
Benefits may be assigned to facilitate financing or to transfer rights to third parties.
Explain the role of main, sub and package contracts from the standard suites you are aware of.
Main contracts govern the overall project, subcontracts manage specific tasks, and package contracts group related works.
In a contract you have used, explain the following: roles and responsibilities of the parties, pricing options and risk allocation.
Roles and responsibilities define each party’s obligations, pricing options can include fixed price or cost-plus, and risk allocation specifies who bears certain risks.
What client specific considerations have you taken into account when selecting a contract type?
Considerations include the client’s risk appetite, project complexity, and funding arrangements.
What insurance provisions are in the JCT and NEC standard forms of contract?
Both JCT and NEC require various insurances, including public liability and contractor’s all risks.
What is a contractor’s all risk insurance or contract works insurance?
It is insurance that covers damage to the construction works and materials on site.
What do you understand by insurance in joint names?
Insurance in joint names means that both the client and contractor are covered under the same policy.
What is a collateral warranty?
A collateral warranty is a separate agreement that provides third-party rights to a contract.
What is your understanding of what a letter of intent is?
A letter of intent is a preliminary agreement indicating the intention to enter into a formal contract.
What is a comfort letter/consent to spend/recognition of contract?
These documents confirm the intent to proceed with a project and acknowledge the terms of the contract.
When might you use advance payments?
Advance payments may be used to provide initial funding for project mobilization.
What is the final account?
The final account is a comprehensive statement of all financial transactions related to a contract.
Who prepares the final account in a JCT form of contract?
The contractor prepares the final account in a JCT form of contract.
Who prepares the final account in the NEC4 form of contract?
The project manager prepares the final account in the NEC4 form of contract.
What is the purpose of a final account?
The purpose of a final account is to settle all financial matters and confirm the total cost of the project.
On the issue of the final account, what are the relevant time periods in a JCT form of contract?
Relevant time periods include the submission deadline for the final account and the timeframe for issuing the final certificate.
When must the final certificate be issued?
The final certificate must be issued within a specified period after the final account is agreed.
Tell me two of the information or statements that must be contained in the final certificate.
The final certificate must include the total amount payable and confirmation of practical completion.
What are the usual constituents of a final account?
Usual constituents include the contract sum, variations, and adjustments for delays or additional costs.
What is released to the contractor in the final certificate?
The final certificate releases the final payment to the contractor.
What are the four elements of a valid contract?
- Offer 2. Acceptance 3. Consideration 4. Intention to create legal relations.
What third party rights might be included in a contract?
Third party rights may include the right to enforce certain provisions or receive benefits under the contract.
How does dispute resolution work in a contract you have experience of?
Dispute resolution typically involves negotiation, mediation, or arbitration as outlined in the contract.
What is common law?
Common law is law developed by judges through court decisions rather than through statutes.
What do you understand by consideration in contract?
Consideration is something of value exchanged between parties in a contract.
What do you understand by invitation to treat in contract?
An invitation to treat is an indication that a party is willing to negotiate a contract but is not yet making an offer.
How is the JCT form of contract structured?
The JCT form of contract is structured with sections for definitions, obligations, and conditions.
How is the NEC form of contract typically structured?
The NEC form of contract is structured around core clauses and optional secondary options.
What is the difference between a contract executed under seal and underhand?
A contract executed under seal is formal and does not require consideration, while an underhand contract requires consideration.
When selecting a form of contract what factors do you consider?
Factors include project size, complexity, risk allocation, and client preferences.
What alternative forms of contract are there available and what would influence your recommendation of a form of contract?
Alternative forms include design and build and management contracts, influenced by project specifics and client needs.
Design and Build contracts - what are the 3 main forms of this contract?
The three main forms are traditional design and build, design and build with contractor’s design, and management contracting.
Name 3 factors you think make this form of contract valid for your work.
- Clear design responsibilities 2. Defined risk allocation 3. Effective communication channels.
Apart from JCT D&B, what other forms of D&B contracts are there?
Other forms include NEC D&B and FIDIC D&B contracts.
Have you ever considered a NEC D&B contract?
No i have not been involved in a design and build contract. NEC D&B contracts provide flexibility and clear risk management.
Within a JCT SBC, when and why would you use a Schedule 2 quotation?
A Schedule 2 quotation is used when the scope of work is not fully defined at the outset.
If the contractor on a D&B contract fails to issue the final account within the due period, what action should you advise your client to take?
Advise the client to formally request the final account and consider potential claims for delay.
If you had to explain the differences to your client between sectional completion and partial possession, can you provide an example of the differences under a JCT D&B contract?
Sectional completion allows parts of the project to be completed and used, while partial possession refers to the client taking possession of part of the works before completion.
How do sectional completion, partial completion and beneficial use differ?
Sectional completion refers to completing parts of the project, partial completion is when work is not fully finished, and beneficial use is when the client can use the works despite incomplete elements.
Define each of the above.
Sectional completion: completion of parts; Partial completion: incomplete works; Beneficial use: use of works before full completion.
If your client wanted to place furniture in the completed parts of a project which, would you recommend sectional completion or partial possession?
I would recommend sectional completion to allow the client to use completed areas.
What are liquidated damages?
Liquidated damages are predetermined amounts payable for delays in project completion.
What is your understanding of retention and bonds?
Retention is a percentage of payment withheld until project completion, while bonds are guarantees for performance.
What is your understanding of early possession?
Early possession allows the client to take control of the site before the project is fully completed.
What contractual weight does a practical completion certificate carry in a JCT contract?
A practical completion certificate signifies that the works are complete enough for the client to occupy.
Tell me about some of the insurances a subcontractor would need if they were responsible for a part of the design work.
Subcontractors would need professional indemnity insurance and public liability insurance.
What do you understand by a parent company guarantee?
A parent company guarantee is a commitment from a parent company to cover the obligations of its subsidiary.
When might it be used?
It might be used when a subcontractor’s financial stability is in question.
What is your understanding of sectional completion?
Sectional completion allows parts of a project to be completed and handed over separately.
What is your understanding of performance bond?
A performance bond is a guarantee that a contractor will fulfill their contractual obligations.
When might it be used?
It might be used for high-value projects to ensure completion.
What is your understanding of limitation of liability?
Limitation of liability restricts the amount one party can claim from another in case of a breach.
Talk me through how you’ve ensured insurances from subcontractors were at the correct level.
I verify insurance certificates and ensure they meet the contract requirements before work begins.
What do you understand by relevant event in a JCT form of contract?
A relevant event is an occurrence that affects the contractor’s ability to complete the works on time.
What do you understand by compensation event in a NEC form of contract?
A compensation event is an event that entitles the contractor to additional time or cost.
In the NEC form of contract, talk me through five things that can lead to a compensation event.
- Changes in the works information 2. Delays caused by the client 3. Unforeseen physical conditions 4. Changes in law 5. Instructions from the project manager.
In the NEC form of contract when can the completion date be adjusted?
The completion date can be adjusted due to compensation events or agreed changes.
In the NEC form of contract what is a defined cost?
A defined cost is the cost of the work that is directly attributable to the project.
In the NEC form of contract what is a disallowable cost?
A disallowable cost is an expense that is not reimbursable under the contract.
When were changes to NEC4 last made?
Changes to NEC4 were last made in 2020.
What changes were made?
Changes included updates to reflect industry best practices and improve clarity.
How are NEC contracts categorised by different alternative pricing options?
NEC contracts are categorised by options such as fixed price, cost reimbursable, and target cost.
What are these pricing options?
Pricing options include: 1. Fixed price 2. Cost reimbursable 3. Target cost.
How is BIM integrated in a contract you are familiar with?
BIM is integrated through requirements for digital models and collaboration in project delivery.
Explain Secondary Option X7.
Secondary Option X7 allows for the use of BIM in the project delivery process.
What issue was raised by Triple Point Technology v PTT Public Co?
The case raised issues regarding the enforceability of contracts and the importance of clear terms.
How was Secondary Option Y(UK)2 updated to reflect the judgement in Rochford Construction v Kilhan Construction?
It was updated to clarify the obligations of parties regarding time and cost.
How were Secondary Option X22 and Secondary Option Y(UK) 1 amended?
They were amended to improve clarity on risk allocation and responsibilities.
When are NEC compensation events not time barred?
NEC compensation events are not time barred if they are notified within the required timeframe.
In a NEC contract, how would you detail if the contract is to be D&B?
You would specify the design responsibilities and requirements in the works information.
What does the works information is included in a NEC contract?
The works information includes details of the scope, specifications, and performance requirements.
What are the different types of FIDIC contract and how do they reflect different risk profiles?
FIDIC contracts vary from Red Book (design-bid-build) to Yellow Book (design-build), reflecting different risk allocations.
What is your understanding of the difference between delay and disruption?
Delay refers to a postponement in the project timeline, while disruption refers to interference that affects productivity.
When does financial management of a project typically take place?
Financial management typically takes place throughout the project lifecycle, from planning to completion.
Explain what happens during the post contract phase.
During the post contract phase, final accounts are settled, and project performance is reviewed.
How do you implement and manage cost control procedures and reporting within the scope of a contract?
Cost control procedures are implemented through regular monitoring, reporting, and adjustments as necessary.
What contract legislation are you aware of?
Key contract legislation includes the Contracts Act 1999 and the Housing Grants, Construction and Regeneration Act 1996.
Explain how contracts may deal with contractor designed works.
Contracts may specify design obligations, liability for defects, and approval processes for contractor-designed works.
Explain your understanding of contracts and sub-contracting.
Contracts govern the relationship between parties, while sub-contracting involves delegating parts of the work to other parties.
What payments provisions and change procedures are you aware of?
Payments provisions include milestone payments and final accounts, while change procedures involve formal notifications and approvals.
What factors affect the choice of security in a contract?
Factors include project value, risk profile, and client requirements.
What insurances are you aware of?
Insurances include public liability, employer’s liability, and contractor’s all risks.
What is novation and assignment?
Novation is the transfer of contract rights and obligations to a new party, while assignment is the transfer of rights only.
What are the three ways that benefits can be transferred under JCT contracts?
Benefits can be transferred through assignment, novation, or collateral warranties.
Who might want a collateral warranty?
Clients, funders, or third parties may want a collateral warranty to secure their interests.
How are they requested?
Collateral warranties are typically requested during contract negotiations.
What are the common clauses / terms in collateral warranties?
Common clauses include obligations, liability limits, and duration of the warranty.
What is the difference between a bond and collateral warranty?
A bond is a financial guarantee, while a collateral warranty provides contractual rights.
With any D&B contract there is a high probability that collateral warranties will apply, where would you expect to see them and between which parties?
Collateral warranties would typically be between the contractor and the client or funders.
Are there any alternatives to collateral warranties?
Alternatives include direct agreements or letters of intent.
Explain your understanding of retention.
Retention is a percentage of payment withheld until project completion to ensure satisfactory performance.
What is the purpose of retention?
The purpose of retention is to provide security for the completion of works and remedy of defects.
What items do not have retention taken on them?
Items such as materials on site or pre-agreed payments may not have retention applied.
Who receives the interest accruing on retention money?
The contractor typically receives the interest accruing on retention money.
When is the retention released to the contractor?
Retention is released upon satisfactory completion of the project and resolution of defects.
What if the contract sum increases?
If the contract sum increases, adjustments to retention and payments may be necessary.
Explain your understanding of liquidated and delay damages.
Liquidated damages are pre-agreed penalties for delays, while delay damages are actual costs incurred due to delays.
Explain your understanding of claims for extensions of time, acceleration and loss and expense.
Claims for extensions of time are requests for additional time due to delays, acceleration involves speeding up work, and loss and expense claims cover additional costs incurred.
What is early possession?
Early possession allows the client to take control of the site before the project is fully completed.
Explain your understanding of phasing.
Phasing involves completing a project in stages to allow for partial occupancy or use.
How can a contract be terminated?
A contract can be terminated for breach, mutual agreement, or by specific provisions within the contract.
Explain the impact of insolvency on contracts.
Insolvency can lead to contract termination, claims for damages, and potential recovery of assets.
How do you deal with final accounts?
Final accounts are dealt with by compiling all financial transactions and ensuring agreement between parties.
What is a pre-construction services agreement (PCSA)?
A PCSA is an agreement for services provided before the main construction contract is signed.
When are pre-construction services usually used?
Pre-construction services are used during the design and planning phases of a project.
What should be taken into account in the wording of a PCSA?
Considerations include scope of services, fees, and timelines.
What might the pitfalls be?
Pitfalls may include unclear terms, scope creep, and disputes over fees.
When would you recommend the use of a PCSA?
I would recommend a PCSA when early contractor involvement is beneficial for project success.
How does a PCSA differ to a LOI?
A PCSA is a formal agreement for services, while a LOI indicates intent to contract without formal terms.
Explain your understanding of defects and rectification.
Defects are faults in the work that need correction, and rectification involves fixing these faults.
How has Covid-19 affected a contract you have worked on?
Covid-19 has led to delays, increased costs, and changes in working practices.
Explain the differences between cost reimbursement and lump sum contracts.
Cost reimbursement contracts cover actual costs plus fees, while lump sum contracts provide a fixed price for the entire project.
Explain a key principle of the new RICS Guidance Note Subcontracting (1st Edition).
A key principle is the need for clear communication and defined responsibilities between contractors and subcontractors.
What is a subcontractor defined as within this?
A subcontractor is defined as a party contracted to perform part of the work under the main contract.
What does the Guidance Note not cover?
The Guidance Note does not cover specific contractual terms or conditions.
If an architect develops a design to a certain stage and the appointed D&B contractor then wants to use the design and develop further, what do they need to do?
They need to ensure proper licensing and rights to use the design.
Explain, in this scenario, how copyright ownership works.
Copyright ownership typically remains with the architect unless transferred or licensed to the contractor.
What is novation?
Novation is the process of replacing one party in a contract with the consent of all parties.
How does novation affect the employer’s rights?
Novation transfers the employer’s rights and obligations to the new contractor.
What are the advantages of novation?
Advantages include continuity of design and clearer contractual relationships.
Are there any disadvantages of novation?
Disadvantages may include loss of direct control and potential disputes over liability.
Do you have novation on traditional contracts?
Novation is less common in traditional contracts, which typically maintain the original contractor.
What measures can be taken to effectively control costs during the construction phase of a project?
Measures include regular budget reviews, cost tracking, and implementing change control procedures.
How can you control costs to keep a job under budget?
Controlling costs involves monitoring expenses, identifying savings, and adjusting project plans as needed.
How do NEC and JCT manage change control?
NEC and JCT manage change control through formal procedures for notifications and approvals.
Why is cash flow important?
Cash flow is important to ensure that sufficient funds are available to meet project expenses.
How does a cash flow help a company remain solvent?
A positive cash flow ensures that a company can meet its financial obligations and avoid insolvency.
What is risk allocation?
Risk allocation is the process of distributing risks among parties in a contract.
What do you understand by risk management?
Risk management involves identifying, assessing, and mitigating risks to minimize their impact on a project.
What is a risk management strategy?
A risk management strategy outlines the approach to identifying and addressing risks throughout a project.
What are the benefits of risk management?
Benefits include reduced uncertainty, improved decision-making, and enhanced project outcomes.
What are the stages of risk management?
The stages include risk identification, risk assessment, risk response, and monitoring.
Why is risk management needed in construction?
Risk management is needed to address the inherent uncertainties and complexities in construction projects.
What is the risk response?
The risk response is the action taken to mitigate or manage identified risks.
How is risk quantified?
Risk is quantified through qualitative and quantitative assessments, often using probability and impact analysis.
What are risk management techniques?
Techniques include risk avoidance, risk transfer, risk mitigation, and risk acceptance.
How do you report or monitor risks?
Risks are reported through regular updates to the risk register and discussed in project meetings.
What are preliminaries?
Preliminaries are the costs associated with the general management and administration of a project.
What are preambles?
Preambles are introductory sections in a contract that outline the scope and terms.
What would you include in a work schedule?
A work schedule should include tasks, timelines, resources, and milestones.
How have you produced contract documentation?
Contract documentation is produced by compiling all relevant agreements, terms, and conditions.
How have you carried out contractual mechanisms and procedures relevant to the financial management aspects of your project, such as change procedures, valuations, loss and expense and final accounts?
I have implemented change procedures, conducted valuations, and managed final accounts through established protocols.
How have you advised on general contractual provisions such as letters of intent, insurances, retention, bonds, liquidated damages, early possession, practical completion and other common contractual mechanisms?
I have provided guidance on these provisions to ensure compliance and protect client interests.
Explain how you have selected a suitable contract based on the procurement route.
I have selected contracts by evaluating project requirements, risk profiles, and client preferences.
Explain how you have dealt with post contract cost control.
Post contract cost control is managed through regular reviews, adjustments, and reporting on financial performance.
How have you managed change on a project?
Change management involves assessing impacts, obtaining approvals, and updating project documentation.
How have you produced a cashflow for a project?
Cashflow is produced by forecasting income and expenses over the project timeline.
How have you implemented risk management?
Risk management is implemented through regular assessments, developing strategies, and monitoring risks.
How have you reported change to the risk register in cost reports?
Changes are reported by updating the risk register and including them in cost reports for review.
Explain your use of a bespoke form of contract.
A bespoke form of contract is tailored to specific project needs and requirements.
Why was this used?
It was used to address unique project circumstances and ensure clarity in obligations.
Why did you utilise a JTC minor work contract?
A JTC minor work contract was utilized for its simplicity and suitability for smaller projects.
Can you talk me through the differences between 2024 and 2016 forms?
Differences include updates to terms, clarity in obligations, and adjustments to reflect industry changes.
What were the contents of your contract documents?
Contract documents included the main agreement, schedules, and appendices detailing project specifics.
How was the contract executed and why?
The contract was executed through signatures from all parties to formalize the agreement.
How did you go about preparing the letter of intent?
I prepared the letter of intent by outlining the project scope and confirming intent to proceed.
Why did you issue a letter of intent rather than straight contract?
A letter of intent was issued to allow work to commence while finalizing contract terms.
What are the common pitfalls of intent?
Common pitfalls include ambiguity in terms and potential disputes over obligations.
How was this mitigated?
Mitigation involved clear communication and follow-up to finalize the formal contract.
