Contract Practice Flashcards
On Reading, what was your advice to the Client once the Contractor became insolvent?
I advised my Client of the following steps:
- Secure the site
- Protect / fix an materials on site
- Stop any payment (pay-less)
- Go on site and value the works complete / count materials being stored on site.
- Advise the Client they would need to inform the bondsman of the Contractor’s insovlency.
On Reading, what was your advice to the Client?
Once I inherited the project, I noticed signs that the Contractor was struggling financially. I found that the Contractor had not obtained the PB and I advised my Client of this risks of not having this in place.
The Contractor received a quote for the bond which exceeded the provisional sum value, however I advised my Client it was in their best interest to pay for this bond.
What was the reason for the delay on the project?
Contract delay. They signed up to a project that was essentially bleeding them every month and couldn’t afford to cover their costs.
Are there any RICS documents relating to insolvency?
Termination of contract, corporate
recovery and insolvency, 1st edition 2013.
Did the Client levy the bond?
Yes the Client did levy the bond.
Was the bond an On Demand bond or Conditional?
Conditional.
What conditions had to be met for the Client to claim?
The conditions included a Contractual breach where the Contractor failed to meet their contractual obligations such as completing the project. They were unable to complete the project as they had liquidated.
What was the Client entitled to for the Contractor defaulting?
10% of the Contract Sum, so £2million.
How much did the conditional performance bond cost?
£260,000
What was the provisional sum value?
£200,000
What must be in place for a Client to claim on a bond?
To enforce a performance bond, you must demonstrate that the contractor has breached the terms of the contract. You must pinpoint the specific breach or failure to meet contractual obligations. Common breaches may include delays, substandard workmanship, or failure to complete specified tasks.
What is the difference between voluntary and involuntary termination?
Voluntary - Where parties agree to terminate the Contract.
Involuntary - Outside of both parties control, such as insolvency.
What form of insolvency did the Contractor go through?
Compulsory Liquidation.
Did you research this Contractor’s financial stability?
Yes, I researched the companies accounts on Companies House and found them to be losing money year on year.
It was a very fast turnaround between inheriting the project and the Contractor becoming insolvent. I only worked on the project for around a month.
Was there any documents you prepared once the Contractor became insolvent?
I am aware that a notional final account should be issued settled and issued to the Contractor, however the Client decided to pursue this project with another QS firm so I was unable to do so.
What did you say to your Client regarding the risks of not having a performance bond?
I advised my Client that 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 insolvency.
What sort of expenses / costs can the employer include in the calculation for LD’s?
- Loss of rent or other income.
- Additional professional fees
Why is it important to value the works completed on site once the Contractor is insolvent?
To identify if any works have been overvalued and to assist with ascertaining the scope of works still remaining.
It also assists with the notional final account.
Why would you advise a Client on the use of an JCT Intermediate Contract over a JCT SBC?
It depends on the value of the scheme.
IC is designed for medium-sized projects whereas SBC is designed for larger projects.
What are some differences between JCT IC and JCT SBC?
SBC requires formal notices for extension of time claims; IC has more streamlined process.
JCT IC allows for sectional completion, whilst SBC has more detailed sectional completion provisions and procedures.
If the Client was concerned for cashflow, did you not consider a vesting agreement?
Yes, however it would have taken time to draft a legally binding vesting agreement certificate.
It would also mean additional costs in legal fees to the Client for an item that would benefit the Contractor moreso than the Client.
Whose cashflow was the Client concerned for on Chelsea Barracks Building 8?
The Contractor’s.
Can you pick 2 contract types and tell me what you understand about them?
Fixed Price and Remeasurement
Fixed Price is where the quants and rates are agreed at the point of Contract. The Contractor will take the risk on the actual quantities on site.
Remeasurement is where the rates are agreed at the point of Contract but the final quantities are subject to agreement.
Can you tell me 5 key differences between JCT and NEC?
- The programme is a contract document in NEC
- There is a timeline for agreeing variations in NEC
- NEC is written in more layman’s terms
- NEC uses early warning systems
- NEC is typically used in engineering / public sector whereas JCT is more frequently used on private sector.
What are the key things to know regarding the updates to JCT for 2024?
- Reduction of time to respond to EOT from 12 weeks to 8 weeks
- Suite of ‘target cost’ contracts.
- Updating to Article 3 to drive collaborative working
- Epidemics included under Relevant Events
- Removal of gendered language
Can you walk me through the JCT payment timeline and tell me which date mustn’t shift as per construction act?
JCT D&B
App Date
+ 7 days is due date
+5 days from due date = payment notice.
+14 days due date = payment
-5 days from payment is pay less
Payment notice can’t be amended.
Can you tell me 3 ways a client could use part of their building before PC?
1) Partial possession
2) Practical completion
3) Early access of the site
Can you walk me through the contract docs for the Chigwell project?
- JCT D&B Contract
- Schedule of Amendments
- CSA
- Preliminaries
- Employers requirements
- Contractors proposals
Which documents did you produce, and how?
Contract Particulars
Index of Contract Docs
Preliminaries
Pricing document
I produced the particulars and prelims using previous projects of a similar nature.
What documents were included in the ER’s on Chigwell?
- Pre-Con information
- Provisional sums schedule
- Area schedule
- Drawings
- Planning docs
- Third party agreements
What is the main benefit of CDP?
You transfer the risk of design over to the Contractor and benefit from their knowledge of buildability.
Can you name me other key construction contract insurances?
Public Liability
Professional Indemnity
Employers Liability
Contractor all risk
What are the different Contractor all risk options?
- Option A - New works by Contractor
- Option B - New works by Employer
- Option C - Joint names policy.
Regarding contractor insolvency, what do you think we, as construction professionals, should be considering on all projects to protect all parties?
I think it is important to be as fair and reasonable in your assessments. This means that if a Contractor has missed something in their valuation, you include it in your assessment.
With that being said, it is essential to not overvalue the works.
It is also important to be conscious of Clients transferring all of their risk onto Contractor’s and ensuring Contractor’s are aware of the risk they are accepting.
What are they advantages and disadvantages of a performance bond, and what is the alternative?
Advantages:
- Financial recovery
- No reliance on a third party (such as a parent company)
- Identifies if a Contractor may be struggling financially (based on the value of PB)
Disadvantages:
- Can be costly (1% of contract sum)
- If it is a conditional bond, there are certain conditions that need to be met for the Client to claim.
- Can be difficult to obtain in today’s market.
How do you advise your Clients pre-contract when deciding on whether to include materials off site?
Off-site materials are mechanisms to support the Contractor’s cashflow. They’re a good way to support the Contractor on large costing items, such as joinery / finishes, however it’s for negotiations with the Contractor to ascertain.
What needs to be in place when valuing Off site materials, and what should be on one?
Contractor all-risk insurance to protect against specified perils.
Vesting certificate
Off-site material bond (if any).
