Contract Practice Flashcards
When should works be valued up until under a JCT 2016 contract?
Valued to the IVD, under the JCT 2011 contract it was the due date.
When would you recommend the client obtains a collateral warranty?
- For longwearing items/packages
- Plant
- Items integral to the building and its functionality
What is are Third Party Rights?
- Allow a 3rd party to enforce specified terms of a contract in the same way as a collateral warranty without the need for a separate contract
Partial possession vs sectional completion
- Section competition is pre-planned and defined in the contract documents, partial possession is not and is a more open ended option
What are the risks associated with a LOI? (Letter of Intent)
- No warranties
- As not a formal contract cannot be found in breach
- No obligation of the contractor to complete the works
- No right to adjudication as HGCRA does not apply
What is Prime cost?
The actual cost of a variation / project plus % of OHP
What is a Provisional sum?
A financial allowance, included within the contract sum for work that is not sufficiently defined to allow the contractor to offer a fixed price
What are some Relevant Events?
Variations
Exceptionally adverse weather
Force Majeure
Deferment of possession of site by the employer
The carrying out of work by the statutory authorities
Loss or damages by the specified perils
Strike or lock out
Civil commotion or terrorism
The exercise of any statutory power after the base date by the UK government
What are some performance bonds?
Parent company guarantees – similar to performance bond backed by holding company
Performance bond – typically 10% of contract sum and used to ensure the contractor completes their obligations to a client
Retention bond – in lieu of taking retention
Advance payment bond – secures payments if the client agrees to pay start-up costs
What is time at large?
Contract completion date passed but no EOT granted
What is the process for an extension of time?
Contractor must issue a notice of delay as soon as it becomes apparent along with all substantiation and back up as soon as is practically possible
Employer must response within 12 weeks from receipt of all information
What does the HGCRA mean?
Right to be paid interim periodically or stage
Right to be informed of the amount due
Right to suspend performance for non-payment
Right to adjudication
Banning pay when paid clauses
What are the differences between an NEC and a JCT contract
NEC uses 6 main options (A-F) whereas the JCT is a suite of contracts
NEC is written in simple (laymans) terms whereas the JCT uses legal wording
NEC does not mention a QS, only a PM
NEC uses compensation events, JCT uses variations
Programme forms part of the NEC contract document
Bill rates are binding within a JCT contract for variations
Variation vs Compensation event – money and time dealt with separately under JCT
A – similar to traditional
F – Similar to management contracting
What should be included in a LOI to ensure it is enforceable?
The Parties The works The price (if agreed) Statement of the intention of the parties to enter into and be bound by a formal contract Date for possession and completion Procedure for calculating payments Insurances provided Maximum expenditure limit Confirmation that the contract created by the LOI will end upon execution of the main contract
Does a performance bond remain the same throughout the project?
Usually reduces to 50% of the sum at Completion
What are the negatives of a LOI?
Can put the client in a weak position during contract negotiation
May lead to complacency
Less robust than a contract
What is a collateral warranty?
Collateral warranties are used as a supporting document to a primary contract where an agreement needs to be put in place with a third party outside of the primary contract.
Sometimes an architect, contractor, or sub-contractor will need to warrant to a funder, tenant or purchaser that it has fulfilled its duties under a building contract.
It can also provide the third-party contractual rights enabling it to claim for losses which would not otherwise be recoverable.
Creates a direct contractual link between parties not linked within the building contract i.e. tenant or funder.
What are the 2 options for valuing variations?
Use the valuation rules
Schedule 2 quotation
What are the difference between the JCT 2011 and 2016 contracts?
Introduced updated CDM regs – CDM Co-Ordinator changed to principle designer
Government Payment Charter - First payment date is now specified in the contract
Monthly Payment cycle continues to operate until the final account is agreed and certified
L&E – EA must respond to initial claims with 28 days and 14 days of subsequent updates
Update in payment terms – IVD 7 days before due date / due date is 7 days after IV recieved
What is novation?
The transfer of benefits and burden in a contract (design team)
The designer is engaged under the same terms by the contractor as they were by the client
Contractor becomes liable for all design carried out by the designers even pre-novation. They have no liability to the client unless collateral warranties are used
What is the difference between a JCT Minor works and D&B contract?
Minor works
Contract Administrator
Does not refer to sections or sectional completion
D&B –
Employers Agent
Sections and sectional completion, stage payment allowed for
Retention 3% in DB and 5% in MW
What section of the JCT D&B contract enables the EA to request a quotation for works prior to instruction?
A Schedule 2 (of the conditions) quotation however contractor not obliged to provide it.
What’s the danger with Free issuing risk material?
Could be damaged by the contractor
Risk is carried by the employer if cause a delay
How long should be allowed for a tender period?
JCT Practice note 2017 –
minimum of 28 days for simple jobs w/ no design
3 – 4 months for more complex design projects
What are the types of contract breach?
Material Breach – an event that allows the other party to terminate the contract citing the specified contract obligations
Non-Material Breach – allows for the correction of the breach under the terms of the contract
Who serves the payment notice for a valuation?
Project Manager, QS serves a payment recommendation
What are some amendments in the Soho Place contract?
Employers Requirements take priority over Contractors Proposals
That the risk of LUL / TFL lies with contractor
Removal of arbitration
Supply chain charter compulsory
Applies a duty of care and requirement to make good any damage to highways, paths, pipes and other properties during construction
Offers a bonus for achieving Practical Completion early (daily rate)
What is the difference between a defined and an undefined Provisional sum?
Defined – an allowance accounting for programming, planning and prelims
Undefined – entitles the contractor to be paid additional prelims and an EOT if the PS work causes a delay to completion
What must happen at practical completion?
Insurance passes to the client
Security passes to the client
Half of the retention released
What is the time frame for a JCT D&B Valuation?
Application for payment / Interim Valuation Date – stated in contract
Due Date – 7 days after IVD
Payment certificate – 5 days from the due date
Payless notice – issued 5 days before date of payment if needed
Payment date – 14 days from the due date
What does the LDEDCA mean?
Applies to written and oral contracts
Adjudication – not allowed to define who bears the cost of adjudication
Adjudication – adjudicators have the right to correct decisions within 5 days
Payment dates must be defined in the contract
Client required to issue a pay less notice – previously only had to withhold notice
Suspension of work for non-payment
Why would you use a DoV instead of simply instructing the change as a variation?
Significant degree of change included
Could reset the PC date and any Liquidated damages
What is a Deed of Variation?
A method of amending or varying an existing contract to reflect renegotiated terms or a change in circumstances (large design changes)
What are the fluctuation provisions within a JCT contract?
Option A – Adjustments for changes in statutory contributions, taxes & levees
Option B – Adjustment for changes in labour, materials and statutory costs
Option C – Same adjustments of Option B but determined by a formula
What are the insurances allowed for in a JCT contract?
Public Liability insurance – injury to 3rd parties or damage caused to 3rd parties by the works
Employers Liability insurance – covers injuries to employees while at work
Insurance of the Works –
Option A – New build all risk joint name policy maintained by the contractor
Option B – New build and existing all risk joint name policy maintained by the employer
Option C – Existing building and refurbishment all risk joint name policy maintained by the employer
All Risk insurance – physical loss or damage to work executed or site materials
Professional Indemnity Insurance – covers any legal fees and compensation for any mistakes made whilst providing professional services
Terrorism Insurance
Performance Bond – protects client should the contractor fail to fulfil contractual duties
How do clients ensure that future tenants / owners are protected against defective work?
Collateral Warranties
Third Party Rights
What is the ‘But For’ test?
How to trace the effects of heads of claim through the contractors L&E claim
‘But for’ this occurrence represented by this head of claim, would this cost still have been incurred
What are the Relevant Matters listed under a JCT contract
Variations
Instructions
Antiquities discovered
Delays in approval / permission for the development control requirement necessary for the works to be carried out
Any impediment, prevention or default by the employer
What is an advance payment bond?
Used when the employer has agreed to provide an advance payment to the contractor
If the employer is not able to recover advance payment from the contractor, the surety becomes liable to reimburse the employer
What 3 formulas could be used when calculating L&E?
Hudson
Emden
Eichleay
What is a Relevant Matter?
An event which entitles the contractor to make an application for Loss and Expense
What happens if time is unspecified in the LOI?
A reasonable time should be implied in relation to the circumstances that existed at the time the contract was formed
What is a comfort letter?
Expressed a party’s intention to act in a particular way at the time of issuing the letter
Does not oblige the party to act as described
Author would only be liable if the expressed intent was not held at the date of issue
Does not create a contract but can impose obligations related to payment for works undertaken
What are the Positives of Bespoke contracts
Contracts can be made simpler
Contracts can be made easier to administer
Risk can be allocated equitably
Contract can include incentives for the contractor to complete under programme or cost
