Contract Practice Flashcards
1
Q
What do you understand by the term VE?
A
Value Engineering
An organised approach aimed at providing the necessary functions at the lowest cost, without detrimental affect to quality, reliability, performance or delivery
2
Q
What do you understand by the term VM?
A
Value Management: Concerned with making explicit what value means to a client.
Concerned with early stages of design e.g. to ensure the need to build is verified.
VM aims to ensure that the right decisions are made the first time.
VE used to correct decisions when things go wrong
3
Q
What is value, what does value mean?
A
Complex concept, Measure of worth, a relative measure of uselfulness of something in relation to the cost paid for it.
4
Q
When does the VE/VM process occur?
A
Concept– VM Workshop 1
Feasibility– VM Workshop 2
Scheme design– VE
Detailed Design– VE
5
Q
What happens during the VE process?
A
Design team brought together: QS, Arch, Eng, Contractor
Pool expertise, guided by a team leader
Higher chance of identifying and solving problems at an earlier stage– better value for money
Not a cost cutting exercise, this leads to reduced quality and value.
6
Q
What are the phases of the VE process?
A
Information phase: Functional analysis of component: FAST diagram
Speculation phase: creative thinking techniques: BRAIN STORMING
Evaluation Phase: Evaluate solutions (Cost and Feasibility) List of Options
Development Phase: Detailed development of surviving ideas and interfaces: LCC techniques
Presentation Phase: Best solution identified and recommendation made: Written/ oral report.
7
Q
What is a VE workshop?
A
Can be 40hr (working week) workshop or series of mini workshops or 2 day workshops.
40hr: Entire team/ neutral venue/ intensively work on design proposals
Mini: facilitator joins DT at briefing stage & remains throughout.
2 day: Most common in UK
NOTE: Detailed development work better tackled outside workshop
8
Q
When does VE occur?
A
Stage C– CONCEPT (NOTE LATEST RIBA PLAN OF WORK 2007)
Stage D– Design Development
In practice VE studies are commissioned when things go wrong
Limits ability to make better and more effective design solutions
9
Q
What are the limitations of VE?
A
Assumes all parties have a common understanding of functions being provided.
Assumes all feasible design alternatives provide same level of functional performance
THEREFORE assessed on basis of cost alone.
10
Q
Why is VM needed?
A
Aim is to reach agreement of exactly what the nature of the problem is.
A shared understanding of what is being sought: Design objectives.
Construction clients are different groups with different priorities: If agreements are not reached on exact requirements then chances of project perceived as a failure increase.
11
Q
Can you explain to me the VM process?
A
Workshops held where Client must make important decisions
VM 1– concept: The need to build, clear objectives set that are structured in a value tree
VM2– Feasibility: Outline brief complete, outline brief costed.
Review schemes and score against weighted objectives
Assess capital cost to determine options for best value for money.
12
Q
What is a value tree?
A
BRAINSTORM: Everything that is required to ensure a certain level of value is obtained.
Primary objective––– sub–objective––– sub–sub objective
Members need to agree that the value tree is a fair representation of design objectives.
Weights applied to each branch of the tree.
13
Q
Can you give me some benefits of VM?
A
1) Need for new investment is always verified and project goals are clearly defined.
2) Objectives and decisions are openly discussed and explicitly stated.
3) The Evaluation and re–evaluation frameworks are structured, rigourous and rational
4) Decisions are supported by data and made on the basis of defined performance criteria
5) Accountability is increased
6) Alternative solutions are always sought and considered
7) Business decisions are made with greater confidence
8) Potential for increasing value for money
9) Communication, understanding and teamwork can be improved and disseminated throughout the organisation.
10) Participation by all key stakeholders increases the likelihood of satisfaction with the end product.
11) Opportunities for long term profitability and continuous improvement are enhanced.
14
Q
What are extensions of time? What are the relevant clauses in JCT DB 16?
A
Adjusts the completion date and relieves the contractor’s liability to pay liquidated damages for the period of the extension
Clause 2.23
15
Q
What are liquidated damages? What is the relevant clause in JCT DB 11?
A
A genuine pre–estimate of the likely loss incurred by the employer should the completion date not be met
Clause 2.29
16
Q
What must be in place before LDs can be deducted?
A
A non completion certificate
A withholding notice
17
Q
What if the client tells you the LDs are to be £100,000 per week?
A
Check that they do believe that they are a genuine pre–estimate of likely loss
Explain the dangers that they might be construed to be a penalty
18
Q
What if the liquidated damages are construed to be a penalty?
A
They will be unenforceable
The employer will have to sue for any actual direct loss that can be proved
19
Q
What are the benefits of liquidated damages to the contractor?
A
The contractor knows the consequences of delay from the outset.
20
Q
What if the employer actually suffered no loss / damage?
A
It doesn’t matter
They can still deduct the liquidated damages stated in the contract
21
Q
What are the benefits of being able to grant an extension of time?
A
It relieves the contractor’s liability for liquidated damages for a delay that they did not cause
It enables another completion date to be set, which maintains the employer’s ability to take liquidated damages if another delay occurs
22
Q
What happens when ‘time is at large’?
A
There is no set completion date
The contractor only has the obligation to complete the works in a ‘reasonable time’
No liquidated damages – cannot be claimed because no date to take them from
The employer has to prove that the contractor had not completed in a reasonable time
23
Q
What is the procedure for claiming an extension of time?
A
As soon as it is reasonable apparent that a delay is or is likely to occur they should write to the architect to notify them
This should identify the cause of the delay and if any of the causes are a Relevant Event, and give an indication of the extent of the likely delay
They should give any other further information requested by the architect
The architect must notify the contractor in writing of their decision
24
Q
What are the time periods related to granting extensions of time?
A
The architect has 12 weeks from notification to decide on an extension of time
If there is less than 12 weeks to PC, they should endeavour to decide before PC
The architect has up to 12 weeks after PC to review any previous EOTs previously given or to award further EOTs
25
What are Relevant Events, how many are there?
13 events that entitle the contractor to an extension of time
26
What are the relevant events?
In DB2011 they are set out in Clause 2.26
1) Variations
2) Instructions
3) Execution of an approx quantity that is not a reasonably accurate forecast
4) Deferment of possession of the site
5) Suspension by the contractor for non–payment
6) The carrying out of work by statutory authorities
7) Impediment, prevention or default by the employer
8) Loss or damages occasioned by the Specified Perils (fire, flood etc)
9) Exceptionally adverse weather conditions
10) Strike or lock out
11) Civil commotion or terrorism
12) The exercise of any statutory power after the base date by the UK gov
13) Force majeure
27
What happens if there are several 'competing' cayuses of delay?
If work is delayed due to two or more competing causes of delay, one the fault of the contractor and one the fault of the employer, is there an entitlement to an EOT/loss and expense?
No clear rule on which delay takes precedence where a number of delays occur
Each case has to be judged on its merits
Have to make efforts to identify all causes and effects
28
Who owns programme float?
No clear rule – generally it belongs to the contractor
The contractor normally includes float in his programme to accommodate his risk items and also provide time for correcting mistakes
THEREFORE the actual impact of the delay should be considered
When there is a delay at the middle of the project, would you consider the actual delay or the delay for the whole period?
The actual delay caused by the item in question.
It is not fair to offset against any float time the contractor may have built up through good progress.
29
What is a pre–construction services agreement?
Documents services and T&C's that contractor is to perform before entering into the building contract.
30
When are they usually used?
Two stage tendering, signed after first stage and cover up to end of second stage.
Often on D&B.
31
Why are they used?
Develops a lump sum price, enables it to be determined and the main contract entered into
32
What happens in Stage One?
Employer issues outline information (including scope of services in preliminaries) to potential contractors.
33
What do the contractors include in their tender returns?
Profit, overheads, preliminaries, proposals on how they intend to execute the project, fee for second stage services
34
What tasks might the Contractor be asked to perform in the second stage?
Finalise the design
Advise on methods of construction
Obtain subby prices for packages (open book basis)
Evaluate tender returns and agree selection with the employer
35
What are the advantages of this two stage approach?
Contractor advice to the employer
Early input should reduce the disputes and problems arising during construction
Design and tendering of packages overlaps – quicker
The contractor also benefits from getting paid earlier and becoming part of the DT
36
What are the disadvantages?
Contractor no longer in competition – costs rise
Longer involvement without the main contract signed, weaker contractor’s bargaining position
Contractor integration means employer becomes reluctant to dismiss them if fails to perform or negotiate on price/programme
Subbies tend to be bigger and more prominent = more expensive (diff. under single stage)
Generally only 80–85% fixed pricing at contract execution, prov. sums = less price certainty than under single stage
37
What should be taken into account in the wording of a PCSA?
Does NOT commit to the building contract
Ensure obliged to pay for documented services only and nothing else
State employers discretion to appoint the contractor at the end of the second stage or not
State that if they do not appoint the contractor, the employer has no liability for any loss of project, contract or other opportunity
38
What might the pitfalls be?
It is not uncommon for the pre–construction services to include enabling works and surveyors etc
More work carried out before the building contract T&Cs are executed the weaker the employer’s negotiating position becomes
If the contractor is not selected to go further, any new contractor will be reluctant to adopt responsibility for the previous contractor’s work – split liabilities
39
Where would you recommend the use of a pre–construction services agreement?
Long pre–construction period
If the contractor integration into the design team, and providing advice is needed
40
What do you need to be careful about?
Explicit agreement on what services to be provided and how paid
How to disengage if not satisfied (procedures)
Careful not to encourage a lot of work to commence before the building contract is signed (dis–incentivises) (over–commits)
41
What other forms of procurement could be used that may safeguard the employer better?
Early start before final design – consider construction management rather than trying to shoehorn a traditional or D&B contract into a programme where it does not fit
42
Is there a standard form PCSA that you might recommend the use of?
Traditionally, no contractor involvement ahead of contract execution and start on site
Traditionally bespoke documents – drafted by lawyers for the Employer
Now JCT Pre–Construction Services Agreement: General Contractor 2011: (PCSA)
43
What are the three ways that benefits can be transferred under JCT contracts?
1) Collateral warranties
2) Third party rights
3) Assignment
44
What are collateral warranties?
Create contractual relationships between parties where there would otherwise not have been any. They are alongside another agreement
45
Why are they used?
Privity of contract means the rights and obligations under a contract can only be enforced by a party to that contract, therefore
collateral warranties give remedies to parties that otherwise would not have them.
46
Who might want a collateral warranty?
Any third party with a financial stake in a project but not party to the main contract
E.g. funding institution, house buyers
Employer may want a collateral warranty with key subbies (M&E) or suppliers, else if main contractor goes bust no contractual link for redress in case of defective workmanship etc
47
How are they requested?
They should be notified to the tenderers at the time of tender
Part 2 7C and D is where the number and nature of the collateral warranties should be stated
48
What are the common clauses / terms in collateral warranties?
Obligations should mirror main agreement – therefore a breach of the main agreement would also be in breach of the warranty
Limitation of liability
Reasonable skill and care v fitness for purpose
Requirements for PI insurance
Assignment rights
Novation rights
49
Name some standard forms of collateral warranty that may be used?
CWa/F – JCT standard form of collateral warranty for a funder
CWa/P&T – JCT standard form of collateral warranty for a future purchaser or tenant
50
How has the contract (rights of third parties) act changed the situations regarding rights under contracts?
It has significantly changed the traditional principle of privity of contract, whereby obligations can only be enforced by the parties to a contract
51
What contracts does the act apply to?
All contracts made after the 11 May 2000
52
What has been the impact of the Act?
Initially the response was suspicion – new – not much case law – not tried and tested etc
BUT JCT now includes provisions to allow third party rights to be granted
Evidence that they are starting to be used in the industry
53
How can third party rights be included under JCT contracts? (DOUBLE CHECK THIS DETAIL)
Fill in Part 2 of the contract particulars – sections 7A and 7B
The individual / group that has a right to enforce has to be ‘expressly’ named or described
The terms that they can enforce should also be listed
The third party identified can use any raise any defence or set off that the contracting party could
54
Why might third party rights be used instead of collateral warranties?
If a lot of warranties are required it involves a lot of administration and cost – easier for third party rights
55
What is assignment?
Where the rights and benefits of one contractual party are transferred to a third party
56
Can benefits be assigned under JCT contracts?
The standard position (clause 7.1) is that assignment of rights under the contract is totally excluded
BUT optional clause 7.2 enables assignment to be permitted
57
What is the standard commercial position regarding assignment?
It is standard to allow assignment of rights twice without consent
The assignment should be notified in writing to the other party
58
What is novation and how does this differ from assignment?
A new contract that transfers the rights and obligations of one contractual party to a new third party – assignment is only rights
59
Give a common example of assignment and novation
Assignment of the rights under a collateral warranty to a different tenant / purchaser
Novation of the design team under a design and build contract
60
What is the key issue after a design team has been novated?
Whether the new party has the right to take action against the novated party for breaches that occurred before novation
61
If the contractor took full responsibility for the design what would they want?
They would want the ability to take action against the consultants for breaches before novation
62
How does novation affect the employer’s rights?
They lose all contractual relations with the novated party and therefore the right to take action for a breach – it is therefore common for there to be a collateral warranty between the employer and novated party
63
What is a limitation clause, give some examples?
Clauses that limit a party’s liability for loss.
Eg's:
Limitation to a fixed sum
Limitation to the extent of PI insurance
Exclusion of consequential loss
Limitation to loss recoverable from a third party
Limitation to responsibility – net contribution clause
64
What is a net contribution clause?
Clause that limits a party’s liability to the proportion of loss that they are responsible for
65
How can the employer potentially lose out?
They would have to sue each contributing party separately to reclaim their total loss
If one party is insolvent they lose out on that money
66
What act is relevant?
Unfair Contract Terms Act 1977
This limits the extent that a party can avoid liability for breach of duty
Cannot avoid liability for death / personal injury
All other limits have to be ‘reasonable’
67
What is the date for completion?
The date fixed and stated in the contract particulars
68
How does this differ from the completion date?
This is the date for completion or any other date that is subsequently fixed (i.e. after an EOT)
69
What does it mean when ‘time is at large’?
There is no fixed completion date
| The contractor must only complete the works in a reasonable time
70
What is practical completion?
When the employer takes back possession of the works
71
What is sectional completion?
The completion and handover of the works to the employer in agreed stages
72
Do the works have to be totally completed before practical / sectional completion is achieved?
Practical completion is a vague concept
It is not defined in JCT
It is reliant on the architect’s opinion that the works are complete
It should not be conditional
It is common practice for PC to be granted when the works are substantially complete – i.e. there may be minor defects or omissions BUT nothing that would prevent the employer taking occupation
73
Can the PC certificate be rescinded once issued?
No
74
What is the recourse if the contractor disagrees with the architect that the works are not completed?
Adjudication
75
What are the consequences of practical / sectional completion?
Half of the retention is released
The Rectification Period begins
The contractor’s responsibility for insuring the works (if applicable) ends
Contractor’s liability for liquidated damages ends
The employer is now responsible for any damages to the works
76
What is partial possession?
Where the employer requests and the contractor consents to the employer taking possession of the works / part of the works before the date for practical / sectional completion?
77
What is the difference between partial possession and sectional completion?
Sectional completion is a contractual obligation to hand over the section at the stated date, partial possession relies on the contractor’s consent
78
What does the architect have to do at partial possession?
Issue to a written statement to the contractor showing the relevant part and stating relevant date
79
What are the consequences of partial possession?
For the relevant part practical completion is deemed to have occurred on the relevant date
Therefore the same consequences follow
In addition, the liquidated damages for the works / that section are reduced by the proportion that the value of the relevant part relates to the contract / section sum
80
What is the rectification period?
The contractor has an obligation to make good any defects, shrinkages or other faults that arise during this period of time
81
How long is it?
The default position is 6 months
| BUT it is common to amend this to 12 months – so the building is observed in all seasons
82
How can the architect get the contractor to fix the defects that arise during this period?
No later than 14 days after the end of the Rectification Period the architect must issue a written statement to the contractor detailed all of the defects that have arisen and need to be made good
83
How quickly does the contractor have to fix the defects?
Within a reasonable time
84
Can the architect get the contractor to fix defects faster or within the Rectification Period?
Yes, they can issue an AI to get them to fix ‘forthwith’ e.g. if serious defect – leaking pipe etc that cannot be left until the end of the Rectification Period
85
What is the certificate of making good?
Issued by the architect to certify that all of the defects that have been required to be made good by the contractor have been so
86
What are the consequences of the issue of the certificate of making good?
The remaining retention is released
87
What is a non–completion certificate?
Issued by the architect to certify that the works / section have not been completed by the relevant completion date
88
What are the consequences of a non–completion certificate?
The employer has the right to withhold liquidated damages, as long as a withholding notice has been given
89
What are the consequences of a non–completion certificate?
```
Interim certificate
Practical completion / sectional completion certificate
Non completion certificate
Certification of Making Good
Final Certificate
```
90
What is a firm price contract?
Where adjustments of the contract sum are limited to changes in statutory contributions, taxes and levies
91
What is a fluctuating price contract?
Where the contract sum is adjusted for changes in the costs of materials and labour as well as statutory contributions, taxes and levies
92
When is the base date set?
Usually 10 days before the tender return date
93
Where is fluctuations dealt with under JCT 05?
Clauses 4.21 and 4.22 and Schedule 7
94
What are the fluctuations options under JCT 05?
Option A: adjustment for changes in statutory contributions, levies and taxes (e.g. Nat Ins)
Option B: adjustment for changes in labour, materials and statutory costs
Option C: adjustment for changes in labour, materials and statutory costs determined by formula
95
What is excluded from labour fluctuations under Option B?
Non productive overtime
Wage costs that the contractor pays above nationally negotiated wage rates
96
Are fluctuations after the date of completion recoverable?
Yes, but the level of materials / labour / statutory costs is frozen at the date completion should have occurred
97
What is the procedure for claiming and paying fluctuations?
The contractor should notify the architect in writing when they feel fluctuations are due
Should provide information and calculations if requested by the architect
Once ascertained the amounts should be added to the next interim certificate
98
What is excluded from fluctuations? Why?
Dayworks
Schedule 2 quotations
Loss and expense
They are all based on current rates and prices
99
How does the formula option work?
It does NOT assess actual change – designed to compensate parties for losses incurred
‘Formula Rates’ are set out in the contract and applied by use of published indices
Indices measure changes in costs of building work in 60 different work categories
An index for the balance of adjustable work – doesn’t fit in a category – e.g. prelims
Another index for specialist work
100
How is retention applied to amounts calculated from the fluctuations options?
Amounts ascertained under Option A and B are NOT subject to retention
Amounts under Option C ARE subject to retention
101
When would you advise fluctuations options B and C to be used?
Long contract period, contractor cannot accurately forecast changes at time of tender
It benefits the employer by preventing the contractor pricing in a lot of risk
AND should reduce the chance of the contractor going insolvent if prices rise a lot
Also used if there is expectations that the market will deteriorate and prices will fall
102
What is termination?
Where the contract works are lawfully stopped under the contract
103
Where is this dealt with in JCT SBC 05?
Section 8
104
What three types of termination does it deal with?
1) Termination by the employer
2) Termination by the contractor
3) Termination by either party
105
What clauses deal with termination by the employer?
Clauses 8.4 to 8.8
106
What are the 7 grounds for which the employer can terminate the contractor’s employment?
1) Suspending work without reasonable cause
2) Fails to proceed regularly and diligently
3) Fails to comply with written instr. for rem. of work, goods, mats. not in accordance
4) Unauthorised assignment or subcontracting
5) Failure to comply with CDM regulations
6) Guilty of corrupt practices in contracts
7) Insolvency
107
What does ‘regularly and diligently’ mean in practice?
Contractor should plan the work, lead and manage the workforce, provide sufficient and proper material and labour resources, employ competent tradesmen so that the works and obligations are carried out to an acceptable standard
108
What must procedures must be followed?
1) For items 1 to 5 a written notice must be given to the contractor, specifying the default(s)
2a) Contractor has 14 days to stop the default
2b) If not, employer has 10 more days to issue a second notice terminating their employment
3) For corruption and insolvency only final notice has to be issued – not the warning one
109
How must the notices be delivered?
Hand delivery, registered post or recorded delivery
110
What if they do not terminate this time, but the contractor subsequently repeats a default?
No warning notice needs to be given to terminate, just the second written notice
111
What are the consequences of a repeated default by the contractor?
1) Payment provisions inc. retention release, end
2) Others to complete and use contractor’s temp. buildings, plant, materials etc
3) Contractor removes all equipment (if req.)
4) Contractor provides 2x CDP documents
5) Contractor assigns sub & supply contracts FOC within 14 days of termination
6) The statement or account is issued
112
When should the statement be issued?
Within a reasonable time from the completion of the works and the completion of making good
113
What does the account set out?
The expense incurred by the employer in completing the works, inc direct loss or damage
The total the contractor would have earned had they completed the works
The total of any previous payments to the contractor in interim certificates
The difference is a debt payable
114
What if, 6 months after the date of termination, the employer has decided not to have the works completed?
Inform the contractor in writing
In a reasonable time a statement should be issued which states:
The total value of work executed at the date of termination
The expense incurred by the employer due to termination, inc direct loss or damage
The total amounts paid to the contractor
The difference is a debt payable
115
Therefore, if the employer terminates, what is the contractor entitled to?
The difference if any, between what the contractor would have earned had they completed the contract and what it cost the employer to complete the works
116
What clauses deal with termination by the contractor?
Clauses 8.9 and 8.10
117
What are the 6 grounds for which the contractor can terminate their employment?
1) Failure to pay properly within the time periods
2) Interference by emp. in the issue of any cert.
3) Suspension of works for a continuous period due to prevention or default by the employer
4) Unauthorised assignment by the employer
5) Failure of emp. to comply with CDM regs
6) Insolvency of the employer
118
What is the default continuous period of suspension and where is this stated?
The default is two months, it is stated in the contract particulars
119
What procedures must be followed?
Contractor issues a written notice stating the default (except insolvency)
Emp. has 14 days to remedy, if not cont. has 10 days to issue 2nd written termination notice
If termination does not occur this time, any repetition of default enables the contractor to terminate immediately with a written notice
For insolvency, one written termination notice
120
What are the consequences of this?
The contractor has to:
Remove all equipment from the site
Give the employer 2 copies of any CDP documents
Prepare a statement or account
121
How soon should this account be prepared by the contractor?
As soon as is reasonably practicable after termination
122
What items does the account contain?
Value of the work properly executed at the time of termination
Any loss or expense due to the contractor under the contract
The cost of removal from site
The cost of any materials already ordered that the contractor is obliged to pay for
Any loss or damage suffered by the contractor due to termination
The amount of previous payments paid under interim certificates
The difference is a debt payable
123
How soon does the difference have to be paid by the employer?
Within 28 days and it is NOT subject to retention
124
What clauses deal with termination by either party?
Clause 8.11
125
When does this clause apply?
When the whole or the substantial part of the works is suspended for the continuous period stated in the contract particulars due to one of the relevant circumstances
126
What are the relevant circumstances?
Force majeure
AIs relating to the default or negligence of statutory undertakers
Civil commotion or terrorism
Loss or damage caused by the Specified Perils (where the contractor is not negligent)
The exercise of a statutory power by the UK gov directly affecting the works
127
What procedures must be followed?
At the expiry of the stated continuous period, either party may issue a written notice to the other party stating that they intend to terminate in 7 days
If the suspension is still occurring after 7 days, they should issue a further written notice to terminate
128
What are the consequences of this?
The contractor has to remove all materials and equipment from the site and
Give the employer 2 copies of any CDP documents
An account must be prepared
129
Who prepares the account?
The employer chooses
Either the contractor can be asked to prepare the account
Or, the employer can require the contractor to provide all necessary information to enable them to prepare the account within 2 months of the date of termination
130
How long does the employer have if they choose to prepare it?
The employer must prepare it with ‘reasonable dispatch’ and within 3 months from the date that the contractor provided the information
i.e. the account must be prepared by the employer within 5 months of the date of termination
131
What items does the account contain?
Value of the work properly executed at the time of termination
Any loss or expense due to the contractor under the contract
The cost of removal from site
The cost of any materials already ordered that the contractor is obliged to pay for
Any loss or damage suffered by the contractor due to termination ONLY if the termination was due to a Specified Peril caused by the negligence / act of the employer or an employer’s person
The amount of previous payments paid under interim certificates
The difference is a debt payable
132
How soon does the difference have to be paid by the employer?
Within 28 days and it is NOT subject to retention
133
What is the common law position regarding suspension?
One party is not allowed to suspend its contractual obligations because another party is in breach of the contract
134
How has this been altered for construction contracts?
By statute – the Housing Grants, Regeneration and Construction Act, 1996
135
What does this enable the contractor to suspend for?
It enables the contractor to suspend performance of their contractual obligations if they have not received full payments of amounts due by the final date, without a withholding notice
136
What are the procedures?
After the final date for payment they must write to the architect stating their intention to suspend and the grounds for doing so
If they have not been paid in full within 7 days, they can suspend until they are paid in full
137
What are they given by the architect?
An extension of time for the period of suspension
138
What are the main sources of guarantee that can be sought in construction?
Bond
Parent company guarantee
139
What is a bond?
An arrangement where a contractual duty owed by one party to another is backed up by a third party
140
What form must a bond be in?
It must be in writing, it is common for it to be a deed
It will contain a duration and a financial limit
141
Who normally provides a bond?
A financial institution e.g. a bank for a premium
142
What is a parent company guarantee?
An arrangement where the contractual performance of one company in a corporate group is underwritten by the other members of that corporate group
143
What is an on demand bond?
Where the beneficiary can call upon the surety for payment whether or not there has been a default under the main contract, as long as the call is not fraudulent
144
What is a conditional bond?
Where the surety will only pay out if certain specified conditions have been met e.g. a default under the main contract
145
What are the disadvantages of on demand bonds?
1) Negatively affects the contractor’s cashflow
2) Added to the contract sum so the employer pays for something that is not really necessary
3) There is therefore no disincentive to call on it
146
What are the different types of bond that may be provided?
1) Performance bond
2) Retention bond
3) Materials off site bond
4) Advance payment bond
5) Tender bond
6) Payment bond
147
Which is the most common type in the construction industry? What does this do?
Performance bond
Guarantees the satisfactory performance of one party’s contractual obligations
148
What is the standard value of a performance bond?
10% of the contract value, the premium for taking out the bond is added to the contract sum
149
How can the employer call for payment?
They have to prove that the contractor has defaulted in their obligations under the main contract and that loss has been suffered
150
What is the purpose of a tender bond?
1) Covers the party inviting the tender if the lowest tenderer refuses to enter into a contract
2) Can be important if the inviting party is in turn tendering for work on the basis of that tender
3) To prevent idle tendering – incentive to put in a serious price
151
What is the standard value?
1–5% of the tender sum
152
What is the purpose of a retention bond?
Instead of deducting retention from each interim payment
153
What is the value of a retention bond?
Should be the same as if retention were deducted e.g. 3% of the contract sum
154
What is the purpose of an advance payment bond?
Where the contractor has significant early costs e.g. purchasing high–value plant, equipment or materials specifically for the project. The bond may be required to secure the payment against default by the contractor.
155
What is the purpose of a materials off site bond?
Covers the employer against loss or damage to materials already paid for (through interim valuations) before the materials are delivered to site
156
What standard forms of bond does the JCT standard form provide? Where?
Retention bond
Advance payment bond
Materials off site bond
Schedule 6
157
What are the arguments against requesting bonds?
1) Shouldn’t really be needed – tenderer selection process should ensure only reliable and capable contractors are selected
2) Unnecessary premiums are added to the contract sum, which are unlikely to be called on
3) If the developer is a regular builder this may add a lot of money to their project costs
158
Where might bonds be appropriate?
1) If the contractor is new or unapproved
2) To protect the interests of a ‘one off’ developer
3) Where a bond is thought appropriate to the risks of the project
159
What signs might be there that a Contractor had financial difficulty?
Industry rumours
Over–valued applications
Less labour on site
Slow progress of works
160
How might a cashflow show the problem?
If monthly payment applications were way above pre–estimated cashflow
161
What could have been done to prevent contractor insolvency at tender stage?
Thoroughly check financial accounts.
| Check for front loading.
162
During your interim valuation, a subcontractor told you that the Contractor is in financial difficulties. What do you do?
Value the works carefully (as normal).
Check materials on site are for the job in question.
Arranging a meeting between and contractor to discuss the situation.
163
Contractor has gone into administration receivership, what do you do?
Go to site, secure site and materials
Get in touch with administrative receiver
Withhold any payments
Start contacting suppliers and sub–contractors to try and continue works
Keep record of all time spent.
164
The interim payment was due say on the 14th and the client did not make the payment on time and the Contractor went bust on the 16th. Would you advise the client to make the payment?
? Check this out
Employer is not obliged to make any further payments or release retention monies.
165
What is insolvency?
Insolvency is concerned with the inability to pay debts.
| Debenture: A security given to lenders against borrowings.
166
What causes insolvency?
Minimum amount of capital needed to start a contracting business, fragile arrangements created, also boom bust cycle of construction industry.
What are the consequences of insolvency?
Cost, quality and duration can all be detrimentally affected.
Solvency of sub–contract and suppliers can also be damaged
What checks should be made pre–contract?
Ensure contractors, S/Cs are financially stable
Bank refs, credit checking agencies, companies house, annual accounts, previous references.
Prudent to make formal and informal checks
167
What are the different types of insolvency?
1) Liquidation– voluntary and compulsory
2) Administrative Receivership– not used much any more
3) Administrative Order– debenture holders can use
4) Voluntary arrangement.
168
What is liquidation?
Winding up of a company because it cannot pay its debts
Trading ceases, assets are collected and used to offset liabilities
Two tests: cash flow: cannot pay debts as they become due.
Balance sheet: liabilities are higher than assets.
169
Where does the client fall in relation to receiving monies after liquidation?
```
Very low on the scale!
Fixed charge holders– Bank
Liquidator Fees and expenses
Preferential creditors: pensions, employees pay
Floating charge holders
Unsecured creditors: CLIENTS
```
170
What is an administration order?
Introduced in Insolvency act 1986 and 2000.
Freezes affairs of company to allow breathing space.
3 ways administrator appointed:
1. Appointment by company directors
2. Court appointment
3. Appointment by the holder of a qualifying charge.
Process: 8 weeks after Admin… must submit proposals to creditors and company members
10 weeks after Admin…must hold initial creditors meeting
1 year after Admin… this is the time limit although court order or creditors can extend.
171
What is the position of the client in liquidation/ administration?
Unsecured creditor, little if any money left.
Enterprise act requires funds permitting, liquidator or administrator reserve a portion of realised assets for the benefit of unsecured creditors.
172
What section & clause deals with insolvency in JCT SBC 2005?
Section 8
Clause 8.5
173
Can the employer terminate if the contractor goes insolvent?
If yes, what is the procedure?
Yes
Written notice required, delivered by hand, special or recorded delivery.
Termination effective with immediate effect upon contractor receiving notice.
Contractors obligations to carry out and complete the works is suspended.
174
Does the employer have to make further payments?
Employer is not obliged to make any further payments or release retention monies.
If interim certificate has recently been issued it is advised to issue withholding notice.
175
What happens if the employer goes insolvent?
Clause 8.10.1
Contractor can terminate his employment under the contract.
Contractor can remove temp buildings, plant, and materials from site.
Provide employer with 2 copies of CDP documents
Prepare a final account including all direct loss and expense, damage resulting from termination.
Not likely to get any money because contractor is unsecured creditor of employer.
176
What about retention monies?
Clause 4.18.3 requires the employer to place retention monies in a separate bank account if requested by the contractor.
In the event of employer insolvency the contractor has a right to that money.
In the absence of a separate bank account, case law suggests that the contractor may lose this right.
177
What action should be taken on suspicion of contractor insolvency?
Interim valuations carefully prepared to ensure work is not over valued.
Materials on site should be carefully checked they are in accordance with the contract documents, properly stored and intended for incorporation into the works and related to the programme.
178
What 8 steps should be taken immediately upon contractor insolvency? Part 1
1. Advise client of contractor insolvency, contractual position and recommended action
2. Secure the site, change locks, secure all valuable goods equipment and materials.
3. Prepare a detailed valuation of the completed work and an inventory of materials and equipment
4. Stopping the processing of any payment to the contractor
179
What 8 steps should be taken immediately upon contractor insolvency? Part 2
5. Contacting key S/Cs, suppliers and commence discussions about continuation contracts.
6. Check the contract for Bonds, PCG.
7. Contact the administrator or liquidator and client about their views with regard to project completion.
8. Keep a record of the time spent and costs incurred in dealing with and advising on the insolvency. Normal for additional fees to be chargeable in this respect.
180
How do you complete the works?
Continuation with original contractor– only practicable if works are nearing completion.
Assignment or Novation of the contract.
Appointing a new contractor to complete the project. (new contract, PC basis)
Assignment or Novation to complete the works?
Administrators or employers generally prefer Novation.
Form a new agreement with a new contractor to complete the works
(Transfer rights and obligations to a 3rd party, new contract formed, all parties must agree.)
181
What about appointment of a new contractor?
Depends on stage of the project. If contract has just commenced it might be possible to approach 2nd tenderer.
If near completion and novation is not possible, new contractor may be the only course of action to complete the project.
182
What are continuation contracts?
Contract for completing the works with a new contractor can take several forms:
Basis of contract and documentation will be affected by:
Time available to prepare docs and agree terms
Scope and amount of work required
Progress made by original contractor
The doc and contractual basis of the original contract
The need to obtain competitive tenders.
If project has only just commenced may be possible to use original tender and contract docs with addendum
May be possible to negotiate a contract with one of original tenders.
183
What about domestic sub–contractors?
When employer terminates main contract employment of any domestic S/Cs is terminated automatically.
Decision needs to be taken about continuation agreements on key S/C who are responsible for design.
Problem: S/Cs may have undertaken work without payment. If client pays them direct then under insolvency laws client cannot reclaim monies. So S/Cs may not be interested in continuing if they are not paid.
184
What is retention of title?
Condition that ownership of the goods does not pass to the contractor until they have been paid for.
Claim will fail if material is fixed in place.
Materials paid for in interim payments are also owned by employer.
More confusing when talking about materials of S/Cs not incorporated into the works.
Hence the reason why it is important to secure the site!!
185
What is acceleration?
1) Completion of the works in a shorter time than that anticipated at tender.
2) The act of recovery by the contractor if they are in delay
186
What options may be considered?
1) Re–sequencing works – making activities run parallel
2) Increasing the working time (longer hours)
3) Increasing the resources (more lads)
4) Changing working methods e.g. dehumidifier to dry out the works faster
5) Increasing incentives – e.g. bonuses
187
Which are the most and least efficient?
Re–sequencing – most cost effective and efficient
Increasing the working time and resources employed – usually results in lower productivity
188
How does acceleration fit under JCT?
No provision under JCT contracts
It would have to be a parallel agreement between the employer and contractor and reimbursed on a ‘quantum meruit’ basis
189
What is the purpose of a valuation?
To provide advice to the certifier on value to allow them to issue their interim certificate
190
How is the Construction Act relevant?
It contains statutory requirements relating to interval and procedure for contracts that have a duration of over 45 days
191
What happens if a contract does not contain the provisions required by the Act?
The Scheme for Construction Contracts will apply to fill the gaps
192
What are the provisions of the Scheme?
| THIS NEED UPDATING TO REFLECT LOCAL GOVERNMENT ACT
Payment becomes due 7 days from the end of a relevant period (28 days)
The final date for payment is 17 days later
A notice should be issued to the contractor 5 days after payment becomes due stating the amount certifier and the basis on which it was calculated
If money is to withheld, a written notice must be given to the contractor no later than 7 days before the final date for payment
193
What are the standard provisions under JCT?
The first interim certificate must be issued within one month of the date of possession
The contractor can apply for payment no later than 7 days before the end of the relevant period
An interim certificate should be issued 7 days after application – payment becomes due
The employer has 14 days before the date for final payment
If they wish to withhold payment they have to issue a notice no later than 5 days before the final date
An interim certificate must be issued within one month of practical completion
Interim certificates should be issued ‘as and when’ monies become due to the contractor after PC
194
What are the main elements of a valuation?
```
Preliminaries
Measured work
Variations
Materials on site
Materials off site
Loss and expense
Retention
```
195
What needs to be in place for you to include payments for materials off site?
The materials should be for the works, adequately protected, delivered to programme and in a reasonable quantity
Proof that ownership will transfer to the employer on payment (vesting certificate)
Insurance until materials arrive at site
Materials are clearly labelled as for the site and set apart from other materials
A materials off site bond has been provided if required
196
What is a retention of title clause?
Where the sub contractor or supplier retains ownership of materials until they are paid for them by the contractor
This is why vesting certificates are important – otherwise the employer may pay for materials that are not owned by the contractor
Can lead to disputes in the event of insolvency
General wisdom is materials that have been incorporated in the works belong to the employer BUT less clear if they haven’t
197
How do you evaluate interim valuations?
Go to site and conduct valuation
Check work done, materials on site, materials off site
Value preliminaries, agreed variations and any claims
Valuation amount is gross valuation, less retention, less previous payment.
Then send recommendation to A/CA.
198
What are the options for conducting valuations under JCT DB?
Alternative A – stage payments
Alternative B – periodic payments
199
How do stage payments work?
The stages and their values are set out in the contract particulars
The stages are usually related to the completion of significant design items e.g. substructure
200
Why might stage payments be used?
There is no role for a QS under DB11 – it is a method of valuing the works that an architect etc could manage
201
When might advance payments be used?
This is dealt with under clause 4.8
It allows the contractor to receive lump sum payment in advance
The payments, values and dates should be set out in the contract particulars
They may be used where the contractor incurs high costs at the start of a project
E.g. items with long lead times or the need to purchase specialist plant for manufacturing
JCT provides an advance payment bond to cover the employer financially
202
What are the disadvantages of advance payments?
May reduce the incentive of the contractor
Bad for the employer’s cashflow
Concerns over why the contractor can’t fund the expenditure – insolvency worries
203
What would you do if the contractor claims for paint in their 1st application for payment?
During the visit to site I would assess if they had actually done any painting
Would also consider if they were likely to in the near future – for materials on site
204
What is the interim certificate conclusive above?
It isn’t conclusive about anything
It says nothing about the quality of materials, workmanship or indicate satisfaction with the work done to date
It is only the final certificate that is conclusive
205
If a contractor’s work has been certified and paid in an interim valuation, can it be devalued in a later certificate?
Payment in an interim certificate is a payment on account of the final sum
It is always open to the architect to certify a sum that is devalued in a later certificate
206
What is a bespoke contract?
Contract conditions that are drafted specifically for a particular project
207
What the advantages of standard forms over bespoke contracts?
Written by legal experts
Rights and obligations of each party are clearly set out to the required level of detail
Risks should have been allocated equitably between the parties
Parties should be familiar with the provisions in the form – greater consistently in application and fewer unforeseen anomalies
The time and expense of preparing a fresh document for each occasion is avoided
Case law is built up over time – provides good source of knowledge and clarity of terms
208
What are the disadvantages?
Apportionment of risks is rarely questioned and therefore becomes implicit – not taken account of
Familiarity is decreased as they are rarely used as printed – amendments
May not be appropriate to the needs of a particular project or client
Using an inappropriate standard form for the project will cancel out advantages
209
When would use a bespoke contract rather than a standard form?
Generally used for major projects with novel obligations
Drafting them needs great skill and knowledge
Drafting from first principles is too daunting for most in the industry
210
What is the legal principle of ‘contra proferentum’?
It is where ambiguous clauses are construed against the party who put the contract forward
If a contract has been prepared by only one of the parties, who may use superior bargaining power to get the other party to accept it, this may apply
Does not apply to industry standard form contracts (would amendments)
Would apply to a bespoke contract
211
What are the Employer’s Requirements?
Set out what it is that the employer wants from the elements that the contractor is to design – function, quality, size etc
212
What are the Contractor’s Proposals?
The contractor’s response to the Employer’s Requirements – form the basis of the contract
213
If there is a discrepancy between the employer’s requirements and contractor’s proposals which prevail?
The Contractor’s Proposals
214
What is the contractor’s design liability under JCT contracts?
The same as an independently employed architect would be
| I.e. reasonable skill and care NOT fitness for purpose
215
Is their liability for loss limited at all?
The contract particulars provide space for limiting the contractor’s loss to a fixed sum, or you can write ‘unlimited’ in it
216
If the Works are delayed, affected or suspending due to an error or omission in the contractor’s proposals what is the result?
No EOT
217
If there is an error in description, quantity or omission in the contractor’s proposals or contractor’s design portion what is the result?
It should be corrected BUT there should be no addition to the contract sum
218
Who retains the copyright for the contractor’s design documents?
The contractor BUT the employer has irrevocable, royalty–free, non–exclusive license to copy and use the docs for any purpose relating to the works as long as all money under the contract is paid
219
What are the provisions relating to PI insurance?
Covered under Clause 6.11
Where there is a CDP the contractor must take out a PI insurance policy
The limit of indemnity is stated in the contract particulars
It must be maintained until the expiry of the period stated in the CPs from the date of PC as long as it remains available at commercially viable rates
220
What must the contractor supply before PC?
The contractors design documents and as built drawings of the CDP element and the O&M manuals for that portion
221
What must they supply in the event of termination?
2 copies of the design completed to that point
222
What does Schedule 1 deal with?
The Contractor’s Design Submission procedure
223
When should the contractor prepare and submit copies of the design docs to the architect?
In sufficient time to allow any comments to be incorporated before the docs are used for procurement or carrying out the works
224
How many copies?
How long does the architect have to return them?
Two
14 days
225
What should they be marked?
A, B or C
226
What does A mean?
What does B mean?
A) Carry out the CDP works in strict accordance with that document
B) Carry out the CDP works in accordance with the document and ensure that the architect’s comments are incorporated
Send an amended copy of the document to the architect
227
What does C mean?
Do NOT carry out any work – Take account of the architect’s comments, Cont. must resubmit amended OR disagree with Arch's comments
228
What if the contractor disagrees with a comment?
They have 7 days to notify in writing that they disagree with a comment after receipt
Set out their reasons – state that they think the comment constitutes a variation
The architect has another 7 days to confirm or withdraw the comment
If the comment is confirmed, the contractor must amend and resubmit the drawing accordingly
229
What if they do not make any objection to a comment?
Then the comment will not be treated as giving rise to a variation and no addition will be made to the contract sum
230
Does compliance with the design submission procedure or with the architect’s comments diminish the contractor’s obligations to ensure the CDP docs are in accordance with the contract
No
231
What if the architect checks and approves the drawings and subsequently an error is discovered?
The architect’s approval does not relieve the contractor from liability
If the employer incurs costs due to this type of error they will normally commence an action jointly against the contractor and the architect and the court decides on the apportionment of blame
232
What are letters of intent?
Method of instructing the contractor to proceed with the Works before the contract has been formally executed
233
In what circumstances might they be used?
Where the employer needs to commence the works before a certain date
Where there are materials with long lead in times and it would aid the programme
234
What is their purpose?
Legally binding agreement until the actual contract is signed that allows work to commence while safeguarding the Employer’s rights
235
What are the main elements of a letter of intent?
State intended contract and amendments
State the intended contract sum
Clearly identify the scope of works – e.g. refer to the tender documents
State any limits on value / time / scope
State the procedures that apply to key issues – payment, termination, dispute resolution
State that contract will apply retrospectively
State the basis for calculating payment should the main contract not be executed
236
Who issues it?
The employer
237
Who signs it?
Both the employer and the contractor
238
What are the advantages of a letter of intent?
Allows work to commence before the contract is finally agreed – programme benefits
Provides more safeguards than just telling the contractor to start without one
239
What are the disadvantages?
May lead to complacency and dis–incentivise them to sign the main contract
Less robust than the main contract
You would not want the works to continue for very long without getting the contract signed
240
What would you say if the Client asked you to draft a letter of intent?
It is a legally binding agreement – like a contract – and we would NOT draft those
The PM / contractor / employer may have some standard terms they use
Legal advice should be sought
241
Can you name a case law related to Letter of Intent?
Turriff Construction Ltd vs Regalia Knitting Mills – Must show binding effect, i.e. contract sum (else just an intention)
Monk Construction Limited v Norwich Union – once 100k limit exceeded, terms of LOI no longer applied and Monk entitled to be paid reasonable sum for works actually carried out £4m
242
What are antiquities?
```
Covers such items as:
Historical artefacts, pottery and coins
Bones or fossils
Old foundations
Something of interest or value
```
243
Where are they dealt with under JCT SBC 05?
Clauses 3.22 to 3.24
244
Who do any fossils, antiquities etc which are found on the site belong to?
The employer
245
What should the contractor do if they discover such objects?
Use best endeavours to avoid disturbing
Take necessary measures to preserve in existing location and condition
Cease work if it would endanger the object
Inform the architect of the discovery and the location
246
What should the architect do if they are discovered?
Issue AIs as necessary to instruct the contractor what to do if they are found
This can include telling them to comply with a third party who is examining / excavating
247
Who is liable for the delay and expense incurred?
The employer
The contractor is entitled to claim EOTs and loss and expense
Significant delays and costs can arise – can be a serious event for the employer
248
What methods could be employed to reduce or mitigate the impact?
Insurance – although high premiums in London
| Should pay proper note to site investigations and look at the site’s previous uses
249
What is a provisional sum?
Sum of money included in the contract for work by a statutory authority, work that cannot be fully defined at time of tender or work that it is not sure is required
250
What types of provisional sum are there? Where do you find a description?
Defined and undefined
NRM2
251
What section of the preliminaries lists provisional sums?
A54
252
Give some examples of common provisional sum items
Statutory signage
Work by statutory authorities
Additional asbestos removal
253
What is a defined provisional sum?
A sum included in the contract for work that has not been completely designed at time of time but for which certain specified information can be given
254
What is the contractor deemed to have allowed?
Made proper allowance for carrying out the work in their programme and preliminaries
This means that they are not entitled to an EOT or extra prelims for carrying out the work, whatever the delay or cost of doing so to the contractor
255
What if the actual work does not closely resemble the provisional sum?
If the description is not accurate it has to be amended
This will be treated as a variation
This will entitle the contractor to an EOT and extra preliminaries if appropriate
256
What is an undefined provisional sum?
A sum included for work for which there is minimal or no information at time of tender
257
What is the contractor deemed to have allowed?
Not allowed for anything
| Not made proper allowance in programme or preliminaries for carrying out the works
258
How can a provisional sum be expended?
The architect has to issue an AI for its expenditure
259
How are they valued?
The same way as a variation i.e. agreement between employer and contractor, a schedule 2 quotation or by the QS under the Valuation Rules
260
How are provisional sums dealt with in the final account?
The provisional sums included in the contract are deducted and the actual amount substituted
261
What are the risks associated with provisional sums?
That the actual cost and time exceeds that allowed for in the provisional sum because the nature of the item changes between tender and instruction
262
What are variations?
Changes (alterations or modifications) to the design, quality or quantity of the contract works, to the site access or working conditions
263
Why might variations arise?
```
Change to spec etc
Discrepancy between contract documents
Discrepancy with statutory requirements
Errors and omissions
Deficiency in employer’s requirements
```
264
What form must architects instructions take?
They must be in writing
The QS cannot change the contract sum for AIs that are not written
265
Are oral instructions an Architect's Instruction?
Contractor has 7 days to write to the architect asking for the AI to be confirmed.
Architect has 7 days to respond, if not it is an AI by default
266
Can the contractor object to a variation?
How soon do they have to comply with an instruction?
They can make ‘reasonable’ objections in writing for variations relating to those described in 5.1.2 (working conditions / access / working hours etc)
Else they have to comply forthwith
267
What can the architect do if they don’t comply with an instruction??
He can issue a compliance notice
If there is still no action by the contractor within 7 days, employ others to carry out that work and the additional cost charged to the contractor
268
What are the time periods for Schedule 2 quotations?
The architect should request one in the AI
The contractor has 7 days to notify that they will not provide one
If not, they have 21 days to provide the quotation
Architect has 7 days writing to accept or reject – called the ‘confirmed acceptance’
269
What costs does the quotation contain?
Value of the work
Any adjustment of time
Money in lieu of direct loss and expense
The fair and reasonable cost of preparing the quotation
270
What costs is the contractor entitled to if the quote is rejected?
The fair and reasonable cost of preparing the quote, as long as the quote itself was fair
271
What 3 methods are there of obtaining a cost for variations?
1) Agreement between the employer and contractor
2) A schedule 2 quotation
3) Valuation by the QS under the valuation rules
272
What are the valuation rules?
Three rules for measurable work:
1) Similar character, quantity, conditions as existing, then the bill rates should be used
2) Similar character, but different quantity or conditions, then use bill rates but make a fair allowance for the difference.
3) Not of a similar character, fair rates and prices should be used
273
What is a star rate?
A rate that is based on the bill rates but includes a fair allowance
274
What are ‘fair rates and prices’?
A market rate, or price based on actual costs, on in line with current cost data e.g. SPONS
275
How would you value non–measurable work?
Should be valued by dayworks – the prime (actual) cost of all the materials, labour and plant used in carrying out the work, along with the % additions from the contract
276
What document should the prime cost be calculated in accordance with?
Should be calculated in accordance with the ‘Definition of the Prime Cost of daywork carried out under Building Contracts’ published by the RICS
277
What information is necessary to be able to assess dayworks?
Vouchers showing the amount of time spent on each activity (dayworks sheets)
Names of the workmen
Plant used
This info. given to the architect for verification at the end of the week following that in which the work was carried out
278
Can the QS alter hours which he considers to be excessive on a dayworks sheet that is authorised by the architect?
No
279
What would you do if the contractor submitted 10 dayworks sheets to you for payment?
Verify with the architect that a relevant variations has occurred and is on an AI
Ensure there is no other contractual method of valuing the variation
Verify the hours and materials are correct and authorised by the architect
280
If you and the contractor’s QS could not agree on something how would you resolve it?
Discuss with partner and client to try and seek a resolution with the contractor
Your valuation stands for the purposes of payment
Try and resolve else adjudicate
281
What is quantum meruit?
Give an example of where it might be used
Translates as ‘what he deserves’ i.e. fair and reasonable
If the employer and contractor come to a separate agreement on acceleration, the costs of this may be based on a ‘fair and reasonable’ basis
282
What is reasonable skill and care?
The ordinary skill and care expected of an ordinary competent man carrying out that particular act
283
Is there a higher level expected for professionals?
Yes – a specialist or professional would be expected to show the same level of skill and care expected of a similar man with that particular specialism
284
What is fitness for purpose?
The provision of a building that is suitable for the employer’s intended purpose (i.e. it has GOT to work)
It is clearly a more onerous obligation that reasonable skill and care
285
How is fitness for purpose dealt with under JCT D&B / Contractor's Design Portion?
It is excluded – the obligation of a contractor providing design is stated to be the same as an architect or other independent professional employed by the employer directly
286
What is the duty to warn?
It has been held that the contractor has a duty to warn the architect / employer of any defects in the architect’s design that they are aware of, but this does not mean they have a responsibility to examine the design specifically looking for defects.
287
What is the final account?
Detailed statement of all the adjustments to the contract sum and therefore the total amount that the employer is liable to pay, together with the basis on which it was calculated
288
Who prepares the final account? What is its purpose?
The QS prepares it to enable the issue of the final certificate
289
What are the relevant time periods?
Within 6 months of PC contractor sends Arch/QS all info for final adjustment of contract sum.
Within 3 months of receipt, QS ascertains the amount of L&E, AND all adjustments to be made to the contract sum – i.e. the final account
Architect must ‘forthwith’ send statement to the contractor
290
When must the final certificate be issued?
Two months from the latter of:
End of the Rectification Period
Issue of the Certificate of Making Good
When the architect gives the contractor a detailed statement (final account)
291
What must the final certificate state?
1) Total adjusted contract sum
2) Total of all additions / deductions
3) Total of all previous payments made to the contractor in interim certificates
4) The difference – expressed as a debt due from one party to the other
292
What is released to the contractor in the final certificate?
The remaining retention
293
When is the final date for payment after issue of the final certificate?
28 days
294
Can amounts be withheld?
Yes, if normal procedures are followed (written notice 5 days before final date for payment and reasons for withholding)
295
What are the usual constituents of a final account?
1) Summary
2) Adjustments of prime costs
3) Adjustments of provisional sums
4) Adjustments of approximate quantities
5) Variations
6) Claims
7) Fluctuations
296
When are provisional sums to be used?
For items that cannot be fully defined at time of tender
297
When are approximate quantities to be used?
For items that cannot be accurately quantified at time of tender
298
What are the constituents if it is a remeasurement contract?
1) Summary
2) Bill of remeasurement
3) Preliminaries
4) Claims
5) Fluctuations
299
What is the procedure for getting the final account agreed?
1) Once prepared, the QS should send all of the detail and supporting evidence to the contractor
2) Any points of disagreement should be discussed and negotiated
3) Both parties should sign the summary to show their agreement
300
What is the final certificate conclusive evidence of?
1) That any work, goods or materials that are expressly described in the contract as having to be to the architect’s satisfaction are so, NOT all other work, materials or goods
2) All adjustments of the contract sum – properly dealt with
3) All EOTs – properly given and dealt with
4) That all direct L&E claims have been settled
301
Explain more about work that has to be the architect’s satisfaction?
No definition of ‘reasonable satisfaction’ in the contract
It is down to the architect’s opinion (subjective)
If the contractor is not satisfied his recourse is to refer the matter to adjudication
302
Can accidental inclusions / exclusions or arithmetical errors be corrected?
Yes
303
What if adjudication or arbitration proceedings have been commenced before the Final Certificate?
The final certificate is taken as conclusive evidence of the matters at the earlier of:
1) The conclusion of the proceedings
2) 12 months if neither party has taken the proceedings any further
304
How do adjudication / arbitration decisions affect the final certificate?
The final certificate is subject to the decisions, judgements and awards of the proceedings
305
How long does a party have to commence proceedings after the issue of the Final Certificate?
28 days
306
What is the significance of this?
1) The parties do not have very long to decide whether or not to start proceedings
2) Failure to issue proceedings in this time could lead to considerable loss
307
Even if unchallengeable on its merits, what grounds can the final certificate be set aside?
1) Final certificate issued at the wrong time or by the wrong person
2) Certifier has ruled on things which they had no power to certify on
3) Fraud or collusion between the certifier and one of the parties
4) Improper pressure or influence by the employer on the certifier
308
What are variations?
Changes (alterations or modifications) to the design, quality or quantity of the contract works, to the site access or working conditions
309
Why might variations arise?
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Change to spec etc
Discrepancy between contract documents
Discrepancy with statutory requirements
Errors and omissions
Deficiency in employer’s requirements
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310
What form must architects instructions take?
They must be in writing
The QS cannot change the contract sum for AIs that are not written
311
Are oral instructions an Architect's Instruction?
Contractor has 7 days to write to the architect asking for the AI to be confirmed.
Architect has 7 days to respond, if not it is an AI by default
312
Can the contractor object to a variation?
How soon do they have to comply with an instruction?
They can make ‘reasonable’ objections in writing for variations relating to those described in 5.1.2 (working conditions / access / working hours etc)
Else they have to comply forthwith
313
What can the architect do if they don’t comply with an instruction??
He can issue a compliance notice
If there is still no action by the contractor within 7 days, employ others to carry out that work and the additional cost charged to the contractor
314
What are the time periods for Schedule 2 quotations?
The architect should request one in the AI
The contractor has 7 days to notify that they will not provide one
If not, they have 21 days to provide the quotation
Architect has 7 days writing to accept or reject – called the ‘confirmed acceptance’
315
What costs does the quotation contain?
Value of the work
Any adjustment of time
Money in lieu of direct loss and expense
The fair and reasonable cost of preparing the quotation
316
What costs is the contractor entitled to if the quote is rejected?
The fair and reasonable cost of preparing the quote, as long as the quote itself was fair
317
What 3 methods are there of obtaining a cost for variations?
1) Agreement between the employer and contractor
2) A schedule 2 quotation
3) Valuation by the QS under the valuation rules
318
What are the valuation rules?
Three rules for measurable work:
1) Similar character, quantity, conditions as existing, then the bill rates should be used
2) Similar character, but different quantity or conditions, then use bill rates but make a fair allowance for the difference.
3) Not of a similar character, fair rates and prices should be used
319
What is a star rate?
A rate that is based on the bill rates but includes a fair allowance
320
What are ‘fair rates and prices’?
A market rate, or price based on actual costs, on in line with current cost data e.g. SPONS
321
How would you value non–measurable work?
Should be valued by dayworks – the prime (actual) cost of all the materials, labour and plant used in carrying out the work, along with the % additions from the contract
322
What document should the prime cost be calculated in accordance with?
Should be calculated in accordance with the ‘Definition of the Prime Cost of daywork carried out under Building Contracts’ published by the RICS
323
What information is necessary to be able to assess dayworks?
Vouchers showing the amount of time spent on each activity (dayworks sheets)
Names of the workmen
Plant used
This info. given to the architect for verification at the end of the week following that in which the work was carried out
324
Can the QS alter hours which he considers to be excessive on a dayworks sheet that is authorised by the architect?
No
325
What would you do if the contractor submitted 10 dayworks sheets to you for payment?
Verify with the architect that a relevant variations has occurred and is on an AI
Ensure there is no other contractual method of valuing the variation
Verify the hours and materials are correct and authorised by the architect
326
If you and the contractor’s QS could not agree on something how would you resolve it?
Discuss with partner and client to try and seek a resolution with the contractor
Your valuation stands for the purposes of payment
Try and resolve else adjudicate
327
What is quantum meruit?
Give an example of where it might be used
Translates as ‘what he deserves’ i.e. fair and reasonable
If the employer and contractor come to a separate agreement on acceleration, the costs of this may be based on a ‘fair and reasonable’ basis
