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RICS APC Technical QS > Contract Practice and Administration v2 > Flashcards

Contract Practice and Administration v2 Flashcards

1
Q

What 6 conditions need to be met for a contract to be in place?

A
  • Offer by one Party
  • Acceptance by the other Party
  • Consideration of the Offer
  • Intent to form a Contract
  • Legality of Contract
  • Capacity – Capacity to make agreement
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2
Q

NEC3 ECC stand for?

A

New engineering Contract - Engineering and Construction Contract (ECC)

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3
Q

What are the main suites of construction contract?

A
  • JCT 2016 (Joint Contracts Tribunal)
  • NEC (New Engineering Contact)
  • ECC (Engineering and Construction Contract)
  • FIDIC (International Federation of Consulting Engineers)
  • ICE (Institution of Civil Engineers)
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4
Q

Please talk me through an example from your experience of a situation where you have prepared a report which recommends the appropriate form of contract to be adopted?

A

• On Beckton Depot Enabling works:
o Understood the needs of the client to establish the appropriate form of contract and warranties.
o TfL’s standard of form of contract used by the client is NEC3.
o Time, quality, cost which is most important
o Chose between the options

  • Option A – Fixed price with activity schedule
  • Option B – Fixed price with Bill of quantities
  • Option C – Target Price with activity schedule
  • Option D – Target Contract with bill of quantities
  • Option E – Cost Reimbursable
  • On establishing the use of an internal framework for the procurement option I advised the most appropriate option to implement as part of the contract. I advised option A, this was due to the client requiring time and price certainty and being risk adverse. I advised that the cost may be higher when using fixed price against the other options.
  • The works required Design works as well as build. I advised due to the low complexity of the works that we should use Design and Build contract where the contractor is responsible for the design and build. The availability of a project engineer could be utilised to approve design works.
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5
Q

Explain how you have advised on the appropriateness and implications of proposed contractual mechanisms?

A

Whilst on Beckton depot enabling works I advised the use of the additional clauses

  • X4 - Parent company guarantee
  • X7 - Delay damages
  • X16 - Retention

I was aware that the contractor was a subsidiary of a larger company so I advised that a parent company guarantee would offer insurance against insolvency of the contractor we were in contract with. It would provide a cheaper option than a bond that usually costs 10% of the project cost.

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6
Q

What is a Parent Company Guarantee?

A

An arrangement where the contractual performance of one company in a corporate group is underwritten by the other members of that corporate group.

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7
Q

What is a performance Bond?

A

A performance bond is issued to one party of a contract as a guarantee against the failure of the other party to meet obligations specified in the contract. … A performance bond is usually provided by a bank

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8
Q

What are the types of Parent Company Guarantee?

A
  • Contract of Guarantee – is a secondary obligation where the guarantor fulfils the contract’s obligations. Employer must first deal with original contractor.
  • Primary obligation- allows the beneficiary to claim directly against the guarantor without first having to pursue the contractor.
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9
Q

Difference between Parent Company Guarantee & Performance Bond?

A
  • PB is from a third party
  • PCG is related to the other contractor
  • Cost/Availability – PCG is free which PB is not – if company does not have a parent
  • Cover – PB does not guarantee completion of project, just recovery of loss up to a certain amount whereas a PCG does guarantee continuance but is of little use if the parent is insolvent.
  • Duration – PB expires at PC – PCG lasts for 6/12 years
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10
Q

How are insurances dealt with under NEC3 ECC?

A
  • Covered under section 8 - Risks and Insurance

• Contractor provides insurance stated in insurance table and any additional stated in Contract Data unless Employer stated to provide

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11
Q

What contracts does the rights of third parties act apply to?

A

All contracts made after the 11 May 2000

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12
Q

How can third party rights be included under NEC contracts?

A

Secondary Option Clause Y(UK)3

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13
Q

Why might third party rights be used instead of collateral warranties?

A

Third party rights can be used for named parties to be have cover under certain of the contract.

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14
Q

What are the contractual benefits of a Framework over other procurement options?

A
  • Pre agreed rates for suppliers
  • Terms and conditions already set
  • Supplier relationship already exists
  • Simpler to run a call off contract to make individual contract amendments for the specified works.
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15
Q

Explain how you have managed a compensation event in a project you worked on?

A

Beckton depot enabling works:

Early Warning Notification – Potential Presence of slow worms, newts, adders

Risk reduction meeting – discuss mitigation

NCE raised – assessed for entitlement – Within 8 weeks

Detailed as employers’ risk in contract data 2

Gained necessary internal approvals

Accepted NCE – Employer reply’s in 1 week

No reply Contractor notifies after 1 week

If no decision is made after 2 weeks treated as accepted

Awaited quotation - 3 weeks to submit a quotation

Assessed Quotation - 2 weeks to reply to quotation

If no reply contractor notifies, if PM does not reply then after 2 weeks quote accepted

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16
Q

How do you assess Cost when assessing a CE?

A

Actual Defined Cost
Work already done prior to the date the project manager instructed, or should have instructed, the contractor to submit a quotation.

Forecasted Defined Cost
• Second is forecasting the defined cost of work not yet done.

• The assessment of these costs requires detailed knowledge of the progress of the individual work or trade packages and a realistic estimated final account for each subcontractor.

Adjustment of Fee
• The third matter is an adjustment of the fee which, as it is a percentage addition to the defined cost, is simply dependent on ensuring that the defined cost is correctly assessed

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17
Q

What is the timeframe for payments under NEC3?

A

Contractor to submit application not less than 7 days before due date

Certificate issued 5 days after due date

Pay less notice 7 days before final date for payment

Payment cycle = 21 days (7 days for before due date + 14 days from due date to final date for payment)

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18
Q

How did you implement the 5% retention within the contract?

A
  • I advised the client to use retention, to provide some security that the contractor will return to correct any defects during the defects correction period. If they do not return then the retention can be held.
  • Generally, a portion of the retention is released upon completion of the works. The remainder is released when the rectification period or defects liability period has expired and the relevant certification under the contract has been issued.
  • I advised that each payment period 5% would be withheld as retention and recorded.
  • Under the NEC3 contract there is not a suggested retention figure under option clause X16. Half on completion (within 4 weeks of completion certificate) and the remaining amount when the defects period has ended. The figure needs to be specified in contract data part 1.
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19
Q

What is retention?

A

It is a percentage of each interim certificate deducted and retained by the employer from each interim payment to the contractor

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20
Q

What is the purpose of retention?

A
  • It provides an incentive for the contractor to complete the works promptly
  • It provides some financial cushion to the employer in the event of contractor default
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21
Q

What should employer do with retention if requested by the contractor?

A

• Place it in a separate bank account

  • Label the account as being held in trust
  • Provide the contractor with statements showing the payments and amount of money in there
  • This should ensure that the money is available to the contractor in event of employer insolvency
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22
Q

Who gets the interest accruing on retention money?

A

The employer

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23
Q

When is the retention released to the contractor?

A
  • Half of the retention is released to the contractor after assessment is made at Completion of the whole of the works or in the next assessment after Employer has taken over the whole of the works if this is before Completion of the whole of the works.
  • Other half released when the Defects Certificate issued
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24
Q

On Beckton Depot how did you implement the change procedure to descope the temporary access road to the accommodation?

A
  • Clause 14.3 allows the project manager to instruct a change to the works information,
  • Clause 27.3 requires a contractor to obey such instruction.
  • Clause 61.1 requires the contractor to put such instruction into effect immediately.
  • Further clause 63.7 requires that compensation events are assessed assuming that the contractor acts promptly and competently.

• The quotation will be then valued on the defined cost up to the point they were informed of the PM instruction. Including any forecasted costs they are likely to still incur regardless of the instruction.

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25
Q

How did your advice and calculate delay damages on Beckton Depot Enabling works?

A
  • I advised the client that if option X7 clause is selected, and the contractor does not achieve the completion date then delay damages will be due from the contractor. Similar to liquidated damages in JCT.
  • They are not a penalty and are based on a genuine calculation of damages. Calculation of the cost of the actual costs to the employer of delay.
  • Key dates and completion date reflected in contract data part 1
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26
Q

What are delay damages?

A
  • A genuine pre-estimate of the likely loss incurred by the employer should the completion date not be met.
  • X7 in NEC3 ECC. Amount defined in Part 1 of Contract Data
  • If Contractor does not achieve completion date and X7 selected then delays damages are due from Contractor to Employer
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27
Q

What are Early Warnings?

A
  • Both parties must give early warning of anything that could affect the cost, completion, progress or quality of the project.
  • They should then hold an early warning meeting to discuss how to avoid or mitigate impacts on the project.
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28
Q

What is the NEC3 ECC Change Process?

A
  • Compensation events: are events which may lead to the payment to the Contractor being changed or the Completion Date being delayed.
  • Compensation events are included under clause 60.1
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29
Q

What if a contractor submits a CE without first notifying of an early warning?

A

If the contractor fails to give early warning of a possible delay to the works, or increase in costs, they will only be compensated for effects that would have remained anyway even if they had given early warning.

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30
Q

Explain the NEC Contract Risk Register.

A
  • The risk register is maintained throughout the contract period.
  • The Employer and Contractor contribute the first entries in the risk register, via Contract Data parts 1 and 2 respectively.
  • The Project Manager then adds any further risks newly identified and notified through the Early Warning process to the risk register as the projects proceeds.
  • The Project Manager may revise the risk register to record the decisions made at ‘risk reduction meetings’ and issue the revised risk register to the Contractor.
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31
Q

What should a PM consider when assessing a CE?

A

The description of the NCE is accurate

Was an early warning raised?

Is it covered in one of the reasons for a compensation event under clause 60.1
Authorised to accept NCE

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32
Q

How you assess delay to planned completion in a CE?

A

Any delay to the completion date is assessed as the length of time that, due to the compensation event, planned completion is later than planned completion shown on the accepted programme

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33
Q

What is the price of work done to date?

A

depends upon which Main Option Clause is used –

  • Option A - the total shown in the prices prepared by the contractor for each of the completed activities. A completed activity is a milestone without any defects which would delay following work.
  • Option C - the defined cost which the project manager forecasts would have been paid by the contractor before the next assessment date, plus the fees.
  • The fee is quoted by the contractor and consists of his overheads.
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34
Q

What is Defined Cost?

A
  • payments due to subcontractors
  • the schedule of cost components
  • less disallowed costs
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35
Q

What is disallowed Cost?

A

A cost that -
• Is not justified by the Contractors accounts and record,

• Should not have been paid to a Subcontractor or
supplier in accordance with his contract

• Correcting Defects after Completion

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36
Q

What are the NEC3 ECC Payment Provisions?

A

Core Clause 50.2, the amount due to the contractor is the total of:

  • price for work done to date; plus
  • other amounts to be paid to the contractor (such as compensation events); less
  • any amounts to be paid or retained from the Contractor.
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37
Q

What are the significant elements of the Housing Grants Construction and Regeneration act 1996?

A

a) Payment
b) Adjudication
c) Set off
d) Suspension

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38
Q

Why was the Housing Grants Construction and Regeneration Act introduced?

A
  • Fairer payment conditions
  • Improve the cashflow of the industry
  • Introduce quicker, easier and more efficient method of dispute resolution
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39
Q

Give details of the payment provisions of the HGCRA

A
  • Pay when paid and pay if paid clauses are banned (except in insolvency)
  • Contracts over 45 days must contain provisions for interim payments
  • Contracts must state a date for final payment
  • The amount and basis of each payment must be notified to the contractor after it becomes due
  • Withholding notices must be issued before final date for payment
40
Q

Give details of the adjudication provisions of the HGCRA

A
  • Statutory right for the parties to use adjudication
  • An adjudicator must be appointed within 7 days of referral
  • They have a further 28 days to make their decision
41
Q

Give details of the suspension provisions of the HGCRA

A
  • The Contractor has the right to suspend carrying out the Works if the Employer fails to pay the sums due in full in accordance with the contract conditions
42
Q

What are the Effects of Y(UK) 2 – Housing Grants, Construction & Regeneration Act 1996 on Payment Terms?

A
  • Payment becomes due within 7 days after the assessment date and the Project Manager certifies the payment on the payment due date, such certificate being the notice of payment to the contractor;
  • the final date for payment is 14 days from the payment due or such other time stated in the contract data;
43
Q

Differences between NEC3 and NEC4?

A
  • Risk Register’ re-named the ‘Early Warning Register’
  • Treated acceptance of the contractor’s programme in situations where the project manager does not respond to submission or notification
  • Employer becomes ‘Client’, and ‘Works Information’ becomes ‘Scope’. Partnering becomes collaboration.
  • An additional procedure includes the identification of opportunities by either party
44
Q

Differences between NEC and JCT

A
  • 6 main options and secondary options (mix and match approach to distribute risks) JCT uses separate contracts e.g. JCT SBC D&B, SBW W/Q, X/Q etc…
  • No QS mentioned in NEC only Project Manager
  • Tries a more collaborative approach to working “Mutual trust and understanding”
  • Variation (JCT)= Compensation Event (CE) (NEC)
45
Q

Who are the named parties under NEC ECC?

A
  • Employer,
  • Project Manager,
  • Contractor,
  • Supervisor
46
Q

What is the structure of the NEC3 ECC?

A 
• Core Clauses:
• 1 - General
• 2 - The Contractors main responsibilities
• 3 - Time
• 4 - Testing and defects
• 5 - Payment
• 6 - Compensation Events
• 7 - Title
• 8 - Risks and insurance
• 9 - Termination
• Main Option Clauses:
• Dispute Resolution Clauses:
• Option W1 - If UK HGCRA applies then not used
• Option W2 - If UK HGCRA applies then used
• Secondary Option Clauses: X1 - X20
Y(UK)1 - project Bank Account
• Y (UK) 2 - HGCRA 1996
• Y (UK) 3 - The Contracts (Rights of Third Parties) Act 1999
• Z - Additional Conditions of Contract
• Schedule of Cost Components
• Contract Data
47
Q

What are the ECC Secondary Option Clauses (X Clauses)?

A
  • X1 - Price Adjustment for inflation (used if longer than 2 years)
  • X2 - Changes in the law (what constitutes change?)
  • X3 - Multiple currencies
  • X4 - Parent company guarantee (used with a JV)
  • X5 - Sectional completion (different from key dates)
  • X6 - Bonus for early completion
  • X7 - Delay damages
  • X12 - Partnering
  • X13 - Performance bond
  • X14 - Advanced payment to contractor
  • X15 - Limitation of contractors liability for his design to reasonable skill/care
  • X16 - Retention
  • X17 - Low performance damages
  • X18 - Limitation of liability
  • X20 - KPI’s
48
Q

What are the main types of construction insurance?

A
  • Third Party/Public Liability – protect the public
  • Employers Liability – protects employees
  • Professional Indemnity - covers the cost of any damages arising as a result of negligent advice / design
49
Q

What are collateral warranties?

A

Create contractual relationships between parties where there would otherwise not have been any. They are alongside another agreement

50
Q

Why are Collateral Warranties used?

A
  • Due to the principle of privity of contract, the rights and obligations under a contract can only be enforced by a party to that contract
  • Collateral warranties give remedies to parties that due to privity of contract would not otherwise have them
51
Q

What does indemnify mean?

A

Put the party back into the position they would have been in had the event not occurred.

52
Q

What are the differences between each ECC option?

A
  • Option A - Priced Activity Schedule - Contractor prepares & prices AS based on defined scope of works & provides a lump sum figure. Cost certainty provided. (D&B)
  • Option B - Priced BoQ - Employer provides BQ based on MM & tenderers price. Used when scope clearly defined & can be measured from designers drawings. Cost certainty (Traditional).
  • Option C&D - Target Cost Activity Schedule/BoQ - Tender information incomplete, higher risks, financial risk shared. Pain/Gain Incentivisation mechanism.
  • Option E - Cost Reimbursable - Scope of works unknown & TC unable to be developed. Early start required. Majority of risk sits with Employer. Contractor paid actual cost plus fee. No incentive to drive down cost.
  • Option F - Management Contract - Contractor only responsible for works within Contract Data. Appointed before construction to plan, procure & advise. Contracts directly with subcontractors & fee increases if value of SC packages increase through CE.
53
Q

What are common NEC contract documents?

A

• Main Document (Core Clauses/Main Option/DR/Secondary Option)

• Schedule of Cost
Components (BQ/AS)

  • Works Information (Contractors Responsibilities, Programme)
  • Site Information (Services)
  • Contract Schedules (Agreement Form)
  • Drawing Register
  • Contract Data Part 1 (Supplied by Employer - Client Details, Access dates, Weather measurements for CE, Insurance values if provided by employer, Z Clauses)
  • Contract Data Part 2 (Supplied by Contractor - details of key personnel, data for SOCC, Fee %)
54
Q

How are Defects dealt with under NEC3 ECC?

A
  • Contractor corrects all defects whether or not supervisor notifies him.
  • Defects period will usually be 12 months from completion and will be stated in the contract data.
  • Defect Correction Period begins at completion for defects notified before completion and when the defect is notified for other defects.
  • Defects Certificate is issued by supervisor at the end of the last defects correction period.
  • The works information can be changed so that a defect does not have to rectified.
  • If contractor does not correct a defect through no fault of employer, costs of correction will be paid for by contractor.
55
Q

What is termination?

A

Where the contract works are lawfully stopped under the contract

56
Q

Where is termination dealt with in NEC3 ECC?

A

Core Clause 9

57
Q

What three types of termination does NEC3 ECC deal with?

A

a) Termination by the employer
b) Termination by the contractor
c) Termination by either party

58
Q

Contractor has gone into administration receivership, what do you do?

A

a) Go to site, secure site and materials
b) Get in touch with administrative receiver
c) Withhold any payments
d) Start contacting suppliers and sub-contractors to try and continue works
e) Keep record of all time spent.

59
Q

Where is testing dealt with under NEC?

A

Core Clause 4 Testing and Defects

60
Q

How do you deal with materials off site in payment assessments?

A
  • 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
61
Q

How do you assess & implement changes to the Target Cost?

A
  • NEC3 - Compensation Events - Cost of work estimated & agreed up front before work carried out (If actual costs known then included).
  • Contractor should be able to gain on the CE.
  • Only client risks or CE listed in the contract can form a CE.
  • An allowance is made in the target for contractors risks.
62
Q

How does a pain gain mechanism work?

A
  • The pain / gain mechanism is used on a target cost form of contract, and is included within the tender documents by the client upon issue.
  • Once the target cost has been set for the project the pain gain mechanism acts as an incentive to beat the target.
  • If the contractor beats the target he will gain a share in the savings made. If he exceeds the target, the pain is shared.
  • This will depend on what is contained within the contract documents
63
Q

How do you set a target cost?

A

• Contractors estimate = target cost plus fee

64
Q

How is a target cost built up?

A

Consists of a forecast of the construction costs, allowance for preliminaries, risk allowance, % additions for management fee

65
Q

How is the contractor reimbursed under a target cost?

A
  • Paid actual cost up to the value of the target for undertaking the works.
  • PG mechanism then invoked & depending upon arrangement will affect how much the contractor will be reimbursed.
66
Q

What are the advantages of using a target cost?

A

Short bid time / quick start on site

Conflict minimised / Partnering ethos

Employer shares in savings

Early contractor involvement

67
Q

What are the disadvantages of using a target cost?

A

Employer risk of being financially exposed

Bid evaluation difficult

68
Q

What problems may arise when setting a target cost?

A
  • Carry out monthly audits on the valuations which would be submitted based on actual cost - Check 10% of value.
  • Staff timesheets & rates.
  • Material / Plant invoices against returns.
  • Labour payroll sheets.
  • Subcontract certificates / invoices
69
Q

What is the difference between partial possession and sectional completion?

A
  • Sectional completion is a contractual obligation to hand over the section at the stated date, partial possession relies on the contractor’s consent
70
Q

What is a defect?

A
  • Part of the works which is not in accordance with the Works Information
  • Part of the works which contractor has designed and does not conform with the design accepted by project manager.
71
Q

What if Contractor does not rectify defects?

A

In the event that the contractor failed to rectify any defects the employer may employ another contractor to carry out the works & recover the cost of doing so as a debt by the contractor. Half retention retained & may be used to cover cost.

72
Q

What is a Latent Defect?

A

Defects which are not readily identifiable upon inspection & only come to fruition some time after building completion & may take many years.

73
Q

What is the completion date?

A

Fixed date stated in the Contract Data Part 1

74
Q

What is the NEC definition of Completion?

A

Done all the works which the works information states he is to do by the Completion date

• Has corrected notified Defects which would have prevented the Employer from using the works and Others from doing their work

75
Q

How is acceleration dealt with under NEC?

A

Project Manager may instruct the Contractor to submit an acceleration quotation.

Core Clause 36

No obligation on Contractor to accelerate

76
Q

What is a retention bond?

A
  • Provided by the contractor in lieu of taking retention from interim payments
  • It should be to the same value as the retention deducted would have been
77
Q

What is a letter of intent?

A
  • Notice of intent to form a contract
  • Method of instructing the contractor to proceed with the Works before the contract has been formally executed.
  • Used where the employer needs to commence the works before a certain date or where there are materials with long lead in times and it would aid the programme
78
Q

What is a fluctuating price contract?

A

Where the contract sum is adjusted for changes in the costs of materials and labour as well as statutory contributions, taxes and levies

x1

79
Q

What is the recourse if the contractor disagrees with the PM that the works are not completed?

A

Adjudication

80
Q

What is assignment?

A

Where the rights and benefits of one contractual party are transferred to a third party

81
Q

Can benefits be assigned under NEC contracts?

A

NEC3 via Z clauses, NEC4 contains an assignment core clause

82
Q

What are some grounds for which the employer can terminate the contractor’s employment in NEC3? (Name 3)

A

If the Contractor has -

  • Substantially failed to comply with his obligations
  • Not provided a bond or guarantee which was required by the contract
  • Appointed a subcontractor for substantial work before the PM has accepted the Subcontractor
  • Substantially hindered the Employer or others
  • Substantially broken a health and safety regulation
83
Q

What could have been done to prevent contractor insolvency at tender stage?

A
  • Thoroughly check financial accounts.

- Check for front loading.

84
Q

During your interim valuation, a subcontractor told you that the Contractor is in financial difficulties. What do you do?

A
  • 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.
85
Q

What is abatement?

A
  • Where the employer asserts that the contractor’s claim is not worth the value they are claiming i.e. due to physical defects to the work
86
Q

What are antiquities?

A

Covers such items as:

a) Historical artefacts, pottery and coins
b) Bones or fossils
c) Old foundations
d) Something of interest or value

87
Q

What are Z clauses?

A
  • Additional Conditions of Contract
  • May be various requirements, procedures & further obligations conferred on the Contractor depending on the type of project/client
  • Examples include - Additional Conditions of Contract within the Project - Confidentiality Agreement & Amendments/Replacement to existing clauses - Clause 60: additional CE’s
88
Q

What is the role of the Project Manager?

A

Responsible for managing the contract on behalf of the Employer, deals with time, money, and changes to the contract.

89
Q

What is the role of the Supervisor?

A

The Supervisor’s duty is to ensure that the Contractor Provides the Works in accordance with the contract documents – in particular, the programme and the Works Information (the specifications and drawings).

90
Q

What is a named sub contractor?

A
  • Client supplies a list of names in the preliminaries / specification and the contractor chooses which one they want
  • The named sub contractor is then treated the same as a domestic subcontractor
91
Q

What is a nominated sub contractor?

A
  • The selection of a specialist sub contractor or supplier for the project by the client
  • The client names them specifically in the preliminaries / specification
92
Q

How do you deal with materials on site in payment assessments?

A

• The materials should be for the works, adequately protected, delivered to programme and in a reasonable quantity

93
Q

What is a Bond?

A

• An arrangement where a contractual duty owed by one party to another is backed up by a third party

94
Q

What is determination?

A
  • Ends the Contractor’s Employment under the Contract

* Does not bring contract to an end and leaves all contracts rights in place meaning the parties can still sue.

95
Q

What are the types of Bond?

A
  • Performance bond
  • Retention bond
  • Materials off site bond
  • Advance payment bond
96
Q

How are advanced payments covered under NEC3 ECC?

A

• X14 Advanced Payments

97
Q

Give a common example of assignment and novation

A
  • Assignment of the rights under a collateral warranty to a different tenant / purchaser
  • Novation of the design team under a design and build contract

RICS APC Technical QS (8 decks)

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