Contract Practice & Contract Admin Flashcards
What constitutes a contract?
Offer – Acceptance – Consideration – Intent to create mutual relations - capacity - Legality
What is a contract?
A legally binding agreement between two parties
What is the purpose of having a contract?
Makes the agreement legally binding, sets out the parties obligations, sets out the parameters in terms of time cost and quality.
What are the disadvantages of using a bespoke contract?
No case law, can sway the balance of risk,
Can you name some of the JCT Suite of Contracts?
Standard Building contracts
Design and Build
Intermediate
Minor works
When looking at consideration, what should be thought about?
Record terms of the arrangement
Set out an admin process
Define the obligation of the parties (time, cost, quality)
Creation of a legally binding document
What parties are involved within a contract?
Contractor – Client
Client – Consultant
Contractor - Subcons
Under a Design & Build procurement route, what contracts would be available for consideration?
NEC, JCT D&B, JCT Major projects (not commonly used), JCT Minor projects with D&B add on
What are the benefits of a Letter of Intent?
It shows intent and allows the works to commence.
Why should we look towards using a standard form of contract?
Standard forms of contracts provide a standardised, tried and tested contract which is well known. It provides Case Law to back up issues, specifies the risk allocation and saves time in money in not needing to develop a bespoke contract. Shows willingness of the two parties to enter into a contract.
Latham report*
What are the objectives of an NEC contract?
Clarity, simplicity, removes any objectivity, is written in normal every day ambiguity mitigating room for interpretation and misunderstanding, and it prescribes how a project should be run
What are the key differences between NEC3 & NEC4
- Gender neutral language
- Client replaces employer
- Scope replaces works information
- Early Warning Register replaces Risk Register
- The Contractor’s design replaces limitation of the Contractor’s liability for their design to reasonable skill & care
- Dispute resolution board introduced
Are oral contracts binding?
Yes, this was made a binding contract under the Housing Grant and construction Act 1996
Oral contracts are legally binding with the exception of 3 situations:
* a lease of more than 3 years must be made by a deed
* most contracts for the sale of land must be made in writing
* contracts of guarantee must be made in writing
What is meant by fitness for purpose?
The concept that goods or services must be capable of being used for the intended purpose for which they were purchased.
Puts a large oneness on the supplier, and for Arcadis invalidates our PII.
What are fluctuations and how are they dealt with?
JCT there are 3 ways
NEC x clause
What does entering the defects liability period instigate?
- Releases retention
- Transfers site security to the client
- Ends the rights for the client to deduct delay damages
- Defects liability period commences
What is a construction bond?
A type of surety bond which protects against disruptions or financial loss due to a contractor’s failure to complete a project or failure to meet project specifications.
The three main types of construction bonds are bid, performance, and payment.
What is a conditional bond?
The beneficiary has to prove that the principal has failed to meet their contractual obligations, and as a direct result they themselves have incurred financial losses. Typically take the form of a retention bond, which is issued by the surety to a specified client to guarantee and pay an agreed sum in the event of non-performance or principal insolvency.
What is an On-demand bond and are you aware of any?
The beneficiary simply has to submit the bond and demand payment from the surety. It is not obliged to provide any evidence that the principal has breached or failed to fulfil its contractual obligations, so most principals are therefore reluctant to sign up to terms and conditions with on-demand clauses.
Bid bonds come in the following form: Bid bonds, advance payment bonds, payment bond, roads and drainage bond, off site material bond.
How do different forms of contracts have provision for construction bonds?
- NEC: secondary option clauses for bonds under this form of contract are the X13 performance bond, X14 advance payment bond and X16 retention bond. Bond conditions are specified in the works information section of the contract; failure to provide the bond on the project manager’s instruction will lead to the withholding of a quarter of payment due and, eventually, to contractual termination.
- JCT: the contract particulars contain provisions for using performance, retention, advance payment and bid bonds. These particulars are drafted by the beneficiary, so tend to be on-demand bonds. The principal’s failure to produce the specified bond is deemed a serious breach and may lead to contractual termination.
FIDIC?
FIDIC - FIDIC is the market-leading contract for international construction projects, particularly for infrastructure and energy projects, and is recognised by developers and contractors worldwide
What is a letter of intent?
A letter of intent can be provided when a contract has not yet been signed, but shows intent and allows works to commence whilst contract negotiations are concluded. They are often drafted on the basis that if agreement is not reached on the main contract, the client will reimburse the supplier for their reasonably incurred expenses, often up to the level of a fixed cap.
What types of letters of intent are there?
1) Comfort letters - Expresses the intention of one of the parties to act in a particular way (for example, to enter into a contract, or place an order), but does not create any legal obligation on that party actually to act in that way. The author of the letter will only be liable for deviating from the stated intended course of action if the expressed intention was not actually held at the time that the letter was signed.
2) Instructions to proceed with consent to spend - Instructions to proceed with consent to spend are sometimes referred to as ‘if’ contracts, and usually take the following form: ‘if you commence works pending preparation of the contract documents, then we will reimburse you your reasonable costs should the contract not be entered into.’ These agreements are legally binding contracts which pre-date and are superseded by the principal contract when it is executed. They must be entered into by a duly authorised representative of the party procuring the works.
3) The recognition of the existence of binding contracts - Letters recognising the existence of a binding contract between the parties may be used to execute the contract before the formalities of copying, binding and signing the contract have been completed. Many standard forms of contract, such as the GC/Works family and those produced by the ICE, the NEC and the FIDIC, rely on similar letters as the main means of executing a contract. Or sometimes the parties wish to enter into a binding contract, even though some of the terms are not agreed and negotiations are on-going. In such circumstances a letter referring to the agreed and binding terms could be a useful mechanism to create a binding contract if the final terms are still being developed.
What is assignment under a contract?
The transfer of one parties’ rights / contractual obligations to a another party under a contract.