Contract practice (L1) Flashcards
What standard forms of contract are you aware of?
- NEC
- JCT
- FIDIC
- IChemE
Can you name some contracts from the JCT suite of contracts?
- JCT Standard Building Contract (with Qunats, Without Qunats or with Approx Quants versions)
- JCT Intermediate Building Contract (with Contractor’s Design version)
- JCT Minor Works Contract (with Contractor’s Design version)
- JCT Design and Build Contract
- JCT Major Project Construction Contract
- JCT Management Building Contract
- JCT Construction Management Contract
Contract families contain main and sub-contracts
Can you name some contracts from the NEC suite of contracts?
- NEC Engineering and Construction Contract (ECC) - Main Options A-F
- NEC Engineering and Construction Subcontract (ECS) - Main Options A-E
- NEC Engineering and Construction Short Contract (ECSC) - Hybrid between Option A and Option B
- NEC Engineering and Construction Short Subcontract (ECSS) - Hybrid between Option A and Option B
- NEC Professional Services Contract (PSC) - Main Options A, C and E
Note: The client can include the requirement for the Contractor to be doing some element or all of the design by including such requirements within the scope/ works information. This avoids the need for a separate ‘design and build’ option within the NEC family of contracts.
What are the Main Option clauses under the NEC Engineering and Construction Contract?
There are 6:
- Main Option A: Priced contract with Activity Schedule
- Main Option B: Priced contract with Bills of Quantities
- Main Option C: Target contract with Activity Schedule
- Main Option D: Target contract with Bill of Quantities
- Main Option E: Cost reimbursable contract
- Main Option F: Management contract
Can you give me some examples of Secondary Option clauses under the NEC Engineering and Construction Contract?
- X5: Sectional completion
- X6: Bonus for early completion
- X7: Delay Damages
- X16: Retention
What contracts could you use where a project is procured on a Traditional (Lump Sum) basis?
NEC Contracts where Main Option A can be selected such as the:
- Engineering and Construction Contract (ECC)
- Engineering and Construction Subcontract (ECS)
- Professional Services Contract (PSC)
and also
- JCT Standard Building Contract (with Quants and without Quants versions)
- JCT Intermediate Building Contract
- JCT Minor Works Building Contract
What contracts could you use where a project is procured on a Traditional (Re-measurement ) basis?
NEC Contracts where Main Option B can be selected such as the:
- Engineering and Construction Contract (ECC)
- Engineering and Construction Subcontract (ECS)
and also
- NEC Engineering and Construction Short Contract (ECSC)
- NEC Engineering and Construction Short Subcontract (ECSS)
- JCT Standard Building Contract (with Approx Quants version)
What contracts could you use where a project is procured on a Design and Build basis?
- NEC Engineering and Construction Contract (ECC) - Where Main Options A-E are selected (not F)
- NEC Engineering and Construction Subcontract (ECS)
- NEC Engineering and Construction Short Contract (ECSC)
- NEC Engineering and Construction Short Subcontract (ECSS)
noting under the NEC requirements for design are set out in the scope/ works information and not the contract - JCT Design and Build Contract
- JCT Major Project Construction Contract
What contracts could you use where a project is procured on a Construction Management basis?
- NEC Engineering and Construction Contract (ECC) - Only where Main Option F is selected
- JCT Construction Management Contract
What contracts could you use where a project is procured on a Management Contracting basis?
- NEC Engineering and Construction Contract (ECC) - Only where Main Option F is selected
- JCT Management Building Contract
What contracts could you use for a project that is of high complexity?
- NEC Engineering and Construction Contract (ECC)
- NEC Engineering and Construction Subcontract (ECS)
- JCT Standard Building Contract (with Qunats, Without Qunats or with Approx Quants versions)
- JCT Major Project Construction Contract
- JCT Management Building Contract
- JCT Construction Management Contract
- JCT Design and Build Contract
What contracts could you use for a project that is of medium complexity?
- NEC Engineering and Construction Contract (ECC)
- NEC Engineering and Construction Subcontract (ECS)
- JCT Intermediate Building Contract (with Contractor’s Design version)
- JCT Design and Build Contract
What contracts could you use for a project that is of low complexity?
- NEC Engineering and Construction Short Contract (ECSC)
- NEC Engineering and Construction Short Subcontract (ECSS)
- JCT Minor Works Contract (with Contractor’s Design version)
What factors can influence the selection of the type of construction contract?
- Procurement route
- Size, value and complexity of a project
- Size of contracting organisation carrying out the works (smaller contractors wouldn’t expect a length and detailed contract unlike larger contractors)
- Particular sector
What is a contract?
A written or spoken agreement between two or more parties that is enforceable in a court of law
What are the 5 elements required for a legally binding contract?
- Offer
- Acceptance
- Consideration
- Legal capacity
- Intention to create legal relations
What is an offer?
It is a proposal to enter into a contract on a particular set of terms with the intention of being bound as soon as the other party accepts.
What is acceptance?
It is the unqualified acceptance of an offer
What is consideration?
Something of value such as a right, profit or benefit to one party or some responsibility given or an undertaking by another party
What is legal capacity?
It is the legal ability and capacity to enter into contract
What is intention to create legal relations?
Both parties must make the agreement with the intention of creating legal relations
What are the typical contractual provisions?
- Payment provisions
- Insurance provisions
- Termination provisions
- Dispute Resolution provisions
What legislation impacts on contractual processes?
- Housing Grants, Construction and Regeneration Act 1996 (as amended) - HGCRA
- Local Democracy, Economic Development and Construction Act 2009 - LDEDCA
- Scheme for Construction Contract (England and Wales) Regulations 1998 - SCCR
How and what contract provisions does the Housing Grants, Construction and Regeneration Act 1996 (as amended) impact?
Payment provisions - creating a right to
- Be paid on an interim, periodic or stage basis
- Suspend performance for non-payment
Dispute Resolution provisions - creating a right to
- Adjudication
How and what contract provisions does the Local Democracy, Economic Development and Construction (LDEDC) Act 2009 impact?
Payment provisions such as
- Payment Notices - for a payment notice to be valid it must specify the sum considered to be due and set out the basis on which that sum is calculated
- Default Payment Notices - an application for payment from the payee/ contractor will become a default payment notice if the payer/ PM fails to issue a payment notice
- Payless Notices - replaced withholding notices. If the payer intends to payless than the payment notice or default payment notice, they must issue a valid payless notice with the time prescribed before the final date for payment
How and what contract provisions does the Scheme for Construction Contracts (England and Wales) Regulations 1998 impact?
If the provisions of a construction contract such as adjudication and payment provisions do not comply with the Housing Grants, Construction and Regeneration Act, then terms from the Scheme for Construction Contracts (England and Wales) Regulation 1998 will be implied
What contract documentation is required under a NEC4 Engineering and Construction Contract (ECC)?
- Form of Agreement
- Contract Data Part One and Part Two
- Conditions of contract (e.g. core clauses, main Option clause, clause for resolving disputes, secondary Option clauses, Schedule and Shorter Schedule of Cost Components)
- Prices - Activity Schedule or Bill of Quantities
- Scope (Employers and Contractors for its Design (if applicable))
- Site Information
What is a Form of Agreement in contract documentation?
- The purpose of the form of agreement is to record the agreement between the two parties and identify the documents which form the contract
What is a Contract Data Part One and Two under the NEC contract documentation?
- It identifies the documents forming the contract such and works information
- Contract Data Part One is completed by the Employer
- Contract Data Part Two is completed by the Contractor
Why would a standard form of contract be amended?
- To
Alter the risk allocation – e.g. deleting compensation events
Insert additional obligations – e.g. regularly and diligently added to providing the works in accordance with the Works Information
Remove rights e.g. amend right for a CE if not notified in 4 weeks as opposed to 8 weeks
Incorporation project-specific requirements
What happens if ‘nil’ in inserted for LAD’s in a signed contract?
o The Employer will not be entitled to either liquidated or unliquidated damages
What are the varying types of forms of contract available in the market place?
o NEC
o JCT
o FIDIC
o IChemE
When would design and build be used in comparison to a traditional form of contract?
o A design and build form of contract would be used where the design and build procurement route has been chosen
What are the benefits of Design and Build?
o Single point of contact (reducing the need for client resource to appoint designer and contractors separately)
o Single point of responsibility (contractor responsible for both design and construction meaning client risk is reduced)
o Buildability (due to contractor involvement in design and planning)
o Cost certainty (provided employer requitements are specified and no changes are introduced)
o Reduced total project time due to overlapping of design and construction
What are the disadvantages of using this from?
o Client has to commit before the detailed design is complete
o No design overview unless consultants are appointed
o Bids difficult to compare (each design will be different)
o Client driven changes can be expensive
o Quality maybe compromised as client surrenders control to the design and build contractor
Why are collateral warranties used and who this protect?
o To ensure there is a contractual link with a third party (such as a sub-contractor) to the primary contract (between a client and contractor) such that a contractual claim can be made (by the client) in the event such third -party breaches its contract which adversely impacts on the primary contract – particularly useful in a situation where the main contractor is insolvent
o Collateral warranties protect the client from privity of contract rules
Why types of bonds are available for construction projects?
o Bonds are a means of protection against non-performance of the contractor.
o Can be ‘on demand’ or ‘conditional’ (which requires evidence from the client)
o They include
Performance bond – used as a means of insuring the client against risk of the contractor failing to fulfil contractual obligations. Typically set to 10% of the contract value to over client finding a new contractor complete the works for example due to non-performance of the contractor
Advanced payment bond – Client may agree to an advanced payment to the contractor (maybe due to significant start-up and procurement costs) in which case a bond maybe required to secure the payment against default by the contractor
Retention bond – It is an alternative to retention, in that the client agrees to pay amounts which would otherwise have been held as retention. The retention bond secures this amount.
What is an advanced payment bond? How does this work in practice?
o The client may agree to an advanced payment to the contractor maybe due to significant start-up and procurement costs in which case a bond may be required to secure the payment against default by the contractor
o This would involve the contractor approaching a bank or insurance company to issue the bond – contractor pays a premium of this which is usually a percentage of the bond amount
o The bind provider issues a guarantee to the client, promising the reimburse the advance payment if the contractor defaults
Can you outline the key changes within JCT 2024?
o Contractors design liability – limits contractors design liability to ‘reasonable skills and care’ and no obligation for design to ‘fit for purpose’
o Electronic communication and signature
o New Relevant Events and Matters – Epidemics and government guidance now included as ground to EOT (Relevant Events) and loss/ expense claims (Relevant Matters)
o Collaborative working – default requirement for parties to work cooperatively in good faith
o Building Safety – changes addressing the Building Safety Act (introduced gullwing Grenfell Tower)
o Dispute Resolution – ‘Notification and negotiation of disputes’ is now a default provision
