Contract Practice Level 1 Flashcards
What is a contract?
A contract is a legally binding promise by one party to fulfil an obligation to another party in return for consideration
What are the components of a legally binding contract?
Offer
Acceptance
Consideration - the promise made by both sides to do something e.g. providing a building in return for money
Intent - the intent to create legal relation, could be in the form of a letter of intent
What are ‘express terms’?
Terms which are expressly stated and agreed within a contract
What are ‘implied terms’?
A contractual term which is not expressly stated or agreed within the contract but has been implied into the contract by common law or statute
What is the difference between statutory provisions and contract provisions?
Statutory provisions are set out by the law and must be complied with regardless
Contract provisions relate to the specific contract and only apply to the project at hand
What are the different types of subcontractors?
Domestic - selected by the main contractor to carry out a package of works designed by somebody else
Named - the employer provides a list of pre-approved and named subcontractors, the main contract then selects one from this list through the tendering process
Nominated - selected by the employer to carry out an element of works, employed by the main contractor. Usually imposed upon the main contractor
Why do main contractors sublet works?
Complexity and specialisation
avoids need to maintain directly employed operatives
reduces supervision and admin costs
flexibility as large volumes of work can be carried out
What is the overarching purpose of the Contracts (Rights of Third Parties) Act 1999?
Allows third parties to enforce terms of a contract that they are not party to, but which benefits them in some way, or which the contract allows them to enforce
Gives them access to various remedies if those contract terms are breach
Those who are not party to the principle contract has access to the same contractual remedies as those who do
What are the advantages of third party rights?
time and cost - the Contract (Rights of 3rd Parties) Act 1999 cuts down on the time and cost associated with warranties being signed up / drawn or circulated
Certainty - limited room to revisit wording once agreed
Subcontractors - 3rd party rights can be extended to subcontractors so eradicates the need to chase large numbers of individual warranties
Why are third party rights used instead of collateral warranties?
CW can involve a lot of admin and cost
Easier to get in place as no separate document is required
What are collateral warranties?
A formal contractual agreement which runs alongside another contractual agreement, creating a contractual relationship between two parties which otherwise would not exist
Typically used as protection for the client in the event a 3rd party fails to perform their obligations
Often used between clients and sub-contractors / sub-consultants through the main contractor
What are JCT contracts?
JCT is a standard form of contract; Joint Contracts Tribunal
There are 12 contracts within the JCT family, examples include: Standard Building Contract Intermediate Building Contract Minor Works Building Contract Design & Build Contract
What are the key project characteristics which influence which JCT contract is used?
size, value & type of project need for contractor design certainty on final cost attitude towards client risk ownership and risk transfer client experience programme requirements
When would you use a JCT Minor Works Contract?
smaller, basic construction projects where works are of a simple nature
where the procurement route is traditional
where the client is responsible for design, however if the contractor is responsible for designing elements of the works then MWBC with contractor’s design should be used
When would you use the JCT Standard Building Contract?
Designed for large or complex projects where detailed contractual provisions are required
where projects are procured via the traditional procurement route
where the employer is carrying out the design, however there are provisions for ‘Contractors Designed Portion’
Works being carried out in sections
When would you use the JCT Intermediate Contract?
Construction projects involving all recognised industry trades and skills
Detailed contractual provisions are required but without complex building services or specialist work
Suitable for projects following the traditional procurement route
When would you use JCT Design & Build Contracts?
For projects where the contractor carries out the design and construction works
Where contractor’s design requirements go beyond that of a traditional contract with a ‘Contractors Designed Portion’
What is the difference between a relevant event and a relevant matter?
Relevant event - An event on or off site that causes delay to the completion of works, entitles the contractor to claim additional time
Relevant matter - a matter for which the client is responsible that materially effects the progress of the works, entitles the contractor to claim additional costs (loss and expense)
What are liquidated damages?
A genuine pre-estimate of loss suffered by the employer because of late completion of the works
not a penalty
can be based on loss of rent or income, additional professional fees, etc
Under JCT, what contractual documents must be in place before damages can be deducted?
A non-completion notice / certificate
the contractor should be notified that the employer may require they payment of / deduction of LD’s
A pay less notice should be served
What is an extension of time?
A contractor’s entitlement whereby the completion date can be deferred due to a relevant event
What is an Instruction?
An instruction is a command, request or order from one party to another.
If a valid instruction alters / modifies the design then it is a variation
If not, it is not a variation and the contractor must comply within the agreed timeframe
Following the instruction, if after 7 days after receipt of the notice of instruction the contractor does not comply, the client may employ and pay other persons to execute the works and the contractor will be liable for all additional costs incurred
What is a Variation?
A variation is the alteration / modification to design, quality or quantity of works
Includes both additions, omissions and substitutions
Under JCT this is known as a Change
the contractor must notify the employer whether in his capacity he has an objection to the change ‘within reasonable time’
What are NEC ECC contracts?
New Engineering Contracts - Engineering and Construction Contract
suitable for any construction based contract between employer and contractor
intended to be suitable to any sector within the industry
PM assumes full responsibility on behalf of the employer and controls time and cost as an administrative function
Programme is a key contract document
Based on mutual trust and co-operation
Focuses on pro-active risk management
What are the 6 main options of NEC ECC?
A - Priced contract with activity schedule
B - priced contract with BOQ
C - target contract with activity schedule
D - target contract with BOQ
E - cost-reimbursable contract
F - Management Contract
Please provide an overview of NEC Option A.
Lump sum contract
payments are made against completion of activities on the activity schedule
suitable for traditional & D&B procurement routes
risk of carrying out the work at the agreed prices is with the contractor
Please provide an overview of Option B within NEC ECC?
Priced contract with a bill of quantities
Contractor is entitled to payment via interim payments on a % of each BOQ line with the contract payment schedule
Risk of carrying out work at the agreed price is with the contractpr
Please provide an overview of Option C within NEC ECC?
target cost contract with an activity schedule
financial risk is shared between client and contractor by an agreed proportion
motivates contractor to deliver works in the most cost-efficient way
Please provide an overview of Option D within NEC ECC?
Target cost set by BOQ
Financial risks are shared at an agreed proportion between client and contractor
Please provide an overview of Option E within NEC ECC?
Reimbursable contract, often referred to as cost plus
Employer largely takes on the financial risk as the contractor is reimbursed their actual costs plus an agreed OH&P %
Might be used where the scope of works cannot be defined at the outset such as emergency work
Please provide an overview of Option F within NEC ECC?
Cost reimbursable / cost plus contract
Suited to the MC procurement route so the works are designed and constructed by multiple subcontractors who are contracted to the management contractor
MC is responsible for the work and paid a fee
Risk is largely taken by the client
Which NEC ECC option carried the most and least financial risk for the employer?
Least - Option A as it is a fixed price contract
Most - Option E as the contractor is reimbursed for actual costs they incur plus an additional fee
What are Secondary Option Clauses under NEC ECC?
Optional bolt on clauses which can be implemented into the contract to suit the project at hand
What are Z clauses under NEC?
used to amend standard form NEC contracts
can be inserted into NEC contracts as a means of adding conditions or amending wording
What are the key difference between JCT and NEC contracts?
NEC attempts to eliminate legal terms and is said to be written in plain english and explains terms in their natural meaning
NEC operates ‘early warnings’ where both the PM and contractpr are responsible for highlighting any event which can impact time, cost or quality
JCT deals with time and cost separately, whereas NEC deals with the effects of time and cost together
JCT uses variations - NEC uses compensation events
JCT uses contract administration - NEC uses project manager
NEC does not contain provisional sums
What is the difference between damages and liquidated damages?
Damages - amounts awarded by a court as compensation for loss or injury suffered by one party due to a breach of contract or breach of duty by another party
Liquidated damages - amounts for damages that are ascertained and fixed in advance
How are contractors delay costs referred to within JCT and NEC contracts?
JCT - ‘loss and expense’
NEC - ‘compensation events’
What is an example of a relevant event / compensation event?
Variations
Instructions
Late possession of site
Adverse weather
Any prevention or default by the employer
How is an extension of time dealt with under JCT?
EOT can only be granted following a relevant event
The contractor must issue a delay notice whenever it becomes reasonably apparent that progress is or is likely to be delayed, along with the impact of delay on completion date
A written notice of the decision must be issued as soon as reasonably practicable but within 12 weeks maximum
How is an extension of time dealt with under NEC?
Any change to time, price or quality is dealt with under Clause ‘compensation events’
Adjustment to time can only be made if a compensation event occurs
The contractor or project manager should provide an early warning notice within 8 weeks of becoming aware, if not then the entitlement of EOT is waived
The PM has a week to notify the contractor of their decision as to whether this is a compensation event
What are the key aspects of contract documentation?
BOQ (or employers requirements and contractors proposals under D&B Procurement)
The contract (agreement / conditions, name of parties and contract sum)
Drawings
Specifications
Appendices
