Contract Practice Level 1

Question 1

How do variation requests work?

Answer 1

A variation is an agreement supported by consideration to alter terms of a contract. There must be express terms within contracts to instruct variations.

Standard forms of contract generally contain express terms for the contract administrator to instruct variations. Written notice of the variation must be given to the contractor and they must comment upon the impact of the variation in relation to cost and programme.

Question 2

What are the JCT Suite of Contract options?

Answer 2

• Standard Building Contract
• Intermediate Building Contract
• Minor Works Building Contract
• Major Project Construction Contract
• Design and Build Contract
• Management Building Contract
• Construction Management Contract
• Constructing Excellence Contract
• Measured Term Contract
• Prime Cost Building Contract
• Repair and Maintenance Contract
• Homeowner Contract
• Tracked Change Contract

Question 3

What are the NEC alternatives to JCT Suites?

Answer 3

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

Question 4

How do JCT and NEC suites differ?

Answer 4

NEC attempts to eliminate legal terms & is said to be written in plain english & explains terms in their natural meaning

NEC operates ‘early warnings’ where both the PM and contractor 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 a contract administrator - NEC uses the project manager

NEC does not contain provisional sums

Question 5

How does standardisation provide benefit for a project?

Answer 5

In terms of contract practice, standardisation provides benefit by offering clarity and consistency. For example:
1. Standardised contracts provide a common framework and language for all parties involved, reducing ambiguity and encouraging a clear understanding of roles, responsibilities and obligations.
2. They have predefined provisions for managing risks like defects, delays and changes to scope, helping to ensure the method by which these are dealt with is already set out by the contract.
3. Consistency across project and the uniformity this brings helps contractors, clients and consultants apply lessons learned from one project to another.

Question 6

What typical contractual amendments have you encountered?

Question 7

Do you agree with the typical contractual amendments you have encountered?

Question 8

What would you do if you were asked to provide advice on contractual amendments you have encountered?

Question 9

What are the parties’ responsibilities and duties under a contract?

Answer 9

Client / Employer:
1. Define project requirements
2. Provide funding
3. Appoint the Design & Construction Team
4. Make timely decisions
5. Contractual obligations
6. H&S Compliance

Contractor:
1. Complete the work as per the contract
2. Resource management
3. Adhere to the programme
4. H&S compliance
5. Quality control
6. Reporting & communication
7. Rectify defects

Question 10

What is the significance of the Local Democracy, Economic Development and Construction Act 2009?

Answer 10

It caused changes to the operation of construction contracts which had a knock on to the Housing Grants, Construction & Regeneration Act 1996

Question 11

What changes did the Local Democracy, Economic Development and Construction Act 2009 bring to the construction industry?

Answer 11

• Section 109 - a party’s entitlement to stage / periodic payments & instalments
• Section 110 - ensures every contract provides adequate mechanisms for payment due dates
• Section 111 - means payment cannot be held without notice
• Makes both written and oral contracts subject to the act

Question 12

How is the Local Democracy, Economic Development and Construction Act 2009 recognised in standard forms of construction contracts?

Answer 12

Primarily through its amendments to the Housing Grants, Construction & Regeneration Act 1996. It influences standard forms of contract by reinforcing adjudication rights, streamlining payment processes and providing mechanisms for dealing with non-payment.

Question 13

What are the essential components of a valid contract?

Answer 13

1. Offer - by a party to provide goods or services.
2. Acceptance - by a party to procure such goods or services
3. ‘Consideration’ - the promise made by both sides to do something e.g. providing the works in return for money
4. Intent - the intention of the parties to create binding legal relations

Question 14

By way of examples, can you tell me how the essential components of a valid contract find their way into a JCT construction contract?

Question 15

What is the principal difference between a parent company guarantee and a performance bond?

Answer 15

The principal difference is that a bond is a financial commitment backed by a third party if the contractor does not fulfil the works.

Whereas a PCG is where the parent company will step in to remedy the works should the contractor not perform.

Question 16

Can you name 2 types of performance bond?

Answer 16

1. On-demand bonds - money set out in the bond is immediately available on demand without needing to satisfy any pre-conditions whatsoever (including establishing the contractor’s liability)
2. Conditional / on-default bonds - requires the employer to provide evidence that the contractor has not performed their obligations under the contract and that they have suffered a loss consequently.

Question 17

What current challenges is Covid and/or Brexit bringing to Contract Practce?

Answer 17

1. Sanctions and export controls
2. Cost increases
3. Delays

Question 18

How does contractors design portion under JCT SBC work?

Answer 18

The CPD is utilised when any element having a design is required of which the architect does not wish to design.

Under SBC for example, the architect prepares a performance specification in the form of ER’s to which the contractor responds with its CP’s.

Both documents become part of the contract documents, together with a breakdown of the part of the Contract Sum related to the CPD work, known as the CPD analysis.

Question 19

What is A, B & C in relation to contractors design?

Answer 19

Schedule 1 of JCT SBC & D&B includes provision for submission of design drawings by the contractor. The architect or employer under D&B must return one copy of each drawing marked A, B or C.
A - the contractor may proceed
B - may be used provided the contractor strictly adheres to the comments
C - must be resubmitted after the comments are taken into account.

This cannot be used as an opportunity for the architect or employer to amend the design. B and C drawings can only be marked as such if they do not comply with the ER’s.

Question 20

What works are typically included within the JCT SBC CDP?

Answer 20

Typically more complex and specialised elements of design, such as structural works, temporary works or MEP elements.

Question 21

What are recent changes to the JCT Contracts?

Answer 21

JCT have released a 2024 version of their contracts including SBC, C&PCSA, R&P, PC, MPC, D&B and MT Contracts.

The updated includes for collaborative working, sustainability & environmental impacts, notification & negotiation of disputes, making previously supplemental provisions now mandatory.

The updates also include for the adoption of more inclusive language and increased flexibility surrounding digital communications.

The updates also include for legislative changes with reference to the new Part 2A of the Building Regulations 2010, The Construction Act 1996 and Corporate Insolvency and Governance Act 2020.

The 2024 version also encompasses a Target Cost Suite.

The 2016 version is still available to purchase.

Question 22

Can you tell me more about the legislative changes to JCT 2024?

Answer 22

• Part 2 A of the Building Regulations 2010 - naming the key dutyholders
• Construction Act 1996 - termination accounting & payment provisions added to Section 8
• Corporate Insolvency & Governance Act 2020 - new insolvency grounds have been added to Section 8

Question 23

What is a collateral warranty?

Answer 23

A form of contractual agreement which runs alongside another contractual agreement - it’s purpose is to create a contractual relationship between 2 parties where one would otherwise not exist.

A working example would be -

An employer has a contract with a contractor. The contractor then has several subcontractors with it’s suppliers to do the works. So, the employer has a direct contractual relationship with the contractor, but no contractual relationship with any of the subcontractors.

Therefore, in this scenario, a collateral warranty can be utilised to either enforce obligation that the subcontract owes directly or to create other obligations and rights between them.

This may be considered a security measure if the contractor should become insolvent or if its employment would be terminated for any reason.

Question 24

What is the difference between a bond and a collateral warranty?

Answer 24

A bond is a financial commitment backed by a 3rd party, whereas a collateral warranty passes on contractual obligations.

Bonds are contained within the contract, whereas collateral warranties are a side agreement to the contract.

Question 25

What are the different type of bonds?

Answer 25

• performance bond - a means of insuring a client against the risk of a contractor failing to fulfil contractual obligations to the client
• retention bond - utilised instead of holding retention from the contractor. Amount that would otherwise have been held as retention are instead paid, with a bond being provided to secure the amount
• off-site materials bond - may be used when a contractor needs to make a large payment for off-site materials or equipment. As the materials arrive on site, the bond value if reduced gradually.
• advance payment bond - may be required by the client if the contractor requests advance payment to help them meet significant start-up costs.

Question 26

What is the typical value of a performance bond?

Answer 26

Typically 10% of the contract sum

Question 27

What is an alternative to a bond?

Answer 27

If the contractor is part of a group of companies, then the employer may wish to consider a Parent Company Guarantee (PCG). If the smaller company breaches the contract, the parent company is obligated to step in and remedy the breach.

Question 28

How might the client use the same contractor throughout the whole duration of a project?

Answer 28

Novation

Question 29

What is novation, and how does it work?

Answer 29

It refers to the process by which a party initially contracted to the client are then novated over to the contractor and become their responsibility. By way of example, under D&B, design consultants can be initially contracted to the client, and then novated over to the contractor. The contractor will go on to manage the remaining design process with the existing design team, rather than bring their own consultants on board.

Question 30

What are the types of subcontractors and differences between them?

Answer 30

• domestic subcontractors - chosen by the contractor to execute a package of works. The employers consultants nor the employer themselves can influence the appointment of the conditions.
• named subcontractors - the employer provides a list of pre-approved, named subcontractors and the contractor selects one from the list through tendering. Once appointed by the contractor, they then become a domestic subcontractor.
• nominated subcontractor - are selected by the employer to carry out an element of the works but still employed by the contractor. Nominated subcontractors are usually imposed on the contractors by the employer.

Question 31

What can you tell me about extensions of time?

Answer 31

In order to obtain an extension of time, a relevant event must have occurred.

Upon it becoming reasonably apparent that a delay will occur, the contractor notifies the contractor administrator in writing, stating the particulars and extent.

The contractor must state one of the relevant events and detail of how and why the delay is occurring or likely to occur.

The contractor should give an estimate of delay in his notice so that the contract administrator can form his/her own opinion.

The contract administrator responds within 12 weeks of stating whether a relevant event has or has not occurred.

If the event has occurred, the contractor assess the delay.

A new completion date is then fixed - known as an extension of time.

Question 32

What is the difference between a relevant event and a relevant matter?

Answer 32

• relevant events - an event on or off site that causes delay to the completion date of the works. This can mean the contractor is entitled to an extension of time. E.g. variations and instructions, deferment of possession, exceptionally adverse weather conditions, force majeure.
• relevant matters - a matter for which the employer is responsible that materially effects the progress of the works, this may enable the contractor to claim direct loss and/or expenses that have been incurred. E.g. failure to give the contractor possession of site, failure to give the contractor access to/from site, delays in receiving instructions, disruption caused by work carried out by the employer.

Question 33

When is retention typically released?

Answer 33

Typically, half is released at PC. Then the remainder is released after the rectification period but obviously would need the contract administrator to issue a certificate for the end of the rectification period.

Question 34

What would you issue along with the Final Account?

Answer 34

A final statement. So, for example,

” this confirms agreement of this final account at X value on C date, so nothing can be raised following this that was instructed prior”.