Contract Practice (Level 1) Flashcards
What elements must be in place in order for a Contract to be formed?
Capacity
Intent
Consideration
Lawfulness
Offer
Acceptance
Clarity of the Terms
How would you respond if the client advised you that the liquidated damages needed to be set at £100,000 per week?
I would check that the liquidated damages figure is based on a genuine pre-estimate of financial loss and explain that in the event that damages are to be applied, they would need to substantiate this figure. I would also explain that if the figure inserted into the contract is shown to be punitive and not based on genuine financial loss, it is not likely to be enforceable. In this scenario, the employer would have to pursue the main contractor for any actual direct loss that can be substantiated through a formal dispute resolution procedure
Please explain your understanding of an extension of time?
Extensions of time adjust the completion date and relieves the contractor’s liability to pay liquidated damages for the period of the extension.
What are liquidated damages?
They are a genuine pre-estimate of the likely loss incurred by the employer should the completion date not be met.
What items must be in place before liquidated damaged can be deducted?
The following must be in place prior to levying liquidated damages:-
A non-completion certificate.
A payless notice.
Please explain your understanding of the term, ‘time at large’?
Time at large refers to a moment in time when there is no set completion date. This can happen when the practical completion date elapses without a formal notice being issued under the contract to record this and set a new completion date. In this scenario, the contractor only has the obligation to complete the works in a reasonable time. Liquidated damages cannot be claimed as there is no date to apply them from and the employer would have to try and prove that the contractor had not completed in a reasonable time.
Please explain your understanding of the term, ‘frustration of contract’?
Frustration occurs when any event or circumstances beyond control of both parties changes the contractual obligations or makes it impossible or illegal to fulfil their contractual obligations. The happening of such events automatically discharges the contract.
How is a contract executed under hand different from a deed?
A Deed is signed by a witness & traditionally authenticated by a seal. The contract limitation period of a contract executed under hand is 6 years whereas a deed is 12 years.
What is the defects rectification period?
A “defects rectification period” is a timeframe following the completion of a construction project during which the contractor remains responsible for fixing any defects that appear, essentially meaning they must rectify issues arising from poor workmanship or materials at no extra cost to the client; this period is usually around 12 months long and is also referred to as a “rectification period”.
In the event of a discrepancy between the employer’s requirements and contractor’s proposals, which document would prevail?
As the Contractor’s Proposals are submitted in response to the Employer’s Requirements, the Contractor’s Proposals would take precedence.
What is a bespoke contract?
Contract conditions that are drafted specifically for a particular project. These are tailored in order to meet the unique requirements of the parties involved. Unlike standard forms these often require the input of a skilled legal advisor.
What are the advantages of standard forms of contract in comparison to bespoke forms?
Standard forms are written by legal experts with the rights and obligations of each party clearly set out. Risks are clearly allocated between the parties and often the parties are familiar with the provisions in the form which provides greater consistency in application and fewer unforeseen anomalies. The time and expense of preparing a new form for each project is significantly reduced. Case law is also built up over time and provides a good source of knowledge and clarity of the terms.
What are the disadvantages of standard forms of contract in comparison to bespoke forms?
Apportionment of risks is rarely questioned and therefore becomes implicit, this results in the allocation of risk not being reviewed on whether it is appropriate. The terms within standard forms may not be appropriate to the needs of a particular project or client. Using an inappropriate standard form for the project will cancel out any advantages.
When would you look to use a bespoke contract rather than a standard form?
In construction, a bespoke contract should be used when a project has unique, complex, or unconventional requirements that cannot be adequately addressed by standard form contracts, such as when there are specific risk allocation needs, a client has particular preferences, or the project involves intricate legal considerations due to local laws or complex party dynamics; essentially, when a project needs tailored terms to fit its specific circumstances.
Please explain your understanding of the term retention of title?
This legal term allows the sub-contractor or supplier to retain ownership of materials until they are paid for by the main contractor. This highlights the importance of vesting certificates as the employer may subsequently pay for materials that are not owned by the contractor. This legal principle can lead to disputes in the event of insolvency.
What are collateral warranties?
They create contractual relationships between the main parties of a contract with an external third party. The contractual relationship would not otherwise exist with the third party due to privity of contract.
Who might want a collateral warranty?
Any third party with a financial investment in a project but not party to the main contract. Funding institutions, future tenants or purchasers may use collateral warranties. The employer may want a collateral warranty with key subcontractors or suppliers, as if the main contractor were to go into liquidation they would have no contractual link with them for redress in the case of defective workmanship.
Please explain your understanding of the term, assignment?
Assignment is where the rights and benefits of one contractual party are transferred to a third party.
What is the standard commercial position regarding assignment?
It is standard to allow assignment of rights twice without consent. The assignment should be notified in writing to the other party.
What is novation and how does this differ from assignment?
Novation is where a new contract transfers the rights and obligations of one contractual party to a new third party. Assignment is the transfer of contractual rights or contractual benefits only as burdens cannot be assigned.
