Contract Practice (Level 1/2/3)

Question 1

CE Procedure under NEC3?

Answer 1

Under Clause 60 of the NEC there are 19 Events which give entitlement to a CE
Once a party becomes aware of a potential compensation event, they must notify the other party as soon as possible, under Clause 61
Under Clause 62, upon notification of a compensation event, a quotation is to be submitted under Clause 62 which should include the assessment of the time and cost implications of the event
The other party should then assess the effect of the CE under Clause 63
Assessment of the CE can be make if required under Clause 64
Compensation Event is implemented under Clause 65

Question 2

What are the JCT suite of contract options?

Answer 2

Minor Works Building
Intermediate Building
Standard JCT Building
Major Works Building

Question 3

What are the NEC suite of contract options?

Answer 3

Option A: Priced contract with activity schedule
Option B: Priced contract with bill of quantities
Option C: Target contract with activity schedule
Option D: Target contract with bill of quantities
Option E: Cost reimbursable contract
Option F: Management contract
Option G: Term Contract

Question 4

Key differences between NEC and JCT

Answer 4

Programme - JCT contract does not have a programme as a contractual document. NEC programme is key, it is a contractual document and to be regularly updated

Payment - JCT contract payment section is clear, is all in one section and easy to follow. Under the NEC contract it is located in three different locations and can be confusing

Contract Administrator v Project Manager - Both responsible for unbiased contract administration. Must be PM under NEC, can be anyone competent under JCT ie PM, QS, Architect

Question 5

How does a standardised form of contract benefit a project?

Answer 5

Keeps contractual bias to a minimum
Proven caselaw
Saves time and cost for developing a unique contract for each project

Question 6

What typical amendments have you encountered? & do you agree with them?

Answer 6

• Payment terms
• Change management i.e. CE’s and periods of reply.

Payment terms are agreed on the basis of cashflow availability.
Change management is agreed based on type of work to be carried out and our liability with the client, ensuring no gaps.

Question 7

What if you were asked to provide advice?

Answer 7

Secondary clauses (X Clauses within NEC) – I can advise on
Amendments to core clauses (Z Clauses) – seek legal advice

Question 8

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

Answer 8

Performance of work or services in accordance with the specifications and quality standards
Payment obligations
Compliance with Law and Regulations
Communication and cooperation

Question 9

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

Answer 9

The LDEDC 2009 Act ties in with the payment provision and adjudication procedures set out in the HGRA Act 1996. It amends and strengthens the effectiveness and enforceability of adjudication decisions.

Question 10

What are the essential components of a valid contract?

Answer 10

Offer - Willingness to contract on specified terms
Acceptance - Act of agreeing to form a legally binding agreement
Consideration - Something of value
Legal Intention - Intention to form legally binding agreement
Capacity - Have the ability to enter the contract

Question 11

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

Answer 11

Offer and Acceptance – NEC contract documents include the contract form, tender documents, contractors’ proposals and terms and conditions of the offer.
Consideration – Agreed Contract Sum
Capacity – Presumed to have the legal capacity to enter a binding agreement.
Legal Intention – Execution of the contract documents by both parties

Question 12

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

Answer 12

PCG – If a company goes insolvent or is unable to provide the works, the parent company is obliged to complete the works.
PB – Provided by a third party (insurance), the guarantee the performance of a contractor under a construction contract. E.g if a product/ system is not achieving the performance requirements set out in the contract.

Question 13

2 types of performance bond?

Answer 13

On Demand - does not require proof of a breach of contract
Conditional - requires proof of liability before payment

Question 14

Updates to NEC3 following Construction Act update?

Answer 14

Changes to Payment Provisions in Option Y(UK)2
Changes to adjudication provisions in W2

Question 15

Key changes from NEC3 to NEC4?

Answer 15

Two new contracts:
- BBO Contract
- ALC Contract

Risk Register > EWN Register
Employer > Client
Works Info > Scope
AFP must be submitted for a payment, rather than a PM obliged to make an assessment
New W3 Dispute Clause

Question 16

What is NEC4?

Answer 16

New Edition of NEC released in 2017

Question 17

NEC3 Dispute Resolution?

Answer 17

Two Tier Approach:

1. Adjudication (W1, when HGCRA doesn’t apply or W2 when HGCRA applies)
2. Arbitration or Litigation

Question 18

Secondary Option Clauses under NEC3?

Answer 18

X Clauses - Allow risk to be reallocated
Y Clauses - Deal with specific UK situations
Z Clauses - Parties can form a schedule of amendments

Question 19

NEC3 Core Clauses?

Answer 19

1. General Items
2. Contractors main responsibilities
3. Time
4. Testing & Defects
5. Payment
6. CE
7. Title
8. Risk & Insurance
9. Termination

Question 20

NEC3 X Clauses?

Answer 20

Option X1 – Price adjustment for inflation
Option X2 – Changes in the law
Option X3 – Multiple currencies
Option X4 – Parent company guarantee
Option X5 – Sectional completion
Option X6 – Bonus for early completion
Option X7 – Delay damages
Option X12 – Partnering
Option X13 – Performance bond
Option X14 – Advanced payment
Option X15 – Limitation of Design
Option X16 – Retention
Option X17 – Low performance damages
Option X18 – Limitation of liability
Option X20 – Key performance indicators

Question 21

Advantages & Disadvantages of Lump Sum / Target / Cost Reimbursable?

Answer 21

Lump Sum
+ Cost certainty for Employer
- Higher risk for Contractor, however can lead to greater profit margins

Target
+ Both parties incentivised to reduce costs
+ Encourages risk sharing
- Employer can face pain
- GMP can be introduced

Cost Reimbursable
+ Enables design changes throughout construction
+ Low risk for Contractor
- No price certainty
- No incentive for efficiency for Contractor

Question 22

What is shown on a Payment Cert?

Answer 22

Date of Certificate
Contract Date
Payment Dates / Timelines
Contractor Details
Subcontractor Details
Site / Project Address & No.
Certificate Title & No.
Contract Sum
Gross Value
Previously Paid
Retention
Amount Due

Question 23

Types of Bonds?

Answer 23

Performance Bond
Advance Payment Bond
Retention Bond

Question 24

Have you dealt with collateral warranties, performance bonds or PCGs on your projects? If so, can you provide details of how you did so?

Answer 24

PCG - Contract with a MCC supplier, whom we have a framework agreement with, have a parent company. This contract was set to be over £1m therefore our company stipulates that a PCG is required.
Performance Bond - I have requested this on numerous occasions, however when presenting the cost / year, compared with the maximum amount in return, it has been favoured against proceeding

Question 25

Have you experience of using letters of intent?

Answer 25

No experience with letters of intent, however I am aware of the risks associated:

• Ambiguity and lack of clarity
• Often leads to scope increases and discrepancies
• Can end in dispute
• Don’t provide for all eventuality’s

Question 26

How have you dealt with completion of your projects with your sub-contractors and/client?

Answer 26

Once the criteria set out in the contract is met by a subcontractor, under Clause 30.2 within one week we issue a completion certificate which fully acknowledges that the work is complete and the defects liability period has begun
If there is retention held, then half is released upon Completion

Question 27

What is your process for formally agreeing final accounts?

Answer 27

Under the NEC the total of the Prices is adjusted as the project progresses following the CE procedure. This helps achieve a swift FA agreement. If there are any disputed CE’s then I hold a meeting where I collate all supporting information
Following the discussions, I ensure a FA statement is signed by both parties

Question 28

Can you provide an example of a CE not being agreed or accepted?

Answer 28

Oswestry WTW
- Bitumen discovered within the SSF floor slab joints, our PM raised a CE under 60.1(12) physical conditions. The CE was initially rejected by the Employer as clause 60.1(12) had been deleted from the amended NEC3 Contract, meaning it was our risk as the Main Contractor.
- I advised our PM, within the EWI, an assumption had been made “there are no hydrocarbons presents within material within the site.”
- I received third party recommendations that Bitumen is classed as a Hydrocarbon, and therefore resubmitted the CE under 60.1(14) an Employers risk event, along with my supporting evidence.
- The CE was accepted by the Employer and led to a £300k increase to the Total of the Prices and a change to the Completion Date.

Question 29

How do you ensure compliance with the contract and legislation for payments?

Answer 29

The contract sets out the requirements that of the relevant legislation for payments:
Option Y(UK)2
Payment notices in accordance with the statutory requirements of Section 110 of the Construction Act.
Issuance of a payment certificate in accordance with section 111 of the Construction Act. This also refers to issuing payless notices if you intend to pay less than the notified sum.

Question 30

Have you issued a Payless Notice? Explain how and why you would use it.

Answer 30

Yes, on the Verulam Rd a civil subcontractor had applied for various accepted CE’s, of which the quotations were not yet agreed. However, as a gesture of good will, and that the work was complete, I certified their applied amounts in full (on account) until we had agreed a price.

Subsequently, we had agreed a value for each of the CE’s. I revised the payment certificate and issued them a payless notice within the time frames set out in the subcontract.

Question 31

Can you explain further about your involvement with insurance claims on projects?

Answer 31

UU have an OCIP Policy which covers all participants in the building contract. We made a claim against the OCIP policy due to Non-negligent damage caused by ground heave. I worked with our internal insurance team, to collate related costs.

Question 32

Have you determined LADs for your sub-contracts? If so, how?

Answer 32

Yes, I have included X7 Delay Damages on Subcontracts.
Only when there is a genuine pre-estimate of loss if the Subcontractor does not complete on time
Understood our weekly burn rate at the time of completion

Question 33

Can you give an example of when you have selected the appropriate form of sub-contract to use?

Answer 33

I have advised on the use of NEC3 ECS Option B when procuring the carpark surfacing package for Oswestry WTW. This is because the quantities of sub-base and base course were not exact on the drawings available, therefore we agreed rates for each course and white lining. This was then re-measured upon completion.

Question 34

Verulam Rd - Can you give an example of when you have rejected a sub-contractor notified CE, the reasons for doing so and how you advised the sub-contractor?

Answer 34

Yes on Verulam Rd, a civil subcontractor raised a CE under clause X2 Change in Law, following UK legislation restricting the use of red diesel. However, X2 was not one of the secondary clauses within the subcontract, therefore I responded under Clause 61.4 stating is not one of the compensation events stated in this subcontract. The subcontractor agreed with my response

Question 35

Verulam Rd - Did you have an occasion to reject a CE on a time-barred basis? If so, how did you deal with it?

Answer 35

Yes, a number of CE’s whereby it wasn’t the responsibility on the Contractor to notify the Subcontractor, and they didn’t submit a CE within 7 weeks of the event, then I time barred them under clause 61.3

Question 36

Oswestry WTW - How did you persuade the client that an assumption stated in the Works Information was equivalent to a stated Employer’s Risk?

Answer 36

I referenced clause 10.1, which states both parties shall act in a spirit of mutual trust and co-operation. When an assumption is made within the EWI, we trusted it was correct, therefore when it was incorrect, the client co-operated in awarding the CE.

Question 37

Oswestry WTW - Did you consider an argument that it was a change to the Works Information Cl 60.1 (1)

Answer 37

Yes, that also supported our case that if they rejected the CE under clause 60.1(14) then we would raise it again under Clause 60.1(1)

Question 38

Garstang Rd - What other main contract clauses were stepped down and how were they received by the supply chain?

Answer 38

X16 Retention - This was set at 5% with the Employer and therefore this was passed down in all Subcontracts
Payment Terms - Payment Terms amended from the HGCRA from 21 Days to 42 Days
All subcontractors were aware of the contract conditions when tendering, and majority of subcontractors have worked with Advance plus and UU therefore familiar with stepped down contract clauses

Question 39

Garstang Rd - What was the cost/benefit of dealing with the ground conditions in the way you did?

Answer 39

The ground investigation works totalled circa £15k which was a saving of circa £50k to £100k in respect of some contracts

Question 40

Garstang Rd - Did you consider buying the risk from some of the sub-contractors?

Answer 40

This was suggested, however it was discounted for two reasons:
1. Buying the risk was higher than undertaking the relevant trial holes
2. I have done similar previously, however if the wording within the SWI is not clear, it can lead to further ambiguity and disputes

Question 41

Garstang Rd - Can you provide other project examples of advising regarding LADs, bonds and retention?

Answer 41

Bond:
On Oswestry WTW, we included X14 Advance payment to a Subcontractor who was supplying and installing Stainless Steel Launder Channel’s. They provided an advanced payment bond, which ensured we were protected. The subcontractor then repaid the upfront payment in instalments stated in the Subcontract Data

LD’s:
X5 Sectional Completion and X7 Delay Damages was used on the MCC Supplier at Oswestry WTW. This was because supply of certain MCC’s was critical path. Therefore we assigned genuine pre-estimates to each of the critical path MCC’s

Retention:
Retention is set at 2.5% with the Employer on Oswestry, therefore we ensure all subcontracts include a minimum of 2.5% retention as well.

Question 42

Discuss third party rights?

Answer 42

Rights of Third Parties Act:
- Allows 3rd Parties to enforce terms of a contract they are not a party to, but benefit them in some way

Question 43

Collateral Warranties?

Answer 43

A formal contractual agreement which runs alongside another contractual agreement

Question 44

OCIP Policy?

Answer 44

Owner Controlled Insurance Policy
Taken out by UU to cover works being completed on their behalf
Covers all participants in the contract:
- UU
- Main Contractor (ADP)
- Subcontractors