Contract Practice - Level 2

Question 1

What documents make up a contract?

Answer 1

Form of Agreement.

Conditions of Contract.

Pricing Document.

Programme of Works.

Scope of Works.

Drawings.

Risk Register.

Question 2

What are performance bonds?

Answer 2

“Contract of Guarantee” whereby the Guarantor undertakes to pay damages to the Employer arising from breach of contract by the Contractor.

Standard value is 10% of contract sum

To call for payment Employer must prove that the contractor has defaulted in their obligations under the main contract and that loss has been suffered

Question 3

What other types of bonds are there?

Answer 3

• Performance Bonds.
• Retention Bonds.
• Advanced Payment Bonds.
• Materials off-site bond.

Question 4

What is the difference between bonds and insurance?

Answer 4

Insurance pays for losses when a claim is made, whereas a bond guarantees obligations are fulfilled.

Insurance is between two parties.

Bond is three parties.

Failure by the principal meet their obligations, will cause the surety to have to payout to the obligee.

Question 5

What type of contract was in place on the Watford project?

Answer 5

Bespoke NR04 contract for Minor Works.

Question 6

What was the payment mechanism on the Watford project?

Answer 6

Fixed price contract with periodic applications based on completed quantities in the BoQ.

Question 7

Talk me through the payment timeline on the Watford project.

Answer 7

Period End - Assessment Date: Contractor submits application.

14 days from Period End - Due Date: Employer’s Representative to Certify by the Due Date.

Final Date for Payment - 7 days from the Due Date.

Payless Notice - upto 1 day before the Final Date for Payment.

21 day payment timescale.

Question 8

How did you conduct your assessment of the completed works on the Watford project?

Answer 8

Feedback from the site supervisor.

Revewing of shift reports.

Images of completed works on site.

Keltbray’s application missed out some brackets installed on the OLE structure.

Question 9

What RICS rules of conduct did your behaviour on the Watford project fall under?

Answer 9

• Rule 1: Acting with honesty and integrity.
• Rule 2: providng a quality and diligent service.
• Rule 5: Maintaining public confidence in the profession.

Question 10

What requirement does the construction act impose on Payment Certificates?

Answer 10

It must specify the amount due and the basis of the assessment.

Question 11

When would a payless notice be required?

Answer 11

When changing the “certified sum”.

Contractor’s application became the “Certified Sum” and the PM wants to reduce this.

PM issued their Payment Certificate resulting in a “Certified Sum” and then prior to the Final Date for Payment wanted to change their assessment.

Question 12

What are the payment timescales under a standard NEC4 ECC contract?

Answer 12

1. Contractor applies for payment by the assessment date.
2. Project Manager certifies payment within 7 days.
3. Payment Due Date is 7 days from the Assessment Date.
4. Final Date for Payment is 14 days from the Assessment Date.
5. Payless Notice – 7 days before the Final Date for Payment.

Question 13

What was the payment mechanism on the Trilink Interim PMO project?

Answer 13

Cost Reimbursable - time charge and associated expenses.

Question 14

When does a payless notice have to be issued by for it to take effect?

Answer 14

The Construction Act states it must be issued within the “Prescribed Period” as agreed by the parites.

Under a standard NEC4 ECC this is 7 days prior to Final Date for Payment.

Under NR04 this is 1 day before the Final Date for Payment.

Question 15

What were the payment timescales on the Trilink project?

Answer 15

Assessment Day - Consultant submits application for payment.

Client certifies within 12 days of Assessment Day.

Consultant submits invoice within 2 days of payment certification.

Due date is the later of:

• 14 days from the Assessment day
• Date invoice is received.

Final Date for Payment is within 7 days of the Due Date.

Question 16

What is the Scheme for Construction Contracts?

Answer 16

When construction contracts fail in their requirments under the construction act, particularly in relation to payment mechanisms and right for adjudication, the Scheme implies statuatory obligations between the parties.

Question 17

What is the adjudication process under the Scheme?

Answer 17

Notice of adjudication issued by the referring party.

Adjudicator nominating body appoints an adjudicator within 5 days of being requested to do so.

Within 7 days of the notice of adjudication the refering party must issue a “referral notice” to the Adjudicator.

Adjudicator must reach a decision within 28 days of the referral notice.

Question 18

What is the Scheme for Construction Contracts?

Answer 18

Period End - Payment Due Date is 7 days after.

Payment Notice - issued within 5 days of the Due Date.

Final Date for Payment - 17 days after the Payment Due Date.

Payless Notice - within 7 days of the Final Date for Payment.

Question 19

What’s a contract change threshold and why is it required?

Answer 19

With Network Rail being public sector there is a requirement from the Infrastructure and Projects Authority department to ensure projects are delivering value for money. To ensure this, NR setup contract change threshold this is so that when spending on a scheme exceeds a set threshold this will trigger the requirement for an internal gateway review to ensure the scheme is still delivering value.

Question 20

What was the Contract Change Threshold on the South UPS Scheme?

Answer 20

It was originally at 50% of the contract value however this had been exceeded and following an internal gateway review the threshold was raised to £3Million to cover future anticipated changes.

Question 21

What certificates are released under a contract?

Answer 21

• Practical Completion Certificate – certifies completion of the works, payment made, and half retention released, and 12-month defects rectification period commences.
• Defects Certificate – end of the defect rectification period and final retention is released. Confirms no further defects or lists defects that need to be rectified.
• Payment Certificate
• Termination Certificate
• Insurance Certificate

Question 22

How does payment for the cost of defects work?

Answer 22

• Contractor Rectified Defects – No Final Account adjustment necessary.
• Alternative Supplier Rectified Defect – Client will deduct the cost of this from the Final Account in form of a contra-charge.
• Defects following Final Account settlement would be deducted from retention.
• Defects following final account with no held retention: Once the defects liability period has expired then any further defects will be subject to a separate claim for damages and for breach of contract, or for negligence.

Question 23

Who are the key parties under an NEC4 contract?

Answer 23

• Client/Employer
• Contractor
• Project Manager/Contract Administrator
• Supervisor

Question 24

What are the timescales for Final Account settlement on NEC?

Answer 24

• Defects certificate issued by supervisor – 4 weeks to complete final account.
• Termination certificate by PM – 13 weeks to complete final account.

Question 25

What’s the difference between an Early Warning Register and a Risk Register?

Answer 25

• EW – contractual mechanism to identify events likely to become CE’s. Identifies risk and action. Focused on emerging risks.
• RR – managing and forecasting risk. Quantifies probability, impact, and cost and identifies possible mitigations.

Question 26

What is an Early Warning?

Answer 26

Notice by either PM or Contractor of event likely to increase total of prices, delay completion, delay key date
or impair performance of the works.

Matter logged in EWR, registered provided to contractor within 1 week and first meeting held within 2 weeks.

Meeting considers how matter can be avoided or reduced.

Question 27

How preliminaries assessed in fixed price contract?

Answer 27

Has the cost been incurred? Evidenced in timesheets, invoices etc or proportion with each assesment.

Question 28

Under NEC, who is required to notify CE?

Answer 28

PM caused event such as issuing notices or certificate then they should notify CE, otherwise contractor should notify the PM within 8 weeks.

Contractor submits quote for the CE, PM provides any necessary assumptions to enable pricing.

Question 29

What’s the timescales for Compensation Events under NEC4?

Answer 29

1. PM or contractor notifies of the event which is to be a compensation event (contractor has 8-week time bar).
2. PM has 1-week to confirm if CE – requests quote from contractor in their notification.
3. (PM fails to reply within the week, contractor notifies PM of failure and if no response within two weeks the event is deemed a CE).
4. Contractor has 3-weeks to quote.
5. PM has 2-weeks to assess quote.
6. (PM fails to reply within the week, contractor notifies PM of failure and if no response within two weeks the quote is deemed accepted.)

Question 30

What is the change control process under NR04?

Answer 30

Employer Instruction for fair and reasonable adjustment to the Contract Price and Completion Date.

Question 31

If you don’t receive a contractor’s application for payment on time, what happens?

Answer 31

PM will make their own assessment of the amount due and the lesser of the PM’s assessment and the last assessed amount is the amount due.

This means in a best-case scenario the contractor receives no payment; however, it could be the contractor is required to pay the Client if the PM’s assessment reduces the assessed amount.

Question 32

How did you calculate the cost for the incomplete surveys on the EV Charging scheme?

Answer 32

I reviewed the quote and cost breakdown for the works.

I identified the cost associated with providing the two reports and advised the PM in their assessment of the cost of work performed to not include for these surveys

Question 33

What NEC contracts are you aware off?

Answer 33

• Design, Build and Operate Contract
• Dispute Resoloution Service Contract
• Engineering and Construction Contract
• Engineering and Construction Subcontract
• Engineering and Construction Short Contract
• Engineering and Construction Short Subcontract
• Framework Contract
• Professional Services Contract
• Professional Services Subcontract Contract
• Supply Contract
• Supply Short Contract

Question 34

What JCT contracts are you aware off?

Answer 34

Standard Building Contract:

• With Quantities
• Without Quantities
• With Approximate Quantities - payments and final account assessed on a remesuarement basis.

Design and Build Contract.

Intermediate Building Contract.

Minor Works Building Contract.

Question 35

What are some of the key differences between NEC and JCT?

Answer 35

NEC doesn’t allow use of provisional sums - too risky, PM should make the necessary assumptions.

Programme - contractual document under NEC but not JCT.

NEC dealys with time and cost together as a Compensation Event with condition precendent. JCT splits them in the form of Relevent Events and Relevent Matters.

NEC uses simpler English making it easier to understand & is designed for international use.

NEC adopts a more collaborative apporach in handling issue, whereas JCT is more advserial - as is seen in the approach to risk management with NEC adopting Early Warninngs, whereas JCT allocates risk to the parties.

RIBA Construction Contracts and Law Report 2022 :

• NEC - 31%
• JCT - 71%

NEC - Engineering focus.

JCT - Building focus and more widley known.

Question 36

What factors would you consider when advising the Client on the appropriate form of contract?

Answer 36

• Familiarity of the parties with standard forms of contract.
• Nature and complexity of the works, building or engineering.
• Approach the Client is seeking, collaborative or more adveserial.
• Location of the works.

Question 37

What’s the structure of the JCT contract?

Answer 37

1. Articles of Agreement:

• An agreement setting out the party details;
• Recitals, setting out important context as to the nature/type of works being procured and what documents are included in the contract (e.g. specification and pricing documentation);
• Articles, setting out certain factual information in relation to the works, including the contract price and the identity of, for example, the Employer’s Agent for the works.

2. Contract Particulars:

This is a “fill the blanks” section that sets out some project-specific factual elements that need to be completed properly for the contract to work as intended (e.g. the completion date, date of possession, defects rectification period, liquidated/delay damages details etc. must be inserted).

3. Conditions:

The core terms and conditions of the contract - 9 core clauses.

4. Schedules:

These cover some of the more commonly used “add-ons” to a construction contract such as different insurance options, a design submission procedure, fluctuation provisions and template forms of bonds.

Question 38

What are some of the key differences between NEC3 & NEC4?

Answer 38

Employer > Client

Clause 4: Testing and Defects > Quality Management
Requirement on the Contractor to have a Quality Management System in place including a quality policy statement.

Early Warnings: much more detail under NEC4 including timescales for logging EW’s and aranging meetings. Under NEC3 referred to as Risk Register now under NEC4 this is the Early Warning Register.

X29 - new clause for Climate Change
Requirement on the Contractor to have a Climate Change Plan in place.

Introduction of senior representatives as a first step to resolving disputes.

W3 - New option for dispute resoloution - Dispute Avoidance Boards.

Gender Neutral.

Under NEC4 now, Contractor can give PM notice of failure to accept Programme.

NEC4 requirement on Contractor to submit AfP.

Question 39

How does defects work under NEC4?

Answer 39

Issuing of the Completion Certificate commences the Defections Rectification Period.

All defects to be corrected by the Defects Date.

Defects Correction Period - period stated in Contract Data from when defect is notifed until it should be corrected.

Question 40

What are some signs of supplier insolvency?

Answer 40

Reduction in the number of workers on site.

Material and plant being removed from site.

Front loading of cost.

Drop in levels of communication.

Delay in the delivery of materials to site.

Supplier seeking upfront payments.

Question 41

How would you protect Clients from Supplier insolvency from project outset?

Answer 41

Performance Bonds.

Credit Checks.

Parent Company Guarentee.

Project Bank Account

Question 42

What actions would you take following a contractor becoming insolvent?

Answer 42

• Understanding the contractual position and terminate the contract accordingly.
• Secure the site.
• Carry out an assessment of the completed works ensuring to keep clear records and photographs.
• Record of all plant and materials on site.
• Review vesting certificates for all materials being stored off-site.

Question 43

What are some examples of Relvevant Events under JCT?

Answer 43

• Exceptionally adverse weather.
• Acts of terrorism.
• Delay in providing possession.
• Variation

Question 44

What are some examples of Relvevant Matters under JCT?

Answer 44

• Variations.
• Opening up or inspection of the works.