Contract Practice - Level 3

Question 1

What delay had the contractor caused on the South UPS project?

Answer 1

Behind schedule in the issuing of various designs delaying the programme.

Question 2

What were the key contributing factors to the two year programme slip?

Answer 2

A large part had occured prior to my involvement on the scheme, key factors include:

• UPS procurement delays.
• Engineering assurance resourcing issues
• Cancelled possessions delaying surveys.
• RAM instructing work to be paused to see if additoinal works could be included alongisde the UPS installation.

Orignal Completion - 31/03/2022

Final Completion - 30/06/2025

Question 3

What are liquidated damages?

Answer 3

Geniue pre-estimate of the likely lost to be incurred for late completion.

Question 4

What alternatives to liquidated damages are there?

Answer 4

Performance Bonds.

Incentives for timely completion.

Under NEC4 there is clause X6 which provides a bonus for early completion mechanism.

Question 5

Why were liquidated damages not being used on the project?

Answer 5

The works were not time critical when the contract was awarded, therefore paying the premium for liquidated damages wasn’t justified.

Question 6

How are liquidated damages calculated?

Answer 6

Prior to the formation of the contract an assessment will need to be carried out to determine cost impact for late completion.

A rate will be stated in the contract data that is payable for each day after the Completion Date until Completion is actually achieved.

Question 7

What is sectional completion?

Answer 7

As opossed to waiting for the completion of the enitre works, the Client may split the works into sections.

This will result in multiple completion dates being written into the contract for the different sections.

This will also have an impact on liquidated damages, retention and defects period.

Question 8

What is the contractual mechanism under the NR04 contract for deducting liquidated damages?

Answer 8

Clause 14.4 - Liquidated Damages

Practical Completion not achieved by the Completion Date.
Contractor liable to pay liquidated damages based on the rate stated in the contract order up until Completion is achieved.

Question 9

What is the contractual mechanism under the NEC4 contract for deducting liquidated damages?

Answer 9

Liquidated Damages are refered to as delay damages under NEC and fall under clause X7.

If clause X5 for sectional completion is in place then delay damages will be split out with a rate being provided for each section.

Each day after the Completion Date where the contractor hasn’t completed the works, the PM will deduct delay damages based on the rate in the contract data from the next payment assessment, making this clear in the Payment Certificate. This continues until Practical Completion is achieved.

Question 10

What did the manufactures warranty for the UPSs cover?

Answer 10

2 Services of the UPS within 12 months of their purchase and repair for any issues caused by manufacturing faults.

Question 11

What is vesting?

Answer 11

Vesting is where the Title of materials or plant transfers from the contractor or supplier to the Cliet.

Transfer of title could occur when:

• Materials are paid for.
• Materials are delivered to site.

Question 12

What was the vesting clause under the NR04 contract and how did it work?

Answer 12

Clause 7.9 - property in goods and materials.

Title transfers when materials have been incorporated into the works or the supplier has received payment.

A vesting certificate was also provided, reaffirms Network Rail’s position in relation to the title of materials and protects in case of supplier insolvency.

Question 13

How do you protect materials paid for that are stored off-site?

Answer 13

• Ensure they are stored in a secure environment.
• Clearly marked name of the owner to protect incase of contractor insolvency.
• Insurance.
• Materials off-site bond.

Question 14

What are collateral warranties?

Answer 14

A collateral warranty is a contract between a contractor, suppplier or consultant and an interested third party.

Question 15

What is the third party rights act?

Answer 15

Contracts are doctrine of privity, meaning a third party to a contract can not enforce the obligations under a contract.

However, the introduction of the Rights of Third parties Act 1999 enables a third party to enforce rights of a contract based on one of the following conditions:

• Contract confers a right to the third party.
• Third party is specifically mentioned.

Question 16

Why do you think collateral warranties are more widley adopted compared to the use of the third party rights act?

Answer 16

• Parties are familiar with collateral warranites.
• A direct contractual relationship is created.
• Collateral warranties offer flexability as they can be tailored to meet requirements.

Question 17

What was the payment mechanism on the NR04 contract for the South UPS project?

Answer 17

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

Question 18

What interest could the subcontractor charge for late payment on the South UPS project and how is it calculated?

Answer 18

Clause 7.11 Interest for late Payment

Subcontractor would be entitled to simple interest at 4% above Bank of England Base Rate.

Calculated from the Final Date for Payment until payment is actually made as a daily %.

Question 18

Talk through the NR04 payment timescales.

Answer 18

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 19

How would you have calculated liquidated damages on the South UPS project?

Answer 19

This would require an assessment of the loss incurred by Network Rail due to the late completion.

This would be the cost of hiring backup generators and the anticipated fuel consumption. Some internal NR resource for managing the generator setup will also be required.

Cost of the generator works out to roughly £1,300 depending on fuel consumption.

Question 20

What is paritial possession?

Answer 20

When the Client takes over the works prior to Completion, works will then be deemed as having achieved Completion.

Question 21

How does partial possession differ to sectional completion?

Answer 21

Sectional Completion is a contractual mechanism clearly set out.

Partial possession occurs once the contract is already in place, usually due to presssures on the Client.

Under NEC4 there is a compensation event for early Client Take Over.

Question 22

How would a collateral warranty help on the South UPS project?

Answer 22

A collateral warranty will create a direct contractual relationship between Network Rail and the UPS supplier.

This will protect Network Rail in case the subcontractor goes insolvent.

The collateral warranty enables Network Rail to resolve any issues with the UPSs directly with the supplier without the need to involve the subcontractor.