Contract Practise Flashcards
What are the forms of JCT contracts
JCT Standard building contract 2016 JCT Intermediate building contract 2016 JCT Minor works building contract 2016 JCT Design and build contract 2016 JCT Management building contract JCT Construction management contract JCT Major Project construction contract
What are the forms of subcontract
Short form of sub contract
Contractors design
Sub-sub contract
What is a JCT minor works contract
is designed for smaller, basic construction where the works are simple in nature. For traditionally procured projects
What is a JCT intermediate works contract
is designed for construction projects involving all of the trades and skills of the industry but without specialist or complex building services installations.
What is a JCT construction management contract
is designed for construction projects where the employer appoints separate trades to carry out the works, and a construction manager to oversee the works for a fee.
What is a JCT management building contract
is for use on construction projects where the client appoints a management contractor to complete the works. construction is completed under a series of separate works contract
When were JCT building contracts established
1931
What are the forms of NEC contract
NEC4 Engineering & Construction
NEC4 Design Build & Operate Contract
NEC4 Engineering & Construction Subcontract
NEC4 Framework Contract
NEC4 Professional Servies Contract
NEC4 Supply Contract
What are the options for NEC contracts
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 reimbursale contract
Option F: Management contract
What are some differences between JCT and NEC
JCT offers prov sums, Nec does not,
JCT is a fixed price contract. Option B is, Options C&D are target cost,
JCT has relevant matters and relevant events, time and money are dealt seperatly. NEC contract has compensation event, time and cost are dealt with together
What is a letter of intent
a document expressing the intention to enter into a contract at a future date but creates no contractual relationship until that future contract has been entered into.
What is a comfort letter of intent
Expressing interest to act in a particular way at some point in the future or at the time of issuing the letter. Does not form a contract but may impose either or both parties to obligations in relation to payment.
What is a Instruction to proceed with consent to spend letter of intent
A letter with instruction to proceed and content to spend as if in a contract. Allow contractor to proceed before the contract has been finalized. Legally binding but superseded after main contract begins.
What are letters recognizing the existence of a building contract
also known as a letter of acceptance and is used by some forms of contract (FIDIC) to formally execute the contract.
What is included within a letter of intent
The parties, The works, The price (if agreed), Statement of intention, Insurances that are to be provided, Termination procedure, Dispute resolution procedure.
What if time, quality or cost if missing from a letter of intent
Cost - the contractor will be entitled to a reasonable sum that reflects the value of the works “quantum meruit basis”
Time - reasonable time for the completion will be implied
Quality - the contractor must carry out the works with reasonable skill and care not with standing statutory obligations.
What is a retention
a percentage of the amount certified as due to the contractor on an interim certificate that is deducted from the amount due and retained by the client
what percentage is a retention
typically between 3-5% unless stated otherwise in the JCT contract particulars
What are the advantages of a retention
funds rectifying defects,
incentive for contractors to complete the project on time without defects,
incentive for contractors to return for DLP,
offers the client protection against contractor insolvency.
What are the disadvantages of a retention
Contractor is not paid in full for satisfactory work,
5% can represent a large portion or all of contractor profits,
A subcontractor who completes their works may not receive payment for months/ years until the project is complete
What alternatives to a retention were recommended in the pye tait review
Project bank accounts, Retention bonds, Performance bonds, Escrow stakeholder accounts, Parent company guarantees, Retentions held in trust funds
What actions have been taken to improve retentions
2017 - pye tait review,
2018 - bill passed so retentions are held in third party scheme
2019 - persimmon homes let buys hold back a retention until snagging issues are dealt with
2019, build uk published a set of minimum standards for retentions
What is a bond
bonds are means of protection against the non-performance of the contractor.
what are the types of bond
Performance bond, Advance payment bond, Bid bond, Retention bond, Adjudication bond,
What is a performance bond
A performance bond is a form of insuring the client against the risk of the contractor not fulfilling their contractual duties. Typically set at 10% of the contract value.
What is a advance payment bond
If the client decides to make an advance payment to the contractor a bond will be required to protect the client in the event of default by the contractor. This as an on demand bond.
What are bid bonds
Rare in the UK, typically used on international projects submitted with a tender to secure commitment to the project. This as an on demand bond.
What are adjudication bonds
Emerged from PFI/PPP projects, a payable amount due upon the adjudicators decision.
What are retention bonds
the client agrees to pay amounts that would otherwise be held as a retention. The value of the bond decreases after PC.
What is a bondsman
a professional agent, agency or corporation who takes responsibility for another persons obligations by signing a bond to that effect.
What is a surety
takes responsibility for another persons obligations and may have to undertake payment to the client in the event of non-performance
What is an on demand and conditional bond
on demand bond - the bondsman pays an amount of money set out in the bond immediately.
Conditional bond - requires the client to provide evidence that the contractor has not performed before the amount stated in the bond is payed
What is a relevant event
Where a delay which impacts on the completion date is not caused by the contractor. This is addressed ins section 2.20 of a JCT contract. The contractor may be entitled to an EOT or claim a loss of expense due to direct result of the delay.
What are some examples of a relevant event
Variations or instructions, Exceptionally adverse weather, Civil commotion or terrorism, Failure to provide information, Force majeure e.g. war or epidemic, National strikes, Changes in statutory requirements,
What are some specified perils under JCT
Fire, Explosion, earthquakes, flooring, aircraft crash
What is the test for exceptionally adverse weather
The contractor has to prove that the weather had been worse than of a specified number of years previous, typically 10.
What are relevant matters
Where the client is responsible for an item that materially affects the progress of the works. This is addressed in section 4.17 of a JCT contract. A relevant matter does not always result in a delay or an EOT
What are some relevant matters
Failure to give the contractor possession of the site,
Failure to give the contractor access to the site,
Delays in receiving instruction,
Issues relating to CDM,
Discrepancies in the contract documents,
Failure of the client to supply goods or materials,
What did the case Balfour beatty v chestermount properties demonstrate
Actual delay is required for a relevant event. Hypothetical delays are not accepted in court.
What are the JCT insurance options
There are three insurance options. Options A and B are for new buildings and Option C is for works involving existing structures.
What is JCT Option A insurance
For new builds option A requires the contractor to take out and maintain joint names all risks insurance of the works.
What is JCT Option B insurance
For new builds option B requires the employer to take out and maintain joint names all risks for the insurance of the works.
What is JCT Option C insurance
Options C requires the employer to take out and maintain joint names specified perils insurance in respect of the existing structures and contents and all risks insurance of the works.
What is meant by acceptance?
- where a party agrees to the terms of the offer presented by another party, creating a binding contract
- Acceptance must be unconditional (e.g. a signature on a contract of employment)
- Negotiations are counter-offers, not acceptance
- Silence is not acceptance, unless it is clear acceptance was intended (as substantiated by that party’s conduct)
What is meant by consideration?
- Parties must exchange something of value for a contract to be binding
- For example, selling their house for £1 is valid consideration. Selling your house for nothing is not.
What is meant by capacity?
- All parties must have the ability to understand the terms of and any obligations under the contract.
- Consent to the contract must be freely given (force, fraud, misrepresentation, inebriation renders the contract void)
- People under 18, under the influence of drugs or those suffering from mental health conditions generally lack the capacity to enter into contracts.
- THE CLIENT/COMPANY MUST HAVE THE CAPACITY TO BE ABLE TO DELIVER THE WORK/PAY FOR THE WORK e.g. I do not have the capacity to enter into a Contract to deliver a £100m scheme because I am one person with £0 capital, no labour etc
What is meant by intent?
- Not all agreements between parties are contracts. It must be clear the parties intended to enter into a legally binding contract
- The person who wants the agreement to be a contract must prove the parties actually intended to enter into a legally binding contract
What is a collateral warranty?
A way of forming a direct contractual link between two parties with otherwise wouldn’t have a link, such as between a sub-contractor and a client.
Why might you get a performance bond for a smaller Contractor?
They are more at risk of going insolvent. Less well established, probably are more dependent on credit and good cash flow.
How much is a typical performance bond worth?
10% of Contract Sum
Who issues performance bonds?
Banks/Insurance Companies
What are the two variations of performance bonds?
- Conditional: Client has to prove that Contractor has not performed
- On Demand: No pre-conditions needed to be met. Not often used, seen as too harsh.
How long would you recommend a performance bond should stay in place?
Until the end of the Defects Liability Period.
Name 7 insurances that you may come across in a construction Contract.
- Contract Works Insurance
- Employer’s Liability Insurance
- Public Liability Insurance
- Professional Indemnity Insurance
- Terrorism Insurance
- Flood Insurance
- Legal Indemnity Insurance
What is Contract Works Insurance?
- non-standard insurance policy
- coverage for property damage and third-party injury or damage claims, the two primary types of risks on construction projects
What is Employer’s Liability Insurance?
Covers compensation if employees are injured or become ill because of the work they do.
All firms that employ staff are legally required to hold Employers Liability Insurance.
What is public liability insurance?
Provides cover against personal injury or death, loss or damage to property of third parties e.g. the general public or sub-contractors
What is professional indemnity insurance?
Provides cover for negligence on part of service provider. Will ensure service provider will not be bankrupted by successful claim, and recompense to client to re-mediate consequences of negligence.
Essential for providers of professional services
What is legal indemnity insurance?
Provides recompense in the event that the policy holder incurs capital loss or expense dealing with a range of possible legal issues.
Examples can be unforeseen rights of way issues over land that has been purchased, incurring costs to rectify.
What is an advance payment?
When a Contract Sum is paid in advance of the exchange (prior to work being done/goods supplied)
Why may a contractor request advance payment?
If there are significant start up/procurement costs, e.g. expensive items with long lead times
How might the client protect themselves when paying a Contractor in advance?
Secure a payment bond from the Contractor
What are the implications for paying for goods that the sub-contractor has ordered but have not yet been delivered to site?
Puts the client at risk in the case that the supplier/sub-contractor goes insolvent, as they may never receive the materials.
Materials for the project have been sourced and delivered to site. Does the client pay for those materials?
Yes unless stated otherwise in the Contract. Payment is made regardless of whether Contractor has paid supplier.
What is “retention of ownership” in regards to materials?
- This is a clause that allows the supplier to hold ownership of materials until payment.
- Good for supplier as it encourages payment, improves cashflow
- Bad for the client as if items are not affixed, as client may pay Main Contractor but Main Contractor may not pay supplier. Supplier could reclaim those items.
What is meant by “fluctuations”?
- A mechanism to deal with inflation, particularly useful in long lasting projects.
- Accounts for the inflation of labour costs, transport, materials (escalation), overheads.
How are fluctuations calculated?
- Using nationally published price indices
- Payment is based on cashflow projections of material, then quarterly percentage assessments of inflation are added to projection
Are all projects subject to fluctuations?
No, only projects whereby it is stated within the Contract that fluctuations will be accounted for.
What are the 3 types of fluctuations considered under JCT?
- Changes to statutory contributions, levies and taxes
- Changes to labour, materials, transport (sometimes referred to as escalation)
- Increase in head office/administrative costs
When does retention get released?
Half released at practical completion, half released upon certification of making good defects
Who keeps the interest on the retention money?
The client
What happens with the retention money the client keeps?
The Contract may state that the retention money is kept in a separate bank account.
What issues do sub-contractors have with regard to retention?
- Causes cashflow problems
- Release of retention can be delayed for reasons out of their control, e.g. defects liability period not ending due to other parties not remedying defects
- construction supply chain payment charter proposed abolishing retention by 2025
What are change procedures?
A process that ensures potential changes to the deliverables of a project or the sequence of work in a project, are recorded, evaluated, authorised and managed
When should change procedures be introduced?
Change procedures may be tendered:
- After design freeze
- After tender documentation is released
- After project is tendered
- After the Contractor is appointed
What should change procedures ensure are defined?
- Reason for the change
- Who is requesting the change
- Consequences of change (time/cost/H&S/quality/who bears the cost)
- Risks associated with change
- Proposals to mitigate consequences
- Alternatives to the proposed change
- Time by which change must be instructed
What is a variation?
An alteration to the original scope of works in a construction contract.
This may be an omission, substitution or addition of works.
Why do variations occur?
- Client changes mind (design development or Contract Documents not stipulating what the client originally wanted in sufficient detail)
- Geological anomolies
- Statutory changes
- Technological advances (changing client requirements)
What are express terms in a Contract?
Express terms are those that have been explicitly agreed by both parties and can be oral or in writing.
Does a Contractor have to carry out variations?
If there are no express terms, Contractor does not legally have to carry out variation.
Contractor can continue to carry out works as per agreed at tender.
How are variations valued?
- Contract rates
- If Contract rates are not available (for example in a D&B Contract that was tendered with limited design info), the PQS and Contractor’s QS will negotiate to what is deemed reasonable and fair. Market tesing, BCIS data and in-house data can be used by the PQS to review Contractor submissions.
Why do variations cause conflict?
- Conflict over the value of the change
- Over whether the change is a client cost or Contractor risk
- Often conflict occurs where there are gaps in the specification. Contractor may argue it is therefore a change, but Client is not bound to pay for things that a reasonable contractor must have understood to be done
Example: specification may not state every screw used to fix a radiator to the wall, but within the spec for a radiator, pattressing etc, a Contractor would reasonably be expected to assume the inclusion of the screws.
What is an extension of time?
Where the Client allows the Construction Period to be extended due to delays that are not the fault of the Contractor.
How does the Contractor acquire an extension of time (EoT)?
- Gives CA/EA written notice identifying the relevant event that caused the delay
- Proposes adjusted completion date
What counts as a relevant event that can result in an EOT?
- Variations
- Weather
- Terrorism
- Force Majeure
- Strikes
- Nominated sub-contractor delays
If the Contractor can foresee a delay caused by a relevant event, what should they do?
They are required to prevent or mitigate the delay even if it is not their fault.
If they cannot avoid the delay, they can request an EoT.
How should a Contractor prepare for a claim of EoT?
- Provide good quality information
- Demonstrate link between breach and delay
- Demonstrate delay against progress of the works, not programme
What are liquidated damages?
Pre-determined damages set at the time the Contract is entered in to, based on the actual loss the client is likely to incur if the Contractor fails to meet the completion date.
What are claims of loss and expense?
The Contractor can claim for direct loss and/or expense as a result of relevant matter the client is responsible for.
Give some examples of when a Contractor may be entitled to Loss and Expense?
- Failure to give Contractor site possession/access
- Delays in instruction
- Discrepancies in Contract Documents
- Failure to supply goods/materials
