Contracts Flashcards
What needs to be in place for a contract to be valid
"Offer Acceptance Consideration Intent Legality Capacity"
What is the difference between expressed and implied terms
“Expressed terms - Explicitly agreed by both parties and can be oral or in writing
Implied - A term that hasn’t been agreed expressly by either party, but that has been implied by the other terms of the contract”
Can you tell me what a typical D&B contract would consist of
"It is 5 parts; 1. JCT 2. Amendments 3. Employers Requirements Consisting of: Prelims, Design specs & Appendices 4. Contractors Proposals 5. CSA"
What are Prelims
The purpose of preliminaries is to describe the works as a whole, and to specify general conditions and requirements for their execution, including such things as subcontracting, approvals, testing and completion
What are a couple of types of contract asides from lump sum
“Lump sum - Fixed price for works only extras are instructed change/ change not included e.g. ground risk
Re-measurable - based on approximate quantities or schedule of rates
Cost reimbursable - Contractor gets actual costs plus an agreed percentage for OH&P”
Are you aware of the NEC suite of contract
NEC is New Engineering Contract:
What are the NEC options
“Option A-F:
NEC – Option A Priced contract with activity schedule
NEC – Option B Priced contract with Bill of quantities
NEC – Option C Target cost with activity schedule
NEC – Option D Target cost with BOQ
NEC – Option E Cost reimbursable
NEC – Option F Management contract
NEC – ECC Short Contract “
You note about EOT & L&E what are the timescales in the JCT D&B contract to review
“EOT:
Contractor must notify when it becomes reasonably apparent
Must provide causes which is a relevant event
Must provide particulars of effect including estimated delay
Must supply information the employer may reasonably require
Shall notify within 12 weeks of receipt or when reasonably practicable
L&E:
Notify employer as soon a reasonably practicable
Provide assessment of L&E
Must supply information the employer may reasonably require
Within 28 days of receipt of initial assessment and information and 14 days of each subsequent update the Employer shall notify the contractor of L&E incurred. Insufficient detail to allow the contractor to understand the differences”
What clauses in the contract deal with EOT & L&E
“Relevant Event - EOT 2.23-2.26
Relevant Matter - L&E 4.19-4.23”
How many Relevant Events are there
14
How many Relevant Matter are there
5
If a scheme was in delay and the client wished to levy damages following expiration of the contract completion date how would you go about that
“Issue notice of non-completion
Calculate value of omission
Issue this to the client for them to issue
5 day before due date as payless
What signs would you look for in order to understand if a contractor was in trouble of insolvency
“Not paying the supply chain
Falling cashflow
Inactivity on site
Demanding swift payment
Withdraw of labour”
What would you advise the client to do if a contractor went insolvent
“Withhold payments and the release of retention monies
Secure the site and make it safe
Secure both contractors’ and subcontractors’ materials and plant.
Employ a security firm on a visiting or permanent basis.
Ensure the project has adequate interim insurance
Make an inspection of the site and record the progress accurately.
What is the difference between assignment and novation
“Assignment is where the benefit (service) is transferred but the burden to pay remains with the client.
Where the benefit (service) and burden (cost) is transferred”
Would you advise the client to execute the contract under hand or as a deed
“As a deed as it has limitations period of 12 years
Under hand is 6 years”
What are the standard timescales for payment in a JCT D&B contract
“IVD is noted in the contract
7 days to the due date
5 days to issue the Payment certificate
14 days from the due date to pay”
What is the difference between an EA/CA
“Employers Agent - Acts on behalf of the client
CA - must act independent and have an agency function”
What is the risk to a client if the don’t pay by the final date for payment
“If the failure continues for 7days after notice to the employer of intention to suspend has been issued they can suspend performance
It also entitled the contractor to Relevant Event
And will be reimbursed for reasonable costs for suspension
If the default continues for 14 days following notice the contractor can on or within 21 days from expiry of the 14 days terminate the contract
What is the importance of a base date
“It sets the reference date from which conditions are deemed known by the contractor so are reflected in their price.
If a change happens after this date it is not considered to be included in the price
This affects a divergence”
For a single stage tender process what would the typical base date be
Date of tender
What is a nominated sub contractor
“Sub contractor who the employer instructs the contractor to employ.
Performance remains employers responsibility”
Do you know what a Performance bond is
It is an insurance back surety which provides generally 10% of the contract sum should the contractor fail in their insurance.
When woulda Performance Bond typically expire
“PC
end of 12 months defects”
What is the difference between Partial Possession and Sectional completion
“PP - When the client takes possession prior to a completion date. (Cannot be unreasonable withheld)
Sectional Completion - Contractual date
- Must have clearly defined LAD’s
- And retention
- Same as PC”
What happens at PC
“50% retention released
Client cant levy LAD’s
Defects period begins
Client must insure works”
What is the construction act 1996 introduce
“Interim payments
Suspension
Adjudication
Pay when paid
Applies to verbal contracts”
What are the tree types of LOI
“Letter of comfort - used for extending tender period. Does not for a contract
Authority to spend - Allows works to progress on site or works ordered. Subject to final agreement of contract conditions
Recognition of Contract - Contract conditions agreed but the contractor is to start while the contract is bound and signed. “
If you were working on a refurbishment scheme what insurance option in the JCT D&B would you expect to see
Insurance Option C - Existing Building - All risk insurance taken out by employer in joint names for full reinstatement of works
What formulas can you use to review a Loss of profit claim
“Hudson formula
(Head office costs +profit) /100 X contract sum/period in weeks X weeks in delay”
What is a divergence and what is a discrepancy
“Discrepancy - Inconsistency between contract documents
Divergence - When a document does not comply with the statutory requirements”
How are Divergences and Discrepancies dealt with through the JCT
“Discrepancy: Contractors obligation to notify immediately
- If between CP’s & Contractors design documents contractor liable for cost and delay
- If between ER’s contractor proposes amendments if it is a change contractor entitled to money & time
Divergence: Both have an obligation to notify
- The risk remains with the contractor unless the non compliance is due to a statutory change after the base date”
What is the joint fire code
Introduced to provide guidance on fire safety on site as well as prevention and detection
When does the joint fire code apply?
Applies to schemes over £2.5m
When is considered a large scheme under the Joint Fire Code
Considered a large scheme over £20m
What is PPC
"Project Partnering contract This creates a multi party 2 stage contract. Advantages Integrated design team Improved output as integrated team Increased opportunity for innovation Reduced risk of dispute
Disadvantages
Can become paper exercise if not correct buy in
Can be costly as normally done on cost reimbursable
”
What is an EOT
“Extension of Time - Adjustment of completion date
Relevant Events - 14”
Steps of EOT
“When reasonably apparent the contractor notifies of circumstances and reference to relevant events
Written details given ASAP to confirm delay and if impact cost
Give employer estimated completion ASAP
EA review the claim against Relevant Events stating time given against each RE.
Must be resolved within 12 weeks”
How is an EOT assessed
“Review the substantiation provided by the contractor
assess delay if any against each action”
What is L&E
“Loss and Expense
When the contractor claims for direct loss due to Relevant Matters - 5”
How is L&E assessed
“Contractor notify the EA when reasonably apparent
Provide information as soon as reasonable practicable, followed by initial assessment of Loss & Expense
Contractor shall provide further details as request by the client
Within 28 days of initial assessment and 14 days of each subsequent update notify the contractor of the ascertained amount of L&E incurred contractor should be able to identify the cost given against each RM”
What is included within L&E claim
“Prelims if programme impact
Labour & plant costs if this has caused disruption
Increased cost if delay has impacted prices
Loss of profit Hudson formula
Overheads”
How does a contractor evidence actual loss
“Through providing cost details through good record keeping costs at a period.
Details of increases
Sub contractors - costs passed on Material suppliers costs passed on time delay to programme resulting in additional prelims Storage costs etc "
What is a Collateral warranty
Side agreement to create a contractual link between parties that would not otherwise be linked.
What are 3rd party rights
“Contracts Act 1999
Removes the right of privy to the contract allows third parties to enforce the benefit of the contract”
Advantages and disadvantage of 3rd party rights
“3rd part rights
Advantages
- Simpler than collateral warranties
- Less admin
- CW’s often attempt to limit liability
- CW’s can be difficult to procure
- Cheaper than CW’s
Disadvantages
- Little case law
- No physical warranty (which people like)
- Consultant and contractor wary of rights
- More generic”
What is the Local Democracy Economic Development act 2009
“Construction Act 2009
Defines construction contract (including professional appointments)
Intended to ensure quick payments through the supply chain
Quick resolution of disputes”
What is included within your ER’s
“ER’s
- Prelims
- Client Spec
- Appendices
- Drawings
- Planning
- Surveys
- Searches”
What is the process of levying LAD’s
“Issuance of a non completion notice
Calculate LAD’s based on the rate in the contract
Issue pay less along with valuation (must be issued even if payment is zero)
Must be issued 5 days before the due date
It is issued by the Employer”
Who notifies the contractor of the LAD’s being levied
Employer
Does the deduction of LAD’s sit within the valuation
No it sits outside of the valuation processes
Advantages & disadvantages of LOI’s
Advantages
- Allow for early start on site
- Allow for early order of materials
- Allow for mobilisation to being in advance of signing contract”
Disadvantages
- Doesn’t cover the client in event of insolvency
- Can disincentives the signing of the main contract
- Employer can loose the position to negotiate
- Let robust than a main contract
Why did the contractor claim for additional prelims on the L&E claim
As a result of the instructions to add additional work extended the contractor contract duration
What is Partial Possession
“Partial possession is when the employer takes possession of part of the works prior to the completion date.
PP cert issued
LAD’s reduce by the value of what has been released
PP cannot be unreasonably withheld”
What is sectional completion
“When the works split into sections
Same as PC
Has own LAD figures”
What is Practical Completion
The building is complete except for minor defects that can be put right without disturbance to occupier
When do you issue a certificate of non completion
When the contractor does not achieve a sectional or practical completion date.
When does defect end
“JCT default 6 months
Normally extended to 12 months”
What happens at the end of defects
“Issue MGD certificate
Release remaining retention monies”
What is a patent defect
A defect that can be seen on a reasonable inspection
What is a latent defect
Existed before its discovery cannot be identified from reasonable inspections; hidden or concealed flaw
What is a contract
An agreement between two parties
Why do we use contracts in construction
“Due to the bespoke nature of construction projects
Requires risk management and allocation
Long term nature and complexity means contract acts as checklist”
Why do your clients like the JCT D&B
“It provides them with a single point of responsibility for design and construction
Principally if the ER’s are sufficiently defined client should be able to make monthly payments without any further input and collect keys upon completion”
What is the role of the QS in a traditional contract
"1. Issue interim valuation 2. Value variations 3. Prepare final account 4. Ascertain L&E "
Is Loss & expense subject to retention
No
What guidance does the RICS offer for the EA Role
“RICS has the Employers Agent: Design & Build Guidance Note
Explains the role
How to complete the role
How to advise on or during the role”
What is assignment
Assignment is where the benefit (service) is transferred but not the burden (Payment) is transferred
What is novation
Where both the benefit and burden are transferred
What is the JCT standard retention
3%
What are you obligations as an EA
“To act as the employer
Receive and issue
- Applications
- consents
- Instructions
- Notices
- Requests & statements
Including all FA’s and variations”
What is the JCT standard contract
“JCT standard form of building contract is a Traditional contract
Client responsible for the design
Can be With, without or approximate quantities
Contractor only responsible for the pricing of the works (dependent on with, without or approx. depends on contractor exposure to risk of measures)
£1m+”
what is the JCT minor works contract
“JCT Minor works
Small simple works
Short and easy to follow
Lump sum
Not as comprehensive as other contracts
£150k+”
What insurances are required through the JCT
“Employers Liability - Injury and sickness of employees. Min of £5m
Public Liability - Injury to 3rd party. Min £5m
Insurance of the works - Option A-C
PI Insurance - Covers for claims of negligence. Cost of correcting works then double it
Optional
Terrorism cover
Latent defect insurance - Covers defects in structure. .065%-2% of build cost
6.5.1 insurance - Non negligence insurance. Protects against damage to neighbouring properties “
What are specified perils
Significant events that would cause very significant damage. Items covered by all risks insurance
They include fire, lightning, explosion, storm, flood, earthquake, riot and civil commotion
What is accepted risk
Ionising radiation, contamination by radioactive fuel, nuclear explosion
What is subrogation
“The right for all insurers to step into the shoes of the insured
E.g. If the sub contractor causes fire due to negligence the insurer can sue the sub contractor for their outlay “
What is a PCG
“Parent company Guarantee
Guarantee provided by the parent company that they will fulfil the
defaulting subsidiary under the contract and or cover losses and expenses incurred”
What are the types of termination
“Termination by the Employer
Termination by the Contractor
Termination by Either Party”
What is the termination process
“Notice must be served to the party specifying the reason for termination
If the specified default continues for 14 days after receipt the party may on or within 21 days of the expiry of that period terminate the contract
No letter required to be issued for termination in the event of insolvency”
what is a LOI
Letter of Intent
Outlines an understanding between two or more parties which they intend to formalize in a legally binding agreement
how is a LOI less robust than a main contract
“Does not have all clauses and conditions that would be included within the a main contract
Depends how it is drafted and what clauses /protections are included”
Can you name relevant events within the contract
”- Change
- Instruction
- Deferment of possession
- Suspension
- Impediment, prevention or default
- Statutory undertaker
- Exceptionally adverse weather
- Specified perils
- Common commotion
- Strike lockout
- Change to statutory power after base date
- Delay in receipt of permission from statutory body
- Force majeure”
Can you name the Relevant matters
”- Change
- Instruction
- Delay in approval
- Impediment, prevention or default”
What is the purpose of having extension of time clauses in a contract and is there any benefit to the client
Yes it allows the contract to not be frustrated. Through the review and extension of the contract period it ensures that the contractor still has a completion date to hit without running over the date.
What is a listed item
Pre-agreed items to be included in interim payments for payment off-site
Not specifically identified - Must include a vesting certificate to vest ownership normal VESTING PROCESS FOLLOWED
Is covered for loss and damage for full value until on site
Specifically identified - Contractor to provide bond in favour of client to value of mats
When a contractor goes insolvent what impact does this have on an unamended JCT contract
“Obligations to carry out works is suspended
Employers payment obligations are suspended (Until FA”
What replaced OJEU and what are the thresholds
“Find a tender
Find a tender thresholds;
- Public Contract works - £5.3m
- Services contract - £138k
Inclusive of VAT
What does MEAT stand for with tender submissions
“Most
Economically
Advantageous
Tender”
Purpose of extension of time
“Prevent the contract becoming frustrated
Allow for a mechanism for completion to be adjusted to give the client/ contractor clear completion date and the assessment of LAD’s”
On WFD you referenced EOT for client instructions what RE was this, also is this a RM?
It was 2.26.2 Yes it is an RE and it was 4.21.2
Only affected the section of the works not the full contract completion EOT issued for section.
What is your understanding of the term insolvency?
“The condition of having more debts than total assets
- Therefore, unable to pay its debts or short-term loans”
if a contractor becomes insolvent, what steps would you take?
secure site, valuation, mats on and off site, sub contractor positions, phone administrators, prepare fee for client. Bonds grantees
can you name the different dispute resolution techniques there are?
"Negotiation mediation conciliation adjudication Arbitration litigation"
what are the disadvantages to adjudication?
”- rough justice due to the speediness of the result
- not suitable for complex claims
- the adjudicator cannot go beyond the jurisdiction specified in the contract.”
can an adjudication be challenged?
Yes you can but only after PC
You may have grounds if the following applies
- acted out with his jurisdiction in contract
- made a decision on more than one dispute
- left out of account a relevant consideration
- acted unfair
- failed to exhaust his jurisdiction or give reasons for his decision”
At what point would you release retention on a project?
Practical Completion and Defects Certification
what is the process if the contractor doesn’t come back to fix those defects or works?
pay less notice as per the contract
Under SBC/Q, who ascertains Loss and/or Expense?
Contract Admin but can instruct QS to do
What must LADs be
a genuine pre assessment of loss
differences between PCSA & LOI
Under a letter of intent a contractor simply carries out its role under the building contract in advance of that contract being finalised
Under a PCSA a contractor provides services outside the scope of a typical building contract
default fluctuation provision for JCT D&B
Fluctuation Provision Option A
What is early use
Where the employer with the contractors consent occupies part of the site or works before PC, contractor must obtain confirmation for their insurer that this can happen
contractors obligations to complete the works remain unchanged
What is with, without or approximate quantities
Without quantities - makes it a lump sum contract. Only change is for instruction or change
With quantities - quantities measured from the drawings and change is a variation
Approximate quantities - same as above but the quantities are approximate based on what it assumed at the time
What is a PCSA
Pre Construction Services Agreement
Normally part of a two stage tender this is used to procure their involvement with the design works. contributing to the design and advising/helping the client get the best design.
What is an MTC
Measured Term Contract
this is for reactive maintenance where the client has a regular programme of works. they are priced against a schedule of rates which are linked to a construction indices to uplift the values and traditionally run 1-3 years.
What is the RICS Contract administration guidance note
Provides guidance of fulfilling the role of CA.
Minor works, intermediate & standard form.
covers what it is, how you are appointed, and roles and responsibilities.
What is concurrent delay
Concurrent delay is when the more than one event occurs at the same time. But not all those events entitle the contractor to EOT & L&E
e.g. contractor already delayed due to there own fault so the other event does not entitle them to additional cos or time.
