CONTRACTS Flashcards
Guarantee vs Warrantee
1). Guarantees are covered by a guarantor (bank or insurer)
- Common method of security
2). Warrantees are covered by the party in which the claim is made to
- Exists in contracts & legislation (domestic builders leg. & consumer guarantees)
Collateral Warranty
Guarantees by third party’s or subconsultants
Role of Specifications
- Precise quantitative descriptions of how the work is to be conducted trade by trade
- Insures compliance
Correct Procedure for Reviewing Shop Drawings
- Mark up what is wrong only
- Descriptive not Prescriptive
Key difference between ABIC SW and MASTER BUILDER Contract
- No provision for administrator in the MB (therefore no ability for architect to assess claims and make instructions)
Role of Administrator/Superintendent vs Role of Contractor
- Administrator/Superintendent ensures proper contract execution
- Contractor constructs & supervises.
Never use the word supervise in relation to the Architect’s role.
Hold Point vs Verification Point
Hold Point - approval & inspection required before advancement
Verification Point - Evidence to be supplied by contractor (useful for remote sites)
Opening Up Works & Instructions to Rectify
- Architect has authority to request rectification & opening up of works
- Architect must act independently
- Client to cover associated cost if no defect found (opening up of works)
Latent Conditions
Undocumented physical conditions unforeseeable during tender period entitling contractor to claim time extension w/ cost
Implication of Valuable Item Discovered On Site
Contractor entitled to extention of time w/ costs and item belongs to owner
Key Consideration when selecting substitutions
1). Law (compliance & permits)
2). Design Implications
3). Required Approvals (RBS, Client, Consultants)
Clauses to include when CA is excluded from scope of services
1). Limit scope of inspections and liability
2). Architect to have no obligation to ensure proper contract execution
Responsible party for Statutory Approvals required for commencement of construction
The party who engages the Architect.
ie. in TFPLS - Owner, in D&C - Contractor
Responsible Party for Occupancy Certificates
Always the Contractor
Principle
Owner/Client
Contract Price
Cost of works inc. GST
Security in ABIC
Bank Guarantee or Cash Retention valued at nominated percentage of Initial Contract Price
Insurances to be held by contractor and for how long
Public Liability
Workers Compensation
Contract Works Insurance (can be held by owner instead)
Until Final Certificate
Insurances typically held by Owner (pending building class and requirements) and when are they required
Public Liability
Workers Compensation
Building & Contents
From Practical Completion Onwards
Whose insurance covers damages incurred between PC & FC
Depends on the nature of the scenario. The insurances held by the contractor only cover damages directly linked to their work, workers or subcontractors.
Bank Guarantee vs Cash Retention (Security Available to Principle)
- Cash Retention is accumulated as a percentage of each progress claim, security increases over time
- Bank Guarantees are available in full from commencement, security is maximized throughout
Contract Works Insurance
- Covers loss/damage resulting from unrectified/incomplete work, not the work itself.
- Also includes damage from extreme weather events or circumstances out of the contractors control
Who covers the cost of Discrepancies (Errors, Omissions, Ambiguity)
- If it should have been avoided by a “Reasonable” architect:
At Architect’s Cost
- If it is the result of ordinary construction processes:
At Client’s Cost (Ideally captured in a contingency)
Types of Contingencies and their functions
Design Contingency:
Budgeted contingency during design phase
Construction Contingency:
Allowance for discrepancies, latent conditions and unresolved scope. Either separate to contract or listed as a provisional sum.
Two Main Types of Variations
1). Unforeseen
- Statutory
- Latent Conditions
- Discrepancies
2). Client Issued
- Design Change
Process for Releasing Security
- 50% at PC
- 50% at FC
How long should a Bank Guarantee be valid for
Until end of FC + a reasonable buffer period
Signs of Builder Insolvency
- Overclaiming
- Pressure to Pay
- Underperforming
Prime Cost Sum
Allowance for the supply of material or equipment or for payment to a authority not full known
Provisional Sum
Allowance for the performance of necessary work including supply of materials not full known
Includes infrastructure connection to services from site
Adjustment for Provisional or Prime Cost Calculation
Overspend:
TotalCost = (ActualCost−Allowance)(1+Builder’sMarginRate)(1+GSTRate)
Underspend Calculation:
TotalCredit=(Allowance−ActualCost)(1+GSTRate)
Note: Agreed margin schedule for provision & prime costs is often different then the agreed margin for general contract adjustments
Causes for Claims to Adjust Contract
Variations
Delays
Provisional Sum Adjustment
Prime Cost Adjustment
Procedure for Claims to Adjust Contract
1). Contractor Claim to Architect
2). Architect’s Certificate approving claim
3). Tax Invoice to Clients
Architect’s Obligations to Act Independently
1). Contractual (Administrator)
2). Statutory (NCC Compliance)
Set Off Monies
Money owed to client
Ex: Client supplied material under builder’s scope
Main Certificates Issued by Superintendent
- Progress Certificate (in response to monthly progress claims)
- Practical Completion Certificate
- Final Certificate
Security of Payment Act
Ensures timely payment for construction work through claims, adjudication, and dispute resolution processes.
Architects Role When Contractor Requests Payment under SOP
- Continue contractual obligations in contract in parallel
- SOP may override contract if more favorable but client to consult Lawyer, Architect has no duty in process
Practical Completion
- Contract works are deemed substantially complete by the Architect
- Remaining items or defects must not unreasonably affect occupancy
- All authority approvals must have been obtained prior.
Procedure for Staged Practical Completion
- Use suitable contract such as ABIC MW
- Consider implications to approvals, insurances and occupation
Procedure for Completion of Works (PC)
1). Contractor Inspection:
Prior to scheduled PC (10 WD in ABIC), contractor to provide defects list and timetable for correction
2). Notification to Architect
Contractor to Notify Architect of completion w/ updated defects list
3). Architect to conduct Inspection
4). Architect to provide PC Certificate * If Deemed PC and all official docs received *
5). Owner to return 50% security
Possession of Works before PC
PC deemed as reached and Contractor can make a claim to adjust contract. 50% Security to be released.
Architect fails to issue notice of PC
PC deemed as reached and Contractor can make a claim to adjust contract. 50% Security to be released.
Works not complete by PC
Client is entitled to enforce Liquidated Damages at any point up until 20 days after PC (ABIC)
Liquidated Damages
Daily rate as specified in contract claimable by client in the event that the works are not complete by PC.
Rate must be a clear & genuine estimate of damages
Adjustment of Time With Cost
- Delays due to uncontrollable circumstances affecting the critical path.
- Only includes delays that are not weather related or covered by time delay allowances.
Adjustment of Time Without Costs
- Delays impacting critical path due to weather or circumstances listed as not entitled to adjustment of costs
Architects Obligation When Aware of a Time Delay
Administrator must offer a time extension even if the claim is not initially made by the contractor
Potential Drawbacks for Including Too Many Time Allowances (Provisional Period For Delay)
- Inflate price
- Increased admin when assessing adjustment claims
- Extended timeframe if allowance is overestimated
Critical Path
Sequence of critical events that determine the minimum project timeline
Defect Liability and default length
Period between PC and FC where contractor is obliged to rectify outstanding and new defects.
Usually 12 months
Course of action if Contractor does not rectify issues within agreed time (pre or post PC)
1). Owner may engage separate contractor to fix defects
2). Owner can make claim to adjust contract
3). Architect to Assess Claim
4). Client can invoice contractor
5). No pay = grounds for termination and access to security
Extension of Defects Liability Period
The rectification of certain defects may trigger a new defects liability for that item only, extending the date of FC
Course of Action if a Design Issue is uncovered
Do not admit fault and contact PI
Manuals and Official Documents at PC
Contractor’s Obligation
Role of Programs in ABIC
- Not Contractual
- Required to be provide within 10 day of possession
- Required to be updated when PC adjusted by 5+ days
Ipso Facto
Prevents right to terminate for certain insolvency events
Architect fails to assess claim
Claim becomes payable in full and architect can revise w/ final cert
Measures to take if contractor wants to claim offsite items
Ask for bank guarantee, proof of ownership or insurance
Process when contractor is not paid
- Interest can be claimed
- Suspension possible after 2 x notices as per contract
- Must keep working until that point
- Architect stays out of it (except for progress claims and assessments)
When can security be drawn
When Contract has been terminated
Calculation for Extension of Time w/ Costs
(# of days in extension)(Scheduled Adjustment of Time Cost/Day at Relevant Stage)
Where are Particular Persons nominated in the ABIC
Attached to specific prime or provisional costs
Warranty for Owner Supplied Materials
Owner warrants compliance only if contractor checks and informs them if non-compliant
Procedure when Discrepancies are Found (ABIC)
1). Refer to Order of Precedence
2). If Order of Precedence does not provide clarity - contractor can claim a variation
