General Contract Practice Questions Flashcards

Question

What are the typical sections within a contract?

Answer 1

- Articles of agreement - Articles - Recitals - Contract particulars - Attestation - Contract conditions - Schedules

Answer 2

Set out the core obligations between the parties 4 sections - what are they?

Answer 3

Set out what is agreed between the parties Articles 1-9 in both SBC and D&B: - Defines contractors obligations - States contract sum - Identifies parties involved - Right to adjudication / arbitration - Legal proceedings Articles 10-12 in both SBC and D&B: - States the immediate affect of amendments - Schedule of amendments - Amendment 1 (for 2011 contracts) - Contract supersedes all previous agreements

Answer 4

Contextualise the agreement, giving factual explanations for the basis of the contract Examples of recitals in standard building contract: - Recital 1 - Describes work / site - Recital 2 - Identifies design info / ERs - Recital 3 - Identifies pricing option (A or B?) - Recital 4 - CIS, employer a contractor? - Recital 5 - Information release schedule - Recital 6 - Sections - Recital 7 - Framework agreement supplementation? - Recital 8 - Supplemental provisions 1-6 & 9

Answer 5

Sets out the aspects of the contract that are particular to the project to which the contract relates Split in to two parts - Part 1 - General - Part 2 - Third party rights and collateral warranties Examples of contract particulars include: - Base date - Dates for possession / completion of sections - Rates of liquidated damages - Rectification period - Method of payment - Advance payment - Retention percentage - Contractors retention bond - Fluctuation options - Daywork - Insurance / PII - Joint fire code - Period of suspension - Adjudication

Answer 6

- confirming something is genuine | - signature, oath or other forms of certification

Answer 7

If not all the information required to construct the works has been prepared or issued when the tender documentation is issued, or the contract executed, then an information release schedule may be prepared which gives dates for the release of information from the consultant team

Answer 8

Set out the legal principle relationships between the parties to a construction contract, determines the allocation of risk 9 Sections: - 1 - Interpretations and definitions - 2 - Carrying out the works - 3 - Control of the works - 4 - Payment - 5 - Variations (SBC) / Changes (D&B) - 6 - Injury, damage and insurance - 7 - Assignment, Performance bonds and guarantees, third party rights and collateral warranties - 8 - Termination - 9 - Settlement of Disputes

Answer 9

Detailed procedural rules for certain situations * Schedule 1 – CD submission procedure * Schedule 2- Variation and acceleration quotation * Schedule 3 – Insurance options * Schedule 4 – Code of Practice * Schedule 5 – Third party rights * Schedule 6 – Form of bond * Schedule 7 – Fluctuations options * Schedule 8 – Supplemental provisions

Answer 10

Additional provisions that can be included to the contract D&B has 10, SBC has 9 The difference is DB does not have a schedule 2 quotation therefore the need for the valuation of changes is included (with associated timescales) Examples: - collaborative working - Health and safety - Cost savings and value improvement - Sustainability / environment considerations - Performance indicators and monitoring - Notification and negotiation of disputes - Transparency - The public contracts regulations 2015 - Named specialists

Answer 11

- a reference date from which changes in conditions can be assessed - JCT recommends 10 days before tender return - Sets a reference point from which the conditions of the tender was prepared

Answer 12

Claims from third parties as a result of the contractors operations Typically resulting from the contractor's negligence or contractual breach Example: flooding a neighbours property

Answer 13

The amount originally set out in the contract to be paid to the contractor for completion of the works

Answer 14

- A percentage of the amount certified to be paid to the contractor which is retained by the client - A form of security - Retained to ensure that the contractor properly carries out the activities required of them under the contract

Answer 15

The employer deducts retention. The contract states the following: ‘…the Employer’s interest in the retention is fiduciary as trustee for the Contractor (but without obligation to invest)’. The contractor can request that the monies are held in a separate bank account to comply with the above statement (unless the employer is a local authority) The employer benefits from interest earned on this account

Answer 16

- If retention is due to the contractor, then the client has a contractual obligation to pay - If they do not pay they are in breach of contract - Contractor can exercise dispute resolution techniques as listed in the contract

Answer 17

MP - 0% SBC and D&B - 3% IC and MW = 5%

Answer 18

* Variations * Fluctuations * Prime Cost sums * Provisional sums * Payment to nominated sub contractors * Statutory fees * Loss & Expense * LD’s

Answer 19

50% upon completion and 50% released at the end of the defects liability period (final certificate)

Answer 20

* Preliminaries * Measured works * Variations * Materials on site * Materials off site

Answer 21

* Insurance * Statutory fees and charges * Costs relating to patent defects * Cost of opening up the works and testing the works * Loss and expense * Fluctuations

Answer 22

Retention money can be used to fund the payment by others to correct the defects Relevant notices should be given to the incumbent contractor prior to appointing others to carry out the works

Answer 23

* Contract Particular 6.14 * Refers to fire prevention on construction sites • The Joint Fire Code covers activities through all stages of design, procurement and construction. * Published in 1992 by the Fire Protection Association due to concerns from insurers regarding fire’s on construction sites * Applies if value of more than “£2.5 million” * Can apply to project with lower value if considerable fire risk * Is a “Large Project” if value is over £20 million

Answer 24

``` Contractor must provide: • Hand bells, whistles & klaxons • Security guards • Fire signage • Fire doors • Water supplies • Portable fire extinguishers • Where it is a large project, the contractor must provide an appropriate number of fire marshals ```

Answer 25

- Non-compliance can invalidate insurance, contractor should always carry out remedial works to ensure compliance - Cost of compliance should be stated in contract 1) CA issues notice to comply 2) If the contractor does not carry out remedial work within 7 dyas, the CA can issue an instruction for the employment of someone else to carry out remedial works 3) CA can deduct cost for remedial works from amount due to contractor via a payless notice

Answer 26

9th edition published in 2015 * Included fire prevention checklist * Updates to on-site fire precautions * New emphasis on the need to conduct periodic reviews of fire safety * Changes to reflect CDM 2015 * Guidance on the installation of PV’s * Changes to hot work permits

Answer 27

- Provisions within the contract to deal with the effects of inflation - Typically applied to larger projects with a longer programme - On smaller projects, the contractor would be expected to factor in inflation within their tender price - On larger projects, the contractor may be asked to base their tender price on current market rates, and then the contract will make provisions for the contractor to be reimbursed for price changes to specified time items over the duration of the project

Answer 28

Option A – Contribution, Levy and tax fluctuations Option B – Labour & Material cost and tax fluctuations Option C – Formula adjustment Option A is found in Schedule 7 of contract. Options B & C are no longer included within the contract but can be applicable through the contract particulars.

Answer 29

1) Check contract for entitlement 2) Contractor to notify CA / EA in writing 3) Contractor must provide relevant info and calculations relating to the adjustment 4) Should be adjusted via an interim certificate

Answer 30

Based on the status of the contractor being an "employer" of people Includes taxes, national insurance and other forms of statutory duties

Answer 31

- changes in taxation (can apply if new taxes are introduced or discounted) - fluctuations in the cost of materials, plant and labour - fluctuations in head office / administrative costs

Answer 32

Instead of using the actual inflation indices, the contract stipulates a formula so that the contract sum can be adjusted Formula: C = V(lv-lo) Lo C = The amount of the adjustment for the work category to be paid to, or recovered from, the contractor V = The value of work in the work category for the valuation period Lv = The index number for the work category for the month during which the midpoint of the valuation period occurred Lo = The index number for the work category for the base month

Answer 33

Important to ensure that the correct indices are used for the relevant part of the project Where indices are used that are published by a third party, you must ensure they will publish them for the duration of the project BCIS has lots of indices you can use BCIS publishes Price Adjustment Formula Indices under 4 headings: - Building - Specialist engineering - Civil engineering - Highways maintenance Retail Price Index rates are usually quite abit higher than Consumer Price Index (This is because they are calculated differently). RPI is mainly used in the UK, whilst the EU developed the CPI RPI is higher because it includes allowances for housing costs, mortgages, rents, council tax etc

Answer 34

Non-productive overtime

Answer 35

* L&E * Schedule 2 quotation * Dayworks

Answer 36

* Fluctuations should not generally apply as the contractor is reimbursed on the actual invoice cost of labour, materials and plant. * Therefore, the costs should be current * Should not be adjusted for any increases in OH&P

Answer 37

Time spent over and above normal working hours but not spent on doing productive activities E.g. acceleration but weather means some workers must stop their activities

Answer 38

No date for completion / date has become invalid Contractor is no longer bound by the obligation to complete the works by a certain date E.g. missed PC and no EOT granted

Answer 39

- Where clauses describing relevant events do not cover all eventualities (if an event occurs thats not covered, time will be 'at large') - No clear date for completion in the contract - Agreement by the parties that the completion date is invalid - If the contract does not allow for the construction period to be extended (EOT)

Answer 40

Transferring the rights of a contract from one party to another (not the obligations)

Answer 41

Property rights Choses in action can be transferred to another party via assignment

Answer 42

A contractual obligation to carry out the works with reasonable skill and care creates a performance obligation for the contractor An implied duty to exercise the level of skill and care required / expected

Answer 43

Fitness for purpose is an absolute obligation in regards to how the works are carried out / completed

Answer 44

The contractor must complete the works so that they are fit for purpose The definition of 'fit for purpose' must be defined by the contract documents

Answer 45

A provision in the contract allowing for different completion dates for different sections of work Allows the client to take possession of that section

Answer 46

- Contractor is no longer responsible for that section - Contractor's insurance ends and client must insure and secure the section - Half retention for the section handed back - No LDs can be claimed for that section - Defects liability period for that section commences

Answer 47

Where the client wants to take back possession of part of the site Not pre-determined in the contract documents Relies on the contractors agreement to allow the employer to take possession ``` o Practical completion deemed to have been achieved o ½ retention released for that part o Defect liability period begins o LD’s for section no longer applicable o Client responsible to insure / secure ```

Answer 48

The contractor is not obliged to accept partial possession however it cannot be unreasonably withheld Reasons for not granting PP might include: - Access routes are hindered - Disruption to the works - Disruption to the contractor - Affects health and safety - Incurs additional cost to ensure the above items

Answer 49

1) Client could "use or occupy" the works - Client does not have sole use of the works - Contractor remains in possession - Contractor is responsible for insurance 2) "Early Use" - Client can use part of works before PC granted - Client disruptions = L&E / EOTs - Contractor still liable for LDs - Insurance - confirm with brokers

Answer 50

Clause 1.1 in Contract Particulars Date by which the contractor is to complete the works / achieve practical completion 'Time is of the essence' - describes a situation where the PC date is crucial and failure to achieve this would significantly detract from the projects value (e.g. Olympic stadium)

Answer 51

Clause 2.26 in Contract Particulars A new date by which the contractor is to complete the works, determined by an alteration to the PC date Most commonly adjusted for a date after PC (e.g. EOT) Can be set earlier: - Pre-agreed adjustment - Acceleration quotations - Supplemental provision 2 (D&B) - Variation quotation (omission of scope)

Answer 52

Named subcontractor: - Not imposed on the contractor - Client can include a shortlist in the tender documents which allows the client to influence the selection Nominated subcontractor: - Imposed on the subcontractor - Main contractor may object based on certain conditions - Depending on the wording of the contract, the contractor may be liable for non-performance of the nominated subcontractor

Answer 53

Standard Building Contract – Supplemental Provision 9: Named Specialists Design and Build Contract – Supplemental Provision 1: Named Sub-Contractors Intermediate Contract – Schedule 2: Named Sub-Contractors Minor Works – No mechanism

Answer 54

A genuine pre-estimate of loss suffered by the Employer as a result of non-completion Not a penalty, should be based on a calculation of the actual loss the client is likely to incur if the contractor fails to meet the completion date Contracts generally include a clause for LDs Usually relates to the contractor not completing the works by the PC date stated in the contract Often calculated on a daily or weekly basis

Answer 55

Cannot be punitive (a penalty to contractor) Must be a realistic pre estimate of actual loss to the client Cost can be per week or pro rata Contractor can dispute LD’s once in contract if they’re deemed punitive

Answer 56

Agreed fixed rate Generally incurred on a daily or weekly basis QS not qualified or insured to calculate LD’s but can inform on what they are and things for the client to consider in their calculation

Answer 57

* Rental costs * Temporary accommodation * Removal costs * Extra running costs * Tennant fees * Storage costs * Finance costs * Professional fees * Loss of profit (rent / income) * Direct expense (rental expense, storage expense) * Loss due to extending financial costs (increased interest payments)

Answer 58

1) Check amount in contract 2) Certificate of non-completion issued prior to deducting LDs tbc. ...

Answer 59

Should have been reviewed prior to going in to contract Contractor can appeal if they consider the LDs to be punitive

Answer 60

Should have been reviewed prior to going in to contract Contractor can appeal if they consider the LDs to be punitive (if the parties agree the rates are punitive, then the employer can agree to be reimbursed for actual losses) Contractor can appeal to courts and courts can request supporting information from client to substantiate how the LDs was calculated

Answer 61

CA or EA can do this via an interim certificate or payless notice

Answer 62

No. LD’s can only be deducted once a Certificate of Non-Completion has been issued

Answer 63

Damages, where the exact amount has not been agreed and are typically determined by the courts

Answer 64

Some contracts prevent clients claiming LD’s Actual losses may be significantly different to those estimated at the time of the contract

Answer 65

Standard Building Contract Clause 2.2 / D&B Clause 2.1 Complete and carry out works in a proper and workmanlike manner Workmanship in accordance with Contract documents, ER’s, Construction phase plan & statutory requirements Give all notices required by the statutory requirements and comply All materials and goods should be of the kind and standard described in the specifications, ER’s For CDP / D&B – the contractor’s design should be the same as that of any independent architect directly employed by the Client

Answer 66

NONE stated in contract Payment of contractor on time Do not disturb the contractor from working with reasonable skill and care

Answer 67

Advantages: - Specific risks / hazards can be addressed with project specific amendments - Protects the client as more relevant to project Disadvantages: - Contractor likely to increase their tender price as a result of certain amendments (such as taking on more risk) - Takes time for the employer and contractor to review - Can cause confusion / suspicion - No case law to back up - Not standardised, creates an adversarial relationship

Answer 68

Where a clause is ambiguous, the court will rule against the drafting party Does not apply to industry standard form contracts (with amendments) Would apply to a bespoke contract

Answer 69

Only the client's legal team

Answer 70

- Alteration of risk allowance (less REs / RMs) - Final date for payment (14d to 28d) - Rectification period (6m to 12m) - Additional requirements (Bs, Gs, CWs) - Removing rights (right to object a variation) - Amendment 1 (for 2011 contracts, CDM 15) - Definition of practical completion - Removing Contract (Rights of Third Parties) Act 1999

Answer 71

Contract conditions that are drafted specifically for a particular project

Answer 72

- Written by legal experts - Rights and obligations clearly set out to the required level of detail - Widely understood in the industry - No additional time / cost for preparing - Relevant case law built up over time

Answer 73

Apportionment of risk is rarely questioned and therefore becomes implicit – not taken account of May not be appropriate to the needs of the project or client

Answer 74

- For major projects with unique obligations | - Drafting them requires great skill and knowledge, sometimes this can be too daunting for those within the industry

Answer 75

Obligations imposed by law e.g. CDM regulations, working at height regulations, etc

Answer 76

JCT NEC FIDIC GC Works

Answer 77

D&B Article 3 An agent acting on behalf of the client as the CA for D&B contracts Likely to be the lead consultant (usually the architect)

Answer 78

Standard Building Contract Article 3 Same role as EA but for traditional forms of contract

Answer 79

* Issue instructions * Co-ordinate the review of information prepared by the contractor * Managing change control procedures * Review the progress of the works and report to the client * Validating or certifying payments * Considering claims * Monitoring commissioning and inspections * Arranging handover * Certifying PC * Bringing defects to the attention of the contractor * Issuing the certificate of making good defects

Answer 80

Clause 3.10 - 3.12 CA / EA issue instructions to contractor Should be in writing, dated and signed by EA/CA Should be issued to the client and contractor at the same time RIBA proposes a pro-forma but its not mandatory

Answer 81

If an instruction is given verbally by the CA / EA it wont have an immediate effect 1) Contractor must confirm in writing to the CA within 7 days of the CVI 2) If the CA does not reject the notice within 7 days of receipt of the contractor's notification, then it will become an instruction 3) If the CA confirms in writing within 7 days then it shall take effect from that date If neither the contractor or CA confirm the CVI, but the contractor complies, the CA can confirm it retrospectively

Answer 82

Contactor must comply unless: - its an unreasonable instruction - Affects access to site - obstructs their obligations to carry out the works works in accordance with the contract - Compliance with instruction would affect CDM - Has not received acceptance of his Schedule 2 Quotation (Variation) For non compliance with a reasonable instruction 1) CA/EA issues a “Notice to Comply” 2) If after 7 days of the receipt of the notice from the CA the contractor fails to comply with the instruction, then the Employer may employ others to execute the works and the contractor will be liable to pay for those additional costs to the client OR this can be deducted from Contract Sum

Answer 83

``` Practical completion certificate Section completion certificate Non-completion certificate Certificate of making good Interim certificate Final certificate ```

Answer 84

Standard Building Contract Clause 1.8 – Each Certificate to be issued to Employer and Contractor at the same time Standard Building Contract Clause 1.10 – No Certificate shall be conclusive evidence that works, materials and design are in accordance with the contract

Answer 85

``` Practical Completion Statement Section Completion Statement Non-completion statement Notice of completion of making good Payment notice Final payment notice ```

Answer 86

* Practical Completion Certificate * Certificate of making good defects / Final Certificate * Payless notice * Payment Certificate * Certificate of non-completion

Answer 87

* Employer has 21 days to nominate a replacement and inform the contractor * Contractor has 7 days of the notice to object * No replacement CA is entitled to overrule any instruction expressed by a previous CA

Answer 88

Appointed by the Employer Duty to act as the Employers inspector under the CA’s direction Direction given by Clerk of works shall be of no effect unless it relates to a matter which the contract expressly empowers A clerk of works oversees the quality and safety of work on a construction site, making sure that building plans and specifications are being followed correctly. Duties include: performing regular inspections of the work on site and comparing completed work with drawings and specifications

Answer 89

Clause 2.4 Date the possession of the site/relevant part of the site shall be given to the contractor to begin construction

Answer 90

Contract Particular 2.4 in Standard Building Contract A delay in the contractor gaining access to the site Client must give written notice JCT entitles the client to defer possession of site upto 6 weeks unless a shorter period was stipulated in the contract particulars Can be considered a “Relevant Matter” giving rise to claims of an “extension of time” or “loss and expense” A deferment will have an immediate impact on progress, however it does not extend the contract period, it simply moves it in time with dates of possession and completion which continue to have the same relationship with each other. If a contractor is given early notice of deferment, they are likely to incur far less costs (e.g. plant hire, possibility of using operatives elsewhere, delivery dates, key dates for sub contractors, possibility of increased costs & interest charges)

Answer 91

NOT called Date of Possession, called “Works Commencement Date”

Answer 92

Pre Construction Services Agreement enables client to employ a contractor before the main construction commences Typically part of a “Two stage tender” (The PCSA would be the first stage) A document that states the services that the contractor is to perform before entering into a contract and identifies the terms and conditions under which the services are to be performed

Answer 93

``` Pros: • Contractor paid early • Contractor involvement in design / buildability • Contractor identification of risks • Provide a limit of liability ``` Cons: • No competition in second stage of tender • Employer has reduced bargaining power • Reluctance to remove contractor after undertaking the PCSA • Additional fees (PCSA fees for the contractor)

Answer 94

PCSA: - to help with buildability, risk management, construction methodology and programming throughout design stages LOI: - to mobilise construction

Answer 95

Standard Building Contract Schedule 2 To increase the planned or current rate of progress in order to complete the works earlier Acceleration is requested by the client to contractor or visa versa

Answer 96

D&B Part 2 of Schedule 2 (Acceleration Quotation) A quotation by the contractor for acceleration in carrying out the works

Answer 97

1) Employer decides they want to achieve PC earlier 2) CA/EA invites proposals from the contractor for an Acceleration Quotation 3) Contractor should respond within 21 days of receiving the invitation from the CA/EA In response, contractor should: - Explain why acceleration quotation was not practical (if the case) - If they can provide an acceleration quotation then they should include: - Identify the amount of time that can be saved - Identify the cost - Detail adjustments for loss and expense - Detail any other conditions - Details of cost for preparation Acceleration Quotation remains for acceptance by Employer for 7 days from receipt from contractor

Answer 98

Clause 2.30 – 2.31 CA certifies PC when all works described in the contract have been carried out (there is no absolute definition, hence why this is sometimes specified in the contract amendments) - Releases ½ retention - Ending contractor’s liability for LD’s - Signifying the beginning of the “Defects Liability Period”

Answer 99

Formal written notice to the contractor that they have failed to complete the works described in the contract by the contract completion date For sectional completion, separate certificates must be issued per section Must be issued before the client can claim for LDs

Answer 100

Works that are not in accordance with the contract

Answer 101

Patent – defects which can be discovered by reasonable inspection e.g. scuff mark on wall, radiator not fully working Latent – defects which cannot be reasonably discovered and are likely to be discovered a few years after PC e.g. settlement causing cracking in building

Answer 102

Clause 2.38 Previously known as Defects Liability Period Begins upon certification of practical completion and typically lasts between 6 and 12 months (CP state that 6 months apply if no other length is stated) Generally, 12 months is recommended as you can test a building in all seasons During this period, if the client identifies defects that arise to the CA, who then decides whether they are defects If the CA considers they are defects, they may issue an instruction to the contractor to make them good within a reasonable time It is the contractor’s responsibility to identify and rectify defects CA should prepare a “Schedule of defects”, listing the defects that have not yet been rectified, and agrees a date with the contractor that these should be rectified When the CA is happy that all the defects have been rectified they will issue a “Certificate of making good” which releases the remaining “Retention” and results in the issue of the “Final Certificate”

Answer 103

Certificate issued by the CA/EA showing satisfactory conclusion of the defect remedial works Issued at the end of the rectification period or on completion of defects listed in the schedule of defects CA/EA should obtain confirmation from design consultants that defects have been made good If a defects arises after the Certificate of Making Good Defects has been issued, BUT before the Final Certificate is issued, then the contractor should be afforded an opportunity to rectify before the Final Certificate is issued

Answer 104

Once the Certificate of Making Good Defects has been issued then The Final Certificate should be issued releasing the remaining retention Housing Grants Construction and Regeneration Act 1996 disallows ‘pay when paid’ clauses = a contractor cannot withhold the release of sub-contractors retention because they have not had theirs released

Answer 105

Once the Certificate of Making Good has been issued then The Final Certificate should be issued releasing the remaining retention

Answer 106

Certification issued by the CA that a construction contract has been fully completed. Releases all remaining money due to the contractor, including remaining “Retention” Value of final certificate will be based on the final account agreed by the PQS and the contractor Issued within 2 months (SBC) / 1 month (D&B) of the latter of: - End of rectification period - Issue of certificate of making good - When the contractor receives the Statement of the Final Account Final certificate can be contested (usually within 28 days) Under JCT 2016 the final certificate is called the “Final Statement”

Answer 107

* Practical Completion Certificate * Certificate of making good defects / Final Certificate * Payless notice * Payment Certificate * Certificate of non-completion

Answer 108

- Issued to client and contractor at the same time