JCT Contract Mechanisms Flashcards

1
Q

What does Practical Completion trigger?

A
  • End of contractor liability (termination of any liquidated damages)
  • Insurance handover
  • Handover of the premises
  • Beginning of the defects liability period
  • Retention releases (generally from 5% to 2.5%)
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2
Q

What does Practical Completion mean?

A

There is no legal basis for the term Practical Completion. It is when the works are complete to the satisfaction of the Contract Administrator. The CA cannot certify PC of there are outstanding works or patent defects, but they also cannot withhold PC for minor defects outstanding.

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3
Q

What express covenants may be within the contract define Practical Completion?

A
  • Manuals (O&M)
  • Testing and Commissioning Certificates
  • Building Control sign off (Completion Certificate)
  • Keys
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4
Q

What clause within JCT Minor Works contract deals with Retention?

A

The amount of retention is defined in the Contract Particulars, and then Clause 4.3 deals with Interim Payments.

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5
Q

What clause within JCT Standard Building Contract deals with Retention?

A

The amount of retention is defined in the Contract Particulars, and then Clause 4.20 deals with how the retention is dealt with.

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6
Q

What is Retention?

A

Retention is a sum deduced at each valuation (generally 5%) to provide the client with security that the contractor will return to correct any defects.

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7
Q

What clause within the Standard Building Contract deals with extension of time?

A

The “Adjustment to Completion Date” section of the contract deals with an extension of time:

  • 2.26 provides definitions and interpretations
  • 2.27 provides details of requirements for contractor’s notice of delay
  • 2.28 provides details for fixing the completion date
  • 2.29 defines Relevant Events
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8
Q

What is an Extension of Time?

A

If a contractor fails to complete the works within the allotted time for reasons beyond their control, the CA can consider an application for the contractor for an Extension of Time - which is a certificate that alters the completion date.

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9
Q

What happens in a contractor is in delay and no extension of time is available?

A

Time is considered to be “at large” and damages as defined in the contract may be enforceable

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10
Q

What needs to be considered by the CA regarding an Extension of Time request from the contractor?

A
  • Whether the cause of the delay is a Relevant Event (SBC) or outwith the contractor’s control (MW)
  • Will this delay have an effect on the completion date
  • If so, to what extent
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11
Q

What are Relevant Events?

A

In the Standard Building Contract (Cl. 2.29) and the Intermediate Building Contract, relevant events are defined:

  • Variations
  • Loss or damage caused by specified perils
  • Civil action
  • Terrorism
  • Force Majeure
  • Exceptionally adverse weather conditions
  • Deferment of possession of site
  • Any impediment, prevention or default by the employer
  • Approx. quantity in a Bill of Quantities is inaccurate
  • Statutory works
  • Strikes
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12
Q

What are the timescales involved in a Extension of Time?

A

Under the SBC - The contractor is obliged to alert the CA to any delay at the earliest opportunity. Once a request for an extension of time is received from the contractor, the CA has 12 weeks to assess and make a decision (if less than 12 weeks to completion, the CA needs to make a decision prior to the completion date)
Under MW - No specific timescales are defined

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13
Q

What is a Relevant Matter?

A

A Relevant Matter is a matter for which the client is responsible that materially effects to progress of the works. May give rise to an contractor’s claim for Loss and/or Expense. Might include:

  • Failure to give site possession
  • Failure to provide access to/from site
  • Delays in providing instructions
  • Discrepancy within contract documents
  • Disruption caused by works carried out by the client
  • Instructions relating to variations and expenditure of provisional sums
  • Issues relating to CDM
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14
Q

What is a Specified Peril?

A
A specified peril is a relevant event which can justify an application for an extension of time, but not an application of loss and expense. Defined in MW and IBC: 
-Fire 
- Lightening 
- Explosion 
- Storm 
- Escape of water from tank or pipe
- Earthquake 
- Riot/Civil commotion 
Specified risk are usually covered by the works insurance policy, and may give rise to a claim
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15
Q

What counts as exceptionally adverse weather conditions?

A

JCT does not define exceptionally adverse weather condition, meaning it is left to discretion. This means that it can be a potential cause for dispute.
NEC defines it as a 1 in 10 year event, otherwise the contractor should have allowed for the effects of weather within their price

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16
Q

What clause within a Minor Works contract deals with Loss and Expense?

A

Loss and Expense is dealt with in clause 5.10, where details of when a contractor is entitled to loss and/or expense is detailed.

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17
Q

What clause within a Standard Building Contract deals with Loss and Expense?

A

The “Loss and Expense” section deals with loss and expense:

  • 4.23 deals with matters materially affecting regular progress
  • 4.24 defines Relevant Matters
  • 4.25 deals with amounts ascertained (addition to contract sum)
  • 4.26 provides details of the contractor’s rights and remedies
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18
Q

What is the process involved in the Standard Building Contract for Loss and Expense?

A

The contractor makes a claim for any direct loss and/or expense incurred due to a default by the employer or a relevant matter. The contractor must submit any supporting information required by the CA. If reasonably incurred, it is considered to be an Ascertained Amount and is added to the contract sum.

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19
Q

What clause within the JCT Minor Works contract deals with Liquidated Damages?

A

Clause 2.9 deals with liquidated damages. Amount of liquidated damages should be defined in the contract particulars

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20
Q

What clause within the JCT Standard Building Contract deals with Liquidated Damages?

A

The section “Practical Completion, Lateness and Liquidated Damages” deals with liquidated damaged. More specifically clause 2.31 deals with the requirement to issue a Certificate of Non-Completion and clause 2.32 details the situation where liquidated damages may be applied, and the process for doing so. Amount of liquidated damages should be defined in the contract particulars

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21
Q

What is the difference between liquidated and non-liquidated damages?

A

Liquidated damages are a genuine pre-estimate of loss. When used actual loss is irrelevant, and once set they can only be revised down.
Unliquidated damages are when the section in the contract particulars is left blank, and the loss must be calculated at the time and need to be proven

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22
Q

How is the amount of liquidated damages applied in a contract calculated?

A

Liquidated damages should be a genuine pre-estimate of loss due to delay. They may include loss of rent, extended professional fees, the requirement to rent additional spaces etc.

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23
Q

What is the process required for liquidated damages to be claimed by an employer in the Standard Building Contract?

A

Under the SBC for liquidated damages to be applied a Non-Completion Certificate must be issued. Following that the client can either deduct the damages from monies due to the contractor, communicated via a pay less notice, or recover the amount as a debt, as long as it is communicated via a notice.

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24
Q

What is the process for liquidated damages to be claimed by an employer in the Minor Works contract?

A

Under the MWBC there is no requirement for a Non-Completion Certificate to be issued. If the work is not complete by the completion date, the employer can either deduct monies due to the contractor, communicated via a pay less notice, or recover the amount as a debt, as long as it is communicated via a notice.

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25
Q

What clause in the Minor Works contract deals with Non-Completion Certificates?

A

None. Non-Completion Certificates are not required under the minor works contract

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26
Q

When would a Non-Completion Certificate be issued?

A

A Non-Completion Certificate would be issued when works are not complete at the relevant completion date, and no Extension of Time has been issued. Liquidated damages cannot be claimed unless a Non-Completion Certificate has been issued.

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27
Q

What clause in the Minor Works contract deals with Pay Less Notices?

A

Clause 5.5 “Payments - amounts and notices” and more specifically 5.5.4 deals with Pay Less Notices

28
Q

What clause within the Standard Building Contract deals with Pay Less Notices?

A

Clause 4.13 “Pay Less Notices are general provisions” deals what should be included within a Pay Less Notice, which clause 4.12 “Interim payments - final date and amount” details the situation in which a Pay Less Notice shall be issued

29
Q

What is a Pay Less Notice, in what situation would it be issued and what are the timescales involved?

A

A Pay Less Notice is a notice issued either to the Employer or the Contractor noting the intention to pay less monies than noted as due in a valuation. Where a valuation is considered to be wrong, or where for example the client wishes to claim liquidated damages, then a Pay Less Notice should be issued to detail the amount to be paid. A Pay Less Notice must be issued not later than 5 days before the final date for payment

30
Q

What clause within the Standard Building Contract deals with Partial Possession?

A

The section “Partial Possession by Employer” deals with partial possession. More specifically:

  • 2.33 deals with Contractor’s Consent for the Employers partial possession;
  • 2.34 deals with Practical Completion of the space, and defines the Relevant Part and Relevant Date;
  • 2.35 deals with defects within the Relevant Part;
  • 2.36 deals with insurance of the Relevant Part; and
  • 2.37 deal with liquidated damages (reduction) in respect of the Relevant Part
31
Q

What is the process for partial possession?

A

If the Employer wishes to take partial possession of some part of the works prior to the completion date, they must first gain consent to do so from the Contractor. The Contractor cannot unreasonably withhold or delay such consent. Following that, the Relevant Part is deemed to have reached Practical Completion at the Relevant Date, where partial possession took place. This then triggers the start of the defects rectification period for the Relevant Part, starting at the Relevant Date. This also means that the insurance of the Relevant Part now becomes the responsibility of the Employer (specific dependent on insurance arrangements used). Additionally, the amount of liquidated damages should be reduced to reflect the % of the Relevant Part.

32
Q

What is the difference between Sectional Completion and Partial Possession?

A

Sectional Completion of is a pre-arranged situation, whereas Partial Possession occurs within the course of the project, and needs to be consented to by the Contractor.

33
Q

What clause within the Standard Building Contract deals with Sectional Completion?

A

The section “ Practical Completion and certificates” deals with Sectional Completion. The process is the same as Practical Completion, but applies to isolated areas of the works - “Sections”. The Sections along with their associated completion dates and amount of retention released should be defined in the contract particulars.

34
Q

What clause within the Standard Building Contract deals with Acceleration?

A

Acceleration is dealt within the the Schedule Part 2 Variation and Acceleration Quotation Procedure at the back of the contract

35
Q

In what situation would acceleration of a programme be considered?

A

If a contractor wanted to avoid liquidated damages due to delay, or perhaps to free up staff. A client may wish to accelerate a programme to avoid the works being completed late.

36
Q

What is the Acceleration Quotation Procedure?

A

The client invites the contractor to provide an acceleration quotation. The contractor then provides an acceleration quotation, detailing time savings possible and required adjustment to the contract sum, or provides details of why acceleration is not possible. The contractor has 21 days to submit their quotation. The quotation then remains open for acceptance for 7 days from receipt. If the quotation is to be accepted, the CA will issue Confirmed Acceptance which details the adjustment to the contract sum and the adjustment to the completion date. If the quotation is not to be accepted, a fair and reasonable amount will be added to the contract sum for the preparation of the quotation.

37
Q

What clause within the Minor Works contract deals with Defects and Rectification Period?

A

Clause 2.11 deals with defects found within the Rectification Period, and clause 2.12 notes the requirement for a Certificate of Making Good Defects. The Rectification should be defined within the contract particulars

38
Q

What is a Rectification Period, and what is the process involved?

A

If any defects are found within the Rectification Period, the CA will issue an instruction that notes a schedule of defects, which should be issued no later than 14 days after the expiry of the rectification period. The contractor should then return to rectify those identified defects at no cost to the employer. Once these works have been carried out the CA will issue a certificate of making good to document these works.

39
Q

When would a Final Certificate be issued, and what is the process surrounding it?

A

2 months after the end of the rectification period, or 2 months after the issuing of a certificate of making good, the CA will issue a final certificate, that details the outstanding amount due to the contractor (generally the remaining retention only)

40
Q

Why would a final certificate not be issued?

A

If there is an ongoing dispute resolution process then a final certificate should not be issued

41
Q

What are concurrent delays?

A

When two or more delays occur at the same time. Scots Law allows for review of different delays separately, not as one global claim. English Law focuses on the original delay.

42
Q

What is a Variation as defined by the SBCC contracts?

A

Alterations or modifications of design, quantity or quality of works including:
- additions, omission or substitutions
- alterations of the materials
- removal from site any of the executed works
Also, imposition of the Employer of any obligations or restrictions:
- access to site
- limitation of working space
- limitation of working hours
- order or works

43
Q

How are variations valued under the SBCC contracts?

A

The value of variations will be the value of:

  • all variations required by CA
  • all work treated as a variation
  • instructions of expenditure of provisional sums
  • all works where approx quantities are used

Shall be such an amount as agreed by the Employer and Contractor, or as valued by QS in accordance with the valuations rules in an amount can’t be agreed on

44
Q

What are the valuation rules?

A
  • Rates taken from the pricing documents
  • Rates taken from the pricing document for basis, with fair allowance included as required
  • If not similar to other work, should be valued at a fair rate
  • Or through Day Work
45
Q

If valuing through Day Works, what is the process?

A

Prime Costs, as supplied by RICS, for an activity, plus % Percentage Additions as provided in the Contract Particulars. If used, contractor must provide diaries

46
Q

What is the instruction procedure under the SBC?

A
  • All instructions should be in writing
  • Contractor confirms any verbal instructions within 7 days, then CA has a further 7 days to change the details, otherwise the contractor’s confirmation becomes the instruction (takes affect from date of confirmation by CA)
  • If no confirmed in writing, but complied with, CA may confirm in writing prior to final certificate
47
Q

What is the instruction procedure under MWBC?

A
  • CA may issue written instructions

- CA may issue verbal instructions, if confirmed by CA in two days

48
Q

What are the different types of sub-contractor appointment?

A
  1. Domestic - employed directly by contractor, paid directly by the contractor
  2. Named - a small number of contractors may be included in the tender documents. Contractor then approaches named sub-contractor for costs. If contractor is appointed, the sub-contractor becomes a domestic sub-contractor
  3. Nominated - rarely used and has been removed from JCT. Contractor runs a sub-contractor tender process, and client selects preferred sub-contractor for appointment by the contractor
49
Q

What sub-contractor appointment is available in the SBCC contracts?

A
  • SBC - Named persons, minimum list of 3
  • IBC - Allows for single names subby for specified works, CA may change the name prior to execution of sub-contractor, treated like a prov sum
  • MWBC - includes for named
50
Q

What are the payment timescales?

A
  • 7 days before due date - contractor’s valuation
  • Due Date
  • 5 days after due date - CA payment cert
  • 14 days after due date - final date for payment
  • 5 day before final date for payment - CA pay less
51
Q

When is the Final Payment due?

A

2 months after the end of the rectification period, the issue of the certificate of making food and issue of statement of final adjusted final account - whichever is later
Due date is date of issue, and payment must be within 28 days

52
Q

What is the final certificate evidence of?

A
  • Quality of works to reasonable satisfaction of CA
  • All adjustments to contract sum have been made
  • All EoT have been given
  • All L&E are concluded
53
Q

What are fluctuations?

A

Fluctuation provisions provide a mechanism for dealing with inflation, which is appropriate on long projects. In short projects, the contractor is expected to take inflation into account in pricing
Often struck out of the contract for fixed price lump sum

54
Q

What are the fluctuation options?

A
  • Contribution to tax & levy only; where only legislative changes will be taken into account
  • Labour, materials & tax changes; rates of labour, cost of materials and legislative changes will be considered
  • Formula adjustments; published indices used to apply to final account
55
Q

What is the base date?

A

The base date is generally 7 days prior to the submission of tenders, and is the point in time the contractor should use to price based on the market. It is assumed that the contractor has inquired about prices and lead in times. Additional compensation may be available if the market has drastically changed between the base date and the date on contract

56
Q

How is VAT dealt with in the SBCC contracts?

A

Contract sum is exclusive of VAT, but employer is required to pay VAT on any contract payments

57
Q

What are the three options for works insurance under the SBC?

A

Option A - All Risks Insurance of the Works by the Contractor
Option B - New Building - All Risk Insurance of the Works by the Employer
Option C - Insurance by Employer of Existing Structures and Working in or Extension to Them

58
Q

What is involved in Insurance Option A under SBC?

A

Option A - All Risk Insurance of the Works by Contractor
- New build works where contractor required to effect the contract works insurance. All risk insurance for full reinstatement value of works. Contractor to maintain up to date of PC. Contractor to issue a copy to Employer

59
Q

What is involved in Insurance Option B under SBC?

A

New Building - All Risk Insurance of the Works by Employer

- Employer takes out a Joint Names policy of all risk insurance. Contractor to notify of any claims

60
Q

What is involved in Insurance Option C under SBC?

A

Insurance by Employer of Existing Structures and Works in or Extension to Them
- Employer insures existing structures and the contract works

61
Q

What are the advantaged of a joint names insurance policy?

A
  • Negates the requirement for both parties to procure insurance, therefore reducing over insurance bill for the project
  • Under a joint names policy the insurer waives subrogation rights, meaning that the parties (Employer/Contractor) cannot claim against each other under the insurance, therefore avoid litigation
  • The policy cannot be cancelled without both parties being aware
62
Q

What is a bond in terms of a construction contract?

A

A bond is a means of protection against the non-performance of a contractor. They are undertaken by a bondsman or surety to make a payment to the client in the event of non-performance. Cost of the bond will be borne by the contractor.
Bonds can be on-demand or conditional. Conditional bond require proof of non-performance and loss suffered as a consequence

63
Q

What is a performance bond?

A

A performance bond is a means of insureing the client against the risk of a contractor failing in their contractual obligations. Typically set at 10% of contract value. Generally a default bond will be used, where the employer must prove there has been a breach, and that there has been loss suffered. Will expire at PC/issue of Cert of Making Good

64
Q

What is an advance payment bond?

A

An advance payment bond allows for surety to the employer if they provide an upfront payment to the contractor prior to works being complete. Appropriate if high cost initially for materials/site set up/plant hire etc. Advance payment bond should be a on-demand basis. Careful drafting required to ensure that on-demand basis and circumstances for payment are clear

65
Q

What is a retention bond?

A

Retention bonds involved the monies that would have been held as retention being paid into a bond instead of being held by the employer. Will reduce at PC as with normal retention

66
Q

What is a parent company guarantee?

A

A parent company guarantee is essentially a promise by the contractor’s parent company that they will make good an any default or any any liabilities of the contractor. Used when the contractor’s has a parent company with a stronger financial covenant. Require legal advise for drafting and proper inclusion within contract. Drafting needs to be careful, as changes to contract without approval from parent company may void the obligations (EoT counts as a change)