Level 3 - Contract Practice Flashcards
- What is a contract?
A legally binding agreement (between two parties) to provide goods and services within a specified timeframe.
- What is necessary to form a contract?
Offer Acceptance (or counter offer) Consideration Intention (to be legally bound) Capacity (to make agreement) (e.g. power of attorney on behalf of a company)
- How is a contract executed?
- Under hand, signed by both parties, 6 year limitation period. Means that a party must bring about any claim for breach of contract within 6 years of the breach taking place. Any later and the claim will be time-barred.
- Under Seal (as a deed), signed and witnessed, 12 year limitation period. Valuable consideration not required,
- What are common contract documents?
- The Contract (with any amendments)
- Preliminaries
- Contract sum analysis/Pricing Schedule
- Drawings
- Specification
- Planning conditions/agreements
- Contractors Proposals
- What are the main contract suites?
- JCT (Joint Contract Tribunal)
- NEC (New engineering contract)
- FIDIC (International federation of Consulting engineers)
- ICE (Institution of Civil Engineers)
- How did you try to mitigate a delay on one of your projects?
Coventry demolition - Liasing with Main contractor to overlap the works, early survey work can begin on site whilst last section of demolition taking place.
N 1. Why use standard forms of contract?
- They are cheaper than getting a bespoke contract drawn up
- Offer a level of familiarity between the parties
- Tried and tested contracts in court, therefore you should be able to predict the outcome in the courts.
N 2. Why wouldnt you use a bespoke contract?
- They are costly to produce and time consuming
- Contractors do not like them, as they regularly put alot of the risk onto the contractor
- They are not tried and tested like a standard form
N 2. Why wouldnt you use a bespoke contract?
- They are costly to produce and time consuming
- Contractors do not like them, as they regularly put alot of the risk onto the contractor
- They are not tried and tested like a standard form
N 3. What is required to form a contract?
Offer Acceptance Consideration Capacity Intention Legality?
N 4. What should you consider when selecting the contract?
- The criteria of the client
- The procurement method you are going to use
- Nature of the works
- Timings, are the works required to start quickly or do you have time to produce robust set of docs
N 7. What standard forms of contract do you know that are offered by JCT?
- SBC 2011/2016
- Intermediate building contract 2011/2016
- Minor works Building contract 2011/2016
- Major Projects building contract 2011/2016
- Design and build contract 2011/2016
- Management Building contract 2011/2016
- Construction management contract 2011/2016
- Prime cost building contract 2011/2016
N 8. Can you name some NEC standard contract forms?
NEC - Engineering and Construction Contract (ECC)
- Option A, Priced contract w/ Activity Schedule
- Option B, Priced contract w/ BoQ
- Option C, Target contract w/ Activity Schedule
- Option D, Target contract w/ BoQ
- Option E, Cost reimbursable
- Option F, Management contract
N 12. When is a JCT Minor Works contract NOT suitable?
- Complex projects
- Detailed control procedures
- Where there are named Sub-Contractors
N 13. Can you provide more information on the JCT Major project construction contract?
- Used on large , complex project by experienced clients
- They place most of the risk on the contractor
- Has sub-contract derivatives
- All derivatives/versions have a yellow and purple cover
N 14. Can you provide more information on the JCT Design and Build Contract 2011?
- They are used by all types of clients, create a single point of responsibility for the design and construction with the contractor
- Can be used on projects of all sizes
- Client must produce the Employers Requirements
- Has a sub-contract derivative broken into two parts: JCT DB11 Sub-contract Agreement, JCT DB11 Sub-contract Conditions
- All derivatives have a Yellow and pink cover
N 15. Can you provide more information on the JCT Management Building Contract?
- Used then a management contracting route is chosen
- Used by experienced clients who understand the construction costs
- No real cost certainty until all packages are let
- Works are completed by a number of ‘Works Contractors’ who are placed under a management works contract.
- Works Contractors are contracted to the Management Contractor
- Management Contractor is a fee earning professional onto the the final construction costs.
- All derivatives have a yellow and brown cover
N 16. Can you provide more information on the JCT Construction management contract?
- Used where a CM procurement route is chosen
- Used by experienced clients who understand the construction costs
- No real cost certainty until all packages are let
- Works are completed by a number of ‘Trade Contractors’, who are placed under a ‘Construction Management Trade Contract’.
- Trade contractors are contracted directly with the client
- The Construction Manager is only responsible for looking after the programme and construction.
- All derivatives have a Yellow and Brown cover.
N 17. Can you provide more information on the JCT Prime Cost Building Contract?
- Used on projects which require an early/quick start
- Usually on a cost plus basis, as the extent of the works are not known until the project is underway
- Has sub-contract forms
- All derivatives have a yellow and pink cover
N 18. Can you provide more information on the NEC Option A contract?
Priced Contract with an Activity Schedule
- For all types of clients, the balance of risk is mainly with the contractor
- It comes with/requires an activity schedule, containing a list of activities the contract expects is required to complete construction.
- Lump sum
N 19. Can you provide further information on the NEC Option B contract?
Priced Contract with a Bill of Quantities
- For all types of clients, the risk is mainly with the contractor
- Comes with a detailed BoQ, which can either be produced by the client or Contractor, which is a detailed statement of all the works that will be undertaken.
- Lump sum
N 20. Can you provide further information on NEC Option C contract?
See revision sheet
N 21. Can you provide further information on NEC Option D contract?
See revision sheet
N 22. Can you provide further information on NEC Option E contract?
See revision sheet
N 23. Can you provide further information on NEC Option F contract?
See revision sheet
N 24. When was NEC3 published?
2005
Used by both the ICE and Government
N 25. What are the perceived problems with NEC3 Contracts?
- Very admin heavy
- Requires alot of expertise to operate effectively
- Focuses too much on Project Management
- Cost information in relation to compensation events can take a long time. PM regularly has to decide how to proceed based on a cost estimate from the QS, which then gets replaced by the actual costs.
N 26. What are the specialities with NEC?
- No Contract Administrator required, replaced by a Project Manager
- Compensation Events as opposed to variations, extensions of time, loss and expense etc.
N 27. What is a compensation event?
Events that occur during the course of the works that cause the completion date to be changed, or additional cost to the contractor as a result to the client
N 28. What might a Compensation Event include?
- Variations
- Instructions to changes contracted services
- Failure to provide access
- Late issue of information from client
- Failure by client to supply materials
- Instruction to halt/delay works
- Conditions that can’t have been reasonably foreseen
- Exceptionally adverse weather
- Acts of god.
N 29. What is the process for a compensation event?
- Contractor must notify the project manager within 8 weeks of the event becoming apparent with an EARLY WARNING NOTICE, if not notified in this period then it will not be considered.
- PM has 1 week to review claim and respond
- Contractor has 3 weeks to provide quotation
- PM has 2 weeks to respond to quotation
- Final costs of works calculated on a cosy reimbursable basis
N 30. What is the Project Managers role under NEC contracts?
- Manage programme
- Operate early warning mechanism
- Issue instructions
- Issue outcomes for compensation events
- Determine when practical completion has been achieved
- Assess defects
N 31. What is the Contract Administrators/Employers Agent role under JCT?
- Issue instructions
- Certify payment
- Issue Extensions of time
- Consider all Variations, Loss and expense claims, interim applications
- Assess when practical completion has been achieved.
N 32. Who is the Employers Agent?
Typically used in Design and Build contracts, they are there to ensure the clients best interests are met.
N 33. What is the Main Contractor responsible for?
The construction of the project, through either direct labour or sub-contracted labour
Health and safety, if they are the principle contractor then CDM regs apply;
- Construction phase plan
- Prepare, develop and implement written site plans
- Provide welfare facilities
- Ensure all workers have site inductions
- Provide all relevant information required for H&S plan to the Principle Designer
N 34. What is Novation?
Where the contractual benefits and burdens of a contract are passed from one party to another.
Commonly used in Design and Build for Design Team
N 35. Is the contractor responsible for the Novated party’s design prior to Novation?
No, unless they state they have adopted the design.
N 36. What is Assignment?
Where the contractual benefits and burdens of a contract are passed from one party to another. Such as the assignment of a collateral warranty from one tenant/operator to another.
N 37. When can Assignment take place
Any time, as it is a statutory right, however it can be limited within a contract
N 38. Give an example of how Assignment can be restricted?
Restricting the assignment of a collateral warranty to one time only, without the written consent of the warranter.
N 39. What is the aim of Assignment?
They give the assignee the same rights as the assignor under the contract
N 40. What is a Collateral warranty?
A way of forming a direct contractual link between two parties which otherwise wouldn’t have a link, such as between a sub-contractor and a client.
N 41. What case law do you know that relates to Collateral Warranties?
Parkwood Leisure v Laing O’Rourke
N 42. What happened in the case of ‘Parkwood Leisure v Laing O’Rourke’?
It was found that Collateral Warranties can be considered to be a construction contract, and are therefore subject to the same provisions as the construction act
N 43. What Collateral Warranties do you know of?
- Collateral warranty for a Purchaser/Tenant
- Collateral warranty for an Employer
- Collateral warranty for a funder
N 44. What are third party rights?
- An alternative to Collateral Warranties
- They allow a third party to be written into a contract
Introduced as part of the Contracts (third party rights) act 1999.
N 45. What is the aim of Third Party Rights?
To give the Third party the benefits of the contract only, not the burdens. I.e Writing in the tenant as a the third party will ensure that they receive the contract benefits
N 46. What is a Letter of Intent?
- A document outlining an agreement between two parties, before a formal contract has been created
- Each letter of intent is different, with each being assessed based on it meaning
N 47. What can a Letter of intent be based on its wording?
- An expression of the intention to enter into a contract at a future date, which doesn’t give rise to any legal obligation.
- An expression of the intention to enter into a contract at a future date, which does not exclude the right to recover costs on a quantum merit basis.
- The creation of a interim contract
- The creation of a legally binding contract, whereby the letter can be offered and accepted.
N 48. What can be included within a letter of intent?
- Spending caps
- Expiry dates
N 49. What is a title retention clause?
Where the good and services remain the property of the seller until a certain obligation is undertaken, i.e. payment.
N 50. What is a Performance Bond?
A form of financial Security, used to cover the client against the contractor failing to fulfil their contractual obligations.
N 51. What are the typical values of a Performance bond?
Typically work approximately 10% of the Contract Value to the client
N 52. What are the problems with bonds?
They will come at the clients cost.
N 53. What are the two types of bond?
- Default bond
- On demand bond
N 54. What is the difference between a Default Bond and an On demand bond?
- A default bond can be called in when the contractor defaults on their contractual obligations however the client will have to prove that the contractor has defaulted.
- An on demand bond can be called in at any time, without having to satisfy any of the pre-conditions.
N 55. What types of Bonds do you know of?
- Advanced payment bonds
- Retention bonds
- Materials off site bond
- Tender Bond
N 56. What is an Advanced Payment Bond?
A financial surety to the client that if an advanced payment is made, then the bond will pay out if the contractor defaults.
N 57. Why would you use an Advanced payment bond?
If a contract had high upfront costs, and the contractor wanted advanced payment to ease the upfront cost.
N 58. What is a Retention Bond?
A Bond taken out instead of taking retention from interim valuations, improving contractor cash flow.
N 59. Why would you use a Retention Bond?
If a Contractor had poor cashflow, a retention bond means that no retention is taken from interim payments, improving cashflow.
N 60. What happens with variations to a Contract in relation to a retention bond?
The bond value will need to be updated to suit, or the additional retention can be deducted as usual from interim payments.
N 61. What if a Contractor doesn’t maintain a Retention bond? (or other bond)
Then the client is entitled to take the retention out the next interim application.
N 62. What is a Parent Company Guarantee?
A parent company guarantee is an alternative form of surety for the client, whereby a parent company to the subsidiary company will warrant the subsidiary’s companies work, and will remedy any breaches by the subsidiary company, by either stepping in to complete the works, paying damages etc.
N 63. What is Professional Indemnity Insurance?
A form of insurance that covers professional negligence
N 64. What is Employers Liability Insurance?
A form of insurance that covers the injury and death arising from business activities