T3. CONTRACT PRACTICE Flashcards
What are the fundamental elements that make up a contract?
Offer: An offer is a promise to enter into a contract on certain terms
Acceptance: Acceptance of terms of the offer.
Consideration: A form of payment or other benefit.
Capacity: intend to create a legally binding agreement
Intent: Intent to create a legally binding agreement
What is meant by express terms?
Express terms are those expressed (written) in the contract.
What is meant by implied terms?
Implied terms are those implied by statute i.e. Construction Act
What are the key characteristics of an NEC Option A contract?
Fixed price lump sum contract with an activity schedule
What are the key characteristics of an NEC Option C contract?
Target cost contract with an activity schedule
What are the key characteristics of an JCT ICD contract?
Form of contract for use on traditionally procured construction projects but with elements of Contractors Design Portion (CDP)
What are the key characteristics of an JCT D&B contract?
Form of contract for use on construction projects whereby the contractor takes on the responsibility for design.
What is the Construction Act?
The primary piece of legislation governing construction contracts.
What are the key requirements of the HGRCA 1998?
Introduced statutory adjudication and key payment provisions, including the requirement for payment notices and the restriction on pay-when-paid clauses
Have there been amendments to the HGRCA 1998?
Yes the Local Democracy, Economic Development and Construction Act 2009
What were the key changes made by the LDEDCA 2009?
Repeals requirement for contracts to be in writing.
Refined payment notice requirements including default payment notice procedure and pay less notice provisions.
Closed loopholes for ‘pay-when-paid’ clauses.
What are the benefits of using standard forms of contract?
Fair Risk Allocation – Ensures balanced risk distribution between parties.
Legally Tested – Terms are tried and tested through court precedents, reducing ambiguity.
Efficiency – Familiar contracts streamline negotiation and administration.
Cost & Time Savings – Reduces legal drafting costs and speeds up contract formation.
Compliance – Aligns with legal and regulatory requirements, ensuring enforceability.
What are the implications of using a form of contract that does not align with the procurement strategy?
Increased Risk Exposure – Misaligned contracts can place undue risk on one party, leading to financial or legal complications.
Confusion in Roles and Responsibilities – Discrepancies between contract terms and the procurement strategy can cause confusion regarding the parties’ obligations.
Disputes and Claims – Misalignment increases the potential for disagreements, leading to claims, disputes, and legal costs.
What is the structure of a JCT ICD Contract?
Agreement:
* Recitals
* Articles
* Contract Particulars
* Attestation
Conditions:
* Section 1: Definitions and Interpretation
* Section 2: Carrying out the Works
* Section 3: Control of the Works
* Section 4: Payment
* Section 5: Variations
* Section 6: Injury, Damage and Insurance
* Section 7: Assignment, Performance Bonds and Guarantees and Collateral Warranties
* Section 8: Termination
* Section 9: Settlement of Disputes
Schedules:
* Schedule 1: Insurance Options
* Schedule 2: Named Sub-Contractors
* Schedule 3: Forms of Bonds
* Schedule 4: Fluctuations – Contribution, levy and tax fluctuations
* Schedule 5: Supplemental Provisions
* Schedule 6: Design Submission Procedure (ICD16 only)
What is the structure of a JCT D&B Contract?
Agreement:
* Recitals
* Articles
* Contract Particulars
* Attestation
Conditions:
* Section 1: Definitions and Interpretation
* Section 2: Carrying out the Works
* Section 3: Control of the Works
* Section 4: Payment
* Section 5: Changes
* Section 6: Injury, Damage and Insurance
* Section 7: Assignment, Performance Bonds and Guarantees and Collateral Warranties
* Section 8: Termination
* Section 9: Settlement of Disputes
Schedules:
* Schedule 1: Design Submission Procedure
* Schedule 2: Supplemental Provisions
* Schedule 3: Insurance Options
* Schedule 4: Code of Practice
* Schedule 5: Third Party Rights
* Schedule 6: Forms of Bonds
* Schedule 7: JCT Fluctuations Option A
What is the structure of an NEC Contract?
Contract Data
* Part 1 - Completed by client
* Part 2 - Completed by contractor
Conditions of Contract
* Core Clauses 1 - 9
* Main Option Clause A - F
* Dispute Avoidance Clauses W1 - W3
* Secondary Option Clauses: X1 - 29; Y(UK)1 - Y(UK)3; Z Clauses
* Schedule/Short Schedule of Cost Components
Prices
* Activity Schedule or BOQ
Client Scope
Scope provided by the contractor for its design
Site Information
What are ‘w’ clauses?
Dispute resoliton:
W1 - where HGCR Act does not apply. Stages 1-3 mandatory.
W2 - where HGCR Act does apply. Stages 2-3 mandatory so as not to conflict with act.
W3 - where HGCR Act does not apply. Stages 1-3 mandatory includes options for dispute avoidance board.
3-stage approach to dispute resolution:
*1 - Senior representatives
*2 - Adjudication
*3 - Arbitration or litigation
What are ‘x’ clauses?
Optional clauses that the client can choose to include within the contract i.e X1 inflation, X5 sectional completion, X7 delay damages
What are ‘y’ clauses?
Option Y(UK)1 covers the use of a project bank account in relation to the works.
Option Y(UK)2 ensures that the contract’s payment provisions comply with the Housing Grants, Construction and Regeneration Act 1996.
Option Y(UK)3 allows a third party to a contract (eg a tenant or purchaser) to enforce terms of the contract in certain circumstances under the Contracts (Rights of Third Parties) Act 1999.
What are ‘z’ clauses?
Additional clauses
What is a bond?
They are an undertaking by a surety to make a payment to the client in the event of non-performance of the supplier.
What is a performance bond?
A form of security provided by a contractor to protect the client if the contractor defaults on the contract.
What form of security could you recommend to a client instead of a performance bond?
A parent company guarantees the performance of its subsidiary and steps in if the subsidiary defaults.
What is a retention bond?
A retention bond is a type of surety bond that guarantees a contractor will complete a project and fix any defects.
Can aid contractors cash flow
What are the disadvantages of a retention bond?
Contractors will price in the cost of providing a bond into the tender.
Bonds can be conditional (although advised against). This means mean that the bond only becomes enforceable if certain conditions are met.
What is an advance payment bond?
Safeguards the employer in situations where a significant upfront payment is made to the contractor.
What is an off-site material bond?
Safeguards the employer in situations where payment has been made to the contractor for materials off site payment is made to the contractor.
What is a tender bond?
A bond to secure the tenderers commitment to commence the contract. Can be called upon if the winning tenderer fails to execute the contract or meet other specified conditions.
How did you go about preparing the construction contract on JCT projects?
Select appropriate form of contract
Complete the Articles of Agreement (insert details of the employer and contractor, fill in Recitals, Articles, and contract particulars, and provide execution (signature) pages).
Collate all contract documents into a bound pack (including contract drawings, bills, Articles of Agreement, conditions of contract, employer’s requirements, contractor’s proposals, and CDP analysis if applicable).
How did you go about preparing the construction contract on NEC projects?
Complete Contract Data Part 1 (employer’s data) and Contract Data Part 2 (contractor’s data).
Prepare the Scope.
Prepare the Site Information.
If any amendments to terms and conditions have been agreed, select secondary Option Z and note it in Contract Data Part 1, including the document containing the ‘Z clauses’.
Collate all documents into a bound contract pack.
In what circumstances might a standard form construction contract be amended?
Altering the risk allocation in a contract
Inserting additional obligations
Removing rights
Project-specific requirements
How do you calculate the rate for liquidated damages?
LD’s must be a genuine pre-estimate of loss and therefore I would not be in a position to calculate the rate for LD’s. This must come from the employer.
Would you draft amendments to a standard form of contract?
No. Amendments to standard form construction contracts should only be drafted by legally qualified professional advisers.
How do you determine the insurance requirements on a project?
I would ensure there are provisions in the contract for:
- Contract works insurance - Must be for the full reinstatement value of the works, including professional fees
- Professional indemnity insurance
- Public liability insurance - Insurers advocate insuring for a minimum of £2 million for any one occurrence, although a higher amount may be required by some clients.
- Employers liability insurance - The statutory requirement is for a cover level of £5 million, although in practice most standard policies provide cover of at least £10 million.
How do you go about drafting a letter of intent?
I would not draft a letter of intent as this is a legal document. If asked I would advise the client to seek legal advise.
What are the provisions for assessing cost changes in JCT contracts?
Valuation of variations must be conducted in accordance with rules set out in 5.3 to 5.6:
Additional Works:
* Where work is of similar character undertaken under similar conditions, contract rates will apply.
* Where work is of similar character but not undertaken under similar conditions, contract rates used as basis with adjustment for conditions.
* Where work is not of similar character fair and reasonable rates and prices.
Omissions:
* Priced document as basis
Where the appropriate basis of a fair valuation is daywork (when the additional or substituted work cannot be properly valued by measurement) clause 5.4 sets out the rules to be followed in assessing the amount.
What are the NEC compensation event procedures?
NEC4 Compensation Event Process – Key Steps & Timeframes
* Identify CE listed in Clause 60.1 (e.g., scope changes, unforeseen conditions, delays by Client/PM).
Notify CE
* By Contractor: Within 8 weeks of becoming aware (Clause 61.3).
* By Project Manager (PM): As soon as identified (Clause 61.1).
* PM Decision: Within 1 week (accept/reject as CE, Clause 61.4).
Submit Quotation
* By Contractor: Within 3 weeks of PM’s request (Clause 62.3). Includes cost impact, time impact, programme update.
*PM Review & Response
* Within 2 weeks: Accept, reject, or request revision (Clause 62.3).
* If rejected, PM provides reasons.
Revise & Resubmit (if required)
* By Contractor: Within 3 weeks of request (Clause 62.3).
* PM Final Decision: Within 2 weeks (Clause 64.4).
Deemed Acceptance
* If PM fails to respond, Contractor’s quotation is deemed accepted (Clause 64.4). (Exceptions for Options C, D & E where PM can assess independently.)
What is defined cost?
Defined cost is used to assess compensation events in all main options (A-E) and also for interim payments in the cost-reimbursable options (C-E).
Example A & B: Defined Cost is the cost of the components listed in the Short Schedule of Cost Components.
Example C,D,E: Defined Cost is:
* the amount of payments due to Subcontractors
* the cost of the components listed in the Schedule of Cost Components
What is the schedule of cost components?
The schedules are a set of rules to define those components of the Contractor’s cost which are included in Defined Cost
Where would i find the schedule of cost components in the contract?
Under the conditions of contract
What is included in the contractors fee percentage?
The Fee includes all costs the Contractor may incur that are not included in Defined Cost (see clause 52.1)
This may include its overheads, profit, insurance premiums, bank charges, and any allowance for its risks (e.g. Disallowed Cost).
What is the PWDD under Options A-E?
Option A: PWDD = the Activity Schedule prices for those activities or groups of activities which have been completed
Option B: PWDD = the Bill of Quantities rates and lump sums and the total remeasured quantity of work completed
Option C-E: PWDD = the total Defined Cost which the Project Manager forecasts will have been paid by the Contractor before the next assessment date.
What is a defined term under NEC?
Defined terms are capitalised and found in 11.2 of core clauses and main option clauses.
What is an identified term under NEC?
Found in italics in Contract Data Part 1 and Part 2. ‘The Completion Date is the completion date unless later changed in accordance with the contract.’
