Termination and suspension Insolvency and liquidation Flashcards
464 What is termination?
This is when one party relives another party of the responsibility under a contract.
465 Can the contractor suspend works for non-payment?
Under the House Grants Construction and Regeneration Act 1996 the contractor has the right to suspend the works for non-payment. They must issue a notice to the Client that they are suspending the works. Under the Construction Act 2009 they are also relieved of additional duties such as ensuring the works, obtaining consents and implementing variation orders.
466 What are delay damages and LADs?
LADs are liquidated ascertained damages. LADs must be a genuine pre-estimate of loss. They must not be a penalty, they can be quicker to administer as actual loss does not have to be calculated and the contractors knows what his exposure is in advance. Must be entered into the contract before signing. The consultant cannot calculate these for the Client
467 What sort of costs can the Client include in the calculation?
Cost for his staff, consultants, additional rent in temporary accommodation/offices/ additional finance costs and lost profits.
468 What if the Client tells you that the damages are £100k per week.
Proceed with caution. Advise the Client that LADs must not be treated as a genuine estimate of loss. If the damages are construed as a penalty, they may not be enforceable. Ask if the Client genuinely believes this is what they might lose of the contract is delayed.
469 What contractual documents must be in place before LAD`s can be levied?
Non completion certificate. Would also be helpful to notify the contractor that LADs may be applied and a pay less notice might be required depending on where the contract is financially.
470 What is a LD holiday or an LD free period?
This is amount of time that the Client will not levy LDs on the contract. During this grace period the contractor will have no commercial liability for the delay. Also it is worth considering that LADs are an option. The Client doesn’t HAVE to apply them. They can, if they so wish, choose not to do so.
471 what is the danger of inserting £0 or nil against the damage clause (JCT terms)?
That this is construed as having no financial penalty for delay. This may also prevent the Client for pursuing the contractor for unliquidated damages.
472 What is the implication of leaving the clause blank?
That the Client can pursue the contractor for unlimited damages.
473 What is the difference between liquidated and unliquidated damages?
Liquidated damages can be agreed between the parties whereas unliquidated damages are awarded by the courts and actual loss must be proven.
474 If an EOT is granted how do this affect damages?
Damages are applied from the new completion date. Any damages that have already been taken must be paid back to the contactor (with interest)
475 Can a Client levy liquidated damages even if they haven’t incurred the loss?
In theory yes. As long as they are a genuine pre-estimate of loss and not a penalty.
462 What is insolvency?
This is when a company is no longer able to pay its debts.
Insolvency and liquidation463 What can be done at tender stage to identify potential contractor insolvency?
Carry out financial checks on the company. Check front loading of project costs, check bank references, use credit checking agencies like dun and Bradstreet use previous references. Request a performance bond or parent company guarantee. This will not stop insolvency but will protect the Client in the event of a default.
