Tutorial contracts

Question 1

summarise contracting

Answer 1

Contracting is the process of one party engaging another party to undertake specific work in return for remuneration of specified sums of money.

Contracting is the process of clearly defining the roles and responsibilities of each party in the project. clearly stating what is expected, courses of action for certain scenarios, how parties will be paid or reimbersed. The contract is a legal document which is enforeable by law.

Question 2

Who is the principal

Answer 2

The principal is the party who needs the work done in the contracting process. therefore this will be the promoter for the main contract (but may be the contractor for sub contracts)

Question 3

define a contract in 2 lines

Answer 3

A contract, in the simplest definition is a promise enforceable by law. the promise may be to do something or to refrain from doing something

A legal document enforceable by law which clearly states roles and responsibilities of the parties involved

Question 4

explain why contract law is the product of a commercial civilisation

Answer 4

commericial civilisation developed trade which was not completed at the same time for both parties; the transaction was based on a promise of a future event and thus laws and courts needed to be established to enforce those promises.

Question 5

3 main differences between formal and simple contracts in writing

Answer 5

1) to be enforceable a simple contract must be supported by consideration
2) concerns the limitation period (the time following a breach of contract in which the innocent party may take action on the other) This period is generally longer for formal contracts than it is for simple contracts
3) a formal contract creates an estoppol. this is a rule of law which precludes a party from later claiming that a statement expressed in the contract is incorrect

Question 6

what are the 4 basic requirements that must e satisfied to form a valid contract

Answer 6

1) intention by both parties to form an enforceable contract must be demonstratable
2) consent of both parties must be genuine
3) legality of the agreement must be objective
4) both parties must have the legal capacity to form an agreement

Question 7

in engineering terms, provide examples how a contract may be deemed illegal

Answer 7

an engineering contract would rarely be illegal through a criminal act. it is more likely that the contract indicates an action that is against a law of statute, for instance health and a safety at work act of 1974

Question 8

What is a merger? how is it performed?

Answer 8

merger is the change between a simple and a formal contract. it is performed by creating a formal instrument of agreement

Question 9

why is a conditional acceptance of an offer not a contract

Answer 9

a conditional acceptance is actually a counter offer

Question 10

what is consideration? what is its significance ?

Answer 10

a contract is not necessarily yo undertake an action. if there is no material exchange between parties to a contract, its existence must be demonstrated by the transfer of something of value - this is consideration

Question 11

suggest reasons why one party may perform an assignment

Answer 11

subcontracting is an assignment of the contractor’s duties; providing an agent or other party to provide payment is an assignment of the promoter’s duties

Question 12

what is the principle of privity

Answer 12

privity indicates that the responsibilities of the contract parties that are established with the formation of a contract may not be transferred to a 3rd party, it also indicates that a 3rd party may not cause one of the contract parties to breach those responsibilities

Question 13

what is the difference between a breach and a fundamental breach of contract

Answer 13

breach occurs if a party does not perform according to its responsibiltiies under contract

breach becomes fundamental if it causes a situation in which the other party is unable to perform their duties and responsibilities

Question 14

suggest instances in which contracts are negotiated instead of competitively tendered

Answer 14

1) principal may know exactly what contractor is required for the work. could be simply bcause there is only one available or because they have worked with the contractor succesfully in the past
2) the promoter wants a specific contractor so is willing to negotiate with them to secure them rather than get a more competitive offer from another contractor perhaps of which there isn’t a proven relationship already

Question 15

what are the differences between prices and costs

Answer 15

prices: sum of money contractor recieves in return for the work carried out
costs: sums of money the contractor incurs when carrying out the work

Question 16

there are 4 main factors that influence the type of contract when classified by method of payment. list these factors and indicate which type of contract is suited to the differing levels of these factors

Answer 16

1) degree of certainty about final contract price desired at tender stage. If a high degree of certainty is known, a lump sum contract can be used, otherwise measure and value is suitable
2) flexibility required to cope with design changes likely to be encountered during contract. if high flexibility a measure and value contract is appropriate - a lump sum is particularly inappropriate. A cost based contract would also be suitable for such a project
3) contractors incentive for efficient performance, matched by the promoters incentive to provide the contractor with timely information and decisions. A target cost based contract will provide the greatest incentive to both parties. a simple cost reimbursement contract will not do this
4) extent of risk likely to be encountered during the contract and the most cost and time efficient way of allocating it. if a project is expected to contain a high level of risk many contractors would not accept anything but a cost reimbursement contract. for low levels of risk a lump sum contract would be adequate.

Question 17

what is difference between an item and an activity? give example to illustrate point (try think of new ones)

Answer 17

item = process of work
activity = discrete unit of project construction

Question 18

difference between BoQ and scheduled rates

Answer 18

BoQ = has estimated quantities for each item, thus allowing an estimate of the total construction price to be made

A schedule of rates has no such quantities thus total estimates annot be made easily

Question 19

how is cost efficiency achieved in price based contracts

Answer 19

if contractor recuses costs, more money will be made as price remains same. this is contractors incentive

Question 20

how is cost efficiency achieved in cost based contracts

Answer 20

by providing a target cost for contractor to work to, cost savings are rewarded with a share of these savings - and penalty of a share of any cost over target

Question 21

what are the differences between traditional contracts where the design and construction are separate and a design and construct contract

Answer 21

the main difference is that the designer os employed by the contractor, not the promoter. means promoter must employ a separate advisory engineer. it does allow for greater contractual freedom for innovation of design

Question 22

in this contract the main contractor does not carry out the construction work

Answer 22

management contract

Question 23

in this contract the promoter has little involvement with the design, construction and commissioning of the project

Answer 23

turnkey contract

Question 24

this contract has a high degree of tender competition.however it is difficult to assess which submission may yield the lowest final price

Answer 24

schduled rates - dont think we need to know this stuff

Question 25

this contract is ideal for contractor input to the design

Answer 25

design and construct, cost reimbursement

Question 26

this contract is used when minimum changes to design and specification are expected

Answer 26

lump sum

Question 27

this contract requires the contractor’s accounts to be open to inspection by the promoter

Answer 27

cost reimbursement

Question 28

this contract uses the same model for payment as is used for estimating the project cost

Answer 28

BoQ

dont hink this right

Question 29

This contract usually has 2 separate design consultancies: one working for the promoter, one for the contractor

Answer 29

design and construct

Question 30

what are the differences between designates, nominated and selected subcontractors

Answer 30

designated- identified by promotor and contractor must seek out estimate from this company and form a subcontract if main contract is won

nominated- again selected by promoter but negotiations are made directly with promoter before tender stage, a sum of money (provisional sum) is allowed for in the tender and contractor must form a sub contract if main contract won

selected - similar to designated expect there is a list of potential companies provided by promoter

Question 31

what are the main stages in contractor selection? indicate the contributions of various parties to the project in these stages

Answer 31

invitation to tender - promoter / PM

Submission and receipt of offer - contractor / PM

consideration and acceptance of offer - promoter / PM / contractor - involved in negotiations

Question 32

difference between tender enquiry documents and the tender documents

Answer 32

tender enquiry documents - documents given to each tendering contractor

tender documents - documents submitted by contractor to PM which constitute formal offer

Question 33

discuss why, when evaluating tenders, it is sometimes not in the best interest of the promoter to accept the lowest bid

Answer 33

lowest bid could be from contractor who is financially insecure or who has made mistakes in estimate. higher risk that contractor may not complete work through financial difficulties not in best interest for promoter

Question 34

how many contractors to be invited for tendering

Answer 34

could be open invitation , pre-qualification, two stage or negotiation