WK10AM - Suspension, Termination and Insolvency ******

Question 1

Q1. What does ‘repudiation’ mean?

Answer 1

Common law breach of contract – sufficiently serious enough to terminate the contract and award damages.

Question 2

Q2. How may the Employer terminate the contract under JCT SBC 16?

Answer 2

1. Suspension of works or design of contractor’s design portion
2. Failure to proceed regularly and diligently
3. Refusal to move defective work or materials
4. Assignment and subletting – without written consent
5. CDM regulations
   Other ways – Insolvency and Corruption.

Question 3

Q3. How may the contractor terminate the contract under JCT SBC 16?

Answer 3

1. Failure of Emp to pay amount due in a certificate by the final date of payment
2. Interference or obstruction by Emp
3. Assignment
4. CDM
   Other ways – Specified suspension defaults, Insolvency of the employer.

Question 4

Q4. One reason which enables a contract to be terminated is by ‘frustration’, provide a brief explanation of this reason and its effects on the contract. Provide examples.

Answer 4

Frustration is an English contract law doctrine that acts as a device to set aside contracts where an unforeseen event either renders contractual obligations impossible, or radically changes the party’s principal purpose for entering into the contract.

Question 5

Q5. Under what circumstances does NEC4 enable the contract to be terminate

Answer 5

Clause 91 – Specifies 22 reasons for termination
• Bankruptcy
• Winding up order
• C has failed to comply with its obligations
• Failure to provide a bond
• Appointed SC before PM accepted
• Failure to pay an amount due within 13 weeks of the due date
• Broken H&S regulations etc.

Question 6

Q6. A Secondary option clause for termination by the Client under NEC4 is Termination for any reason (X11) Are there any problems with this? Why do you think it is included?

Answer 6

NEC ethos is collaboration - goes against it?
Could increase prices etc.
The client may terminate the C obligation to provide work for a reason not identified in the termination table by notifying PM and C.

Question 7

Q7. Can the Employer remove a contractor from site who seems incapable of producing good-quality work?

Answer 7

Repudiation - breach of contract - serious enough to terminate

JCT - Notify them of default- 14 days, then issue termination notice within 10 days.
NEC - 4 weeks top put right.

JCT - Have they failed to proceed regularly and diligently? Refusal to move defective work?
NEC - Substaintial failure to comply with obligations? Hinder the client or others? Broken H&S rules?

Question 8

Q8. Under JCTSBC16, is it true that the contractor can simply walk off site if the employer fails to pay? How does this compare with NEC4?

Answer 8

JCT – give notice, no payment within 7 days of payment date – can suspend works (walk off site) – no payment within 8 weeks can terminate.
NEC – 7 days – can suspend work for 13 weeks.

Question 9

Q9. What would you do if on the way into work you heard a rumour that the main contractor on a project you are working on had gone into either administration or liquidation?

Answer 9

• Speak with C
• Handle with caution
• Asses materials on/off site
• Ensure Emp is protected
• Check to see if payments to subcontractors have been made
• Assess progress
• Provide valuations
• Assess insurance procedure

Question 10

Q10. How can you as QS safe guard your Client against the risk of insolvency of the Contractor?

Answer 10

Parental Company Guarantees.

Performance bonds

Question 11

Q11. The main contractor on your project has submitted a notice to inform your Employer / Client that they have become insolvent. What procedures would you follow on hearing this news?

Answer 11

• Secure site & materials
• Valuation of work
• Valuation of materials on and off site
• Appoint or act as liquidator
• Give final account
• Communicate with insurance and FI regarding Bonds and Guarantees
• Retention
• Communicate with subcontractors and suppliers.

Question 12

Q12. Discuss the options available for completing the project, for the above Employer / Client, paying particular attention to the pros and cons of each option.

Answer 12

Employer continues work – PCG if applicable / New contractor (termination) through assignment, novation or retender.
Don’t complete works -

Question 13

Q13. A Contract Administrator has to decide whether a contractor is proceeding regularly and diligently. To ensure that the CA does not advise the Client to terminate the contract unreasonably, what would you advise the CA to base his decision on?

Answer 13

West Faulkner Associates v London Borough of Newham which interpreted the phrase to mean:

“to proceed continuously, industriously and efficiently with appropriate physical resources so as to progress the works steadily towards completion substantially in accordance with the contractual requirements as to time, sequence and quality of work”.
The important rule of thumb is to consider whether the relevant party has made successful progress towards meeting its contractual obligations.