Contract Law Flashcards
What are the minimum requirements for forming a legally binding contract?
- Offer
- Acceptance
- Consideration
- Intent
- Legality
- Capacity
What is the purpose of a contract?
- Defines the obligations of parties involved
- Allocates risk between parties
What is a construction contract?
Legally binding written or verbal agreement between 2+ parties for providing a service in exchange for something of value
What is Privity of Contract? How is it mitigated?
Law that prevents a person who is not a party to a contract, enforcing a term of that contract
Collateral warranties
What are Collateral Warranties?
Supporting document to a contract that creates a contractual link with a 3rd party outside of the contract.
Extends duty of care - used where there is design responsibility i.e. designer to funder
Might be provided to the employer, funders, purchasers and tenants - “ a beneficiary”
Often quicker and easier to deal with than 3rd Party Rights Act (1999)
What is the Contracts Rights of Third Parties Act (1999)?
Allows 3rd party rights to be created
Must expressly be identify the 3rd party
Enables right to enforce a TERM of the contract - not the whole contract!
What are the provisions of the Construction Act 1996?
- Adjudication must be written in (if not, Scheme for Construction Contracts applies)
- Payment must be certified within 5 days of the due date, even fi no amount is due
- Pay when paid clauses banned
- Right to be paid in interim periodic or stage payments
- Right to suspend for non-payment
2011 amendments!
- Right to pay less notice
- Contractor recovers costs & EoT due to non-payment
- Applies to verbal & written contracts
How else is the Construction Act known as?
HGCRA - Housing Grants, Construction and Regeneration Act 1996
Amended by the LDEDCA in 2009 - Local Democracy, Economic Development and Construction Act. Came in to force in 2011
What is the Public Contracts Regulations 2015?
Implements the EU Public Sector Procurement Directive
OJEU - Office Journal of EU
Sets out the requirements of contracts for Public Sector works
FTS now
Sets out when a tender would be excluded
Tender must be Most Economically Advantageous Tender (MEAT)
What is the Scheme for Construction Contracts?
Applies when construction contracts do not comply with Construction Act. Replaces non-compliant contracts.
Part 1 - provisions for adjudication
Part 2 - provisions relating to payment
What is the Joint Fire Code? When would the Joint Fire Code apply?
Provides guidance on fire safety for construction sites, including prevention and detection
Applies to projects with a value >£2.5m or high risk
A large project is one with a value >£20m
What is insolvency?
The inability to pay ones debts
Types include: administration, company voluntary arrangement, administrative receivership, compulsory liquidation
What is the difference between liquidation and administration?
Liquidation - selling all of a companies assets before dissolving the company completely
Administration - aims to help company repay debts to escape insolvency
What clauses would you expect to see in a collateral warranty?
-Warrantor’s obligations
-Insurance
-Limitation of Liability
-Copyright
-Assignment
- Step in rights
-Jurisdiction
-Third party rights
What is the difference between collateral warranties & 3rd party rights?
CW - contractual link where there would not have been one. Require solicitor to draft. Preferred by employers due to familiarity and a tangible document in place. Argued that step in rights are easier to enforce.
3rd party - allow a named 3rd party to enforce a TERM of a contract, providing the CPs identify the 3rd parties
What if contractor doesn’t provide a collateral warranty?
Case law where courts forced a CW to be provided
What is a Pay Less Notice?
Right under Construction Act 1996
Right to be informed of intention to pay less than set out in payment notice
What is a Performance Bond?
Used to insure against the risk of a contractor failing to fulfill contractual obligations e.g. insolvency
Typically at 10% of project value (cost usually 1%)
Covers the cost of finding a new contractor
Usually stays in place until PC or end of Defects Liability Period when final certificate is issued
Conditional or unconditional (employer to provide proof of contractor not meeting obligations or not)
What is a PCG?
Protects in the instance a smaller contractor is controlled by a parent company
PC would be liable to meet the contract obligations where the contractor has failed
Covers defect liability period
If wider business goes bust then there is no guarantee
Usually no cap on value or duration as such
What is the Defects Liability Period?
AKA. Rectification period in JCT
Begins at certification of PC and typically lasts 6 - 12 months - NOT ISSUES APPARENT AT PC!!!
Client reports defects to CA who decides if they are defects or maintenance issues.
It is the Contractors responsibility to identify & rectify defects so important that those raised by client are not seen as a comprehensive list of all defects
What is the difference between limitation and rectification periods?
Limitation - claim made via PII for LATENT defects (negligence in design or construction). 6-12 years
Rectification - defects that become apparent during the stated period (6-12 months) which the contractor is to put right at own costs. Following final certificate at the end of the rectification period, the contractor is no longer obliged to attend site to rectify anything
Why does it matter if a contract is signed under hand or under deed?
Impacts limitation period!
Under hand - 6 years
Under deed - 12 years (D = douze)
What are the types of Letters of Intent?
Comfort Letter - to reassure intention to create a contract. Least detailed, lacks contractual items. NOT LEGALLY BINDING
Consent to spend - gives permission to pay for works that are being done, details relating to works that can be undertaken, caps on value, caps on time. LEGALLY BINDING
Recognition of contract - has contractual details e.g. dispute resolution. Offers the most protection to parties of the contract. Client may be liable for costs and losses. LEGALLY BINDING
To be legally binding executory contract, it must be an offer capable of being accepted
What typical clauses might you find in a letter of intent?
Start date
Expiry date (when letter becomes invalid)
Scope
Value (cap of works to be undertaken)
Intention to enter into a formal contract
Key T&C’s
Insurances (those required)
When would you use a letter of intent
Only where there is good reason to start work in advance of concluding the formal contract
Used only as a safeguard of legal right while the contract documents are being finalised
- Immediate start on site required
- Long lead times
- Contract details still being negotiated
Coventry - where planning approval was due to expire, tender was due to expire and market conditions at the time were seeing significant fluctuations in material prices
What are the dangers of using a letter of intent?
Details of the contract have not been finalised
Contract is at large - i.e. contractor not bound to complete the works, only needs to be of reasonable quality at a reasonable rate
There are no detailed provisions for interim payments, rectification period, LADs or introducing change
What were the specifics of the LOI on your project?
Cap on spend at £3.2m
PII at £5m
Rectification period of 12 months
LAD’s at £3,000 pw
Date of possession
Date of contract to be signed - Sept 2021
Date of expiry of instruction 24th Sept
Date of first interim payment
Termination process
Can a QS draft a Loi!
No. A QS may advise on clauses and content such as:
Site possession date
Date of payments
Scope
Consent to spend amounts
Named parties e.g. CA / Principle Designer
