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Contract Mechanisms Flashcards

1
Q

What is Practical Completion?

A

RIBA - Point where construction work is certified as practically complete under the contract. Allows client to take possession and make use of the building .

Includes issue of information for Asset Management, Building Manual, Verified Construction Information, H&S File

Section 2.27 in JCT

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2
Q

What does Practical Completion trigger?

A
  • Start of Defects Liability Period
  • Possession of site to Employer
  • End of Contractors liability for LAD’s
  • Release of half of retention
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3
Q

What are fluctuations?

A

‘Term used to describe the method of dealing within inflation (or deflation) in construction

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4
Q

Why would you use fluctuation clauses?

A

Where fixed price, the Contractor usually assumes all the risk on the cost of items which becomes problematic on long projects or during times of high inflation

Can cause tender prices to be higher

Allows a fairer way of calculating the actual cost

Under a fluctuating contract, employer is not bound by the contractor estimate of change, they only pay what is actually incurred

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5
Q

Where are fluctuating clauses found in contracts?

A
  • Section 7 (JCT)
  • Secondary Option X1 (NEC)
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6
Q

How may fluctuations be captured in different types of contract? Referring to types of cost contracts

A

-Lump sum: rates would be adjusted as appropriate. Formula adjustment using series of indices

  • Target cost: target cost may be adjusted for inflation

-Remeasurement: rates adjusted as appropriate

  • Reimbursement: based on actual costs so fluctuations would be captured.

-Framework agreements: arrangement with Contractor over period of time. Contracts are “call-off” or tendered over time so each contract sum will be current at the point of signing, so will reflect fluctuations to that point. May also be provisions within the contracts

-CM / MC: agreed at each point of contract. Usually a mechanism to allow for adjustment of manager fee and central costs e.g. site welfare / security

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7
Q

Where are fluctuations likely to cause disputes?

A

When construction period is delayed or works change

Can create concurrent delays making it difficult to manage risk

Area of evolving law

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8
Q

How are fluctuations managed with exchange rates?

A
  • Usually the contractor bares the risk
  • NEC attempts to mitigate by including an agreed exchange rate in Secondary Option X3 which can be used with main option A or B
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9
Q

What is an indices?

A

‘A measure made up from a variety of sourced. Regional variations where labour, material and plant costs may vary

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10
Q

What should be considered when choosing indices to assess fluctuations?

A

’- RPI - measured price increases in retail, usually higher than CPI
- CPI - developed by EU, internationally comparable, basis of UK Gov inflation
- TPI - changes in tenders for similar types of work
- RCI - Resource Cost Indices, changes in cost of material and labour
- Output Cost Indices - changes in final accounts

Need to be produced by third party & published for duration of project

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11
Q

What is a QS’s role in assessing fluctuations?

A
  • Advising on cost of project & cost of alternative design & construction options
  • Advising on likely effects of market conditions
  • Advising on tendering and contractual procurement
  • Advise on fluctuation options
  • Have an awareness of the market clients are operating in
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12
Q

According to NRM, what are the 2 types of contracts relating to fluctuations?

A
  • Fixed Price - no provisions for fluctuation recovery, separate provision within pricing for contractor to price risk
  • Fluctuating price - extent to which provisions are allowed will impact the contractor’s tender price
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13
Q

How do NEC Lump sum contracts deal with fluctuations?

A
  • Don’t use the term fluctuations
  • Secondary Option X1 - adjustment for inflation.
  • Costs priced at base date and varied by price adjustment factor
  • Used with A, B, C & D
  • Where X1 isn’t sleccted, A&B (contractor bares risk), C&D (shared)
  • E&F have payment mechanisms allowing payment of inflaiton
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14
Q

What is the base date?

A

generally accepted that this will be a date usually just prior to the return of tenders. Enables sufficient time for prices etc at that date to be included in tender

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15
Q

What is the difference between an EA and CA?

A
  • EA is appointed under a JCT D&B
  • CA is under other SBC’s
  • EA is to act exclusively for the employer
  • NEC 4 uses the term project manager
  • EA carries out similar post-contract role to CA but may also carry out other tasks prior to award of contract e.g co-ordinating the tender process, co-ordinating novation
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16
Q

What are the responsibilities of the CA?

A
  • Adminstering change control procedures
  • Seeking instructions from the client inr elation to the contract
  • Issuing instructions such as variations
  • Considering claims
  • Issuing certificates of making good defects
  • Issuing final certificates
  • Validating / certifying payments
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17
Q

What is the role of an Engineer under FIDIC?

A
  • Engineer takes the role of project manager
  • Responsible for reviewing programmes, measuring works, issuing payment certificates, issuing instructions etc
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18
Q

What is the role of the PM under an NEC 4 contract?

A

Responsible for impartial contract administration

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19
Q

Under CDM 2015 Regulations, what are the roles and responsibilities of the Principal Contractor?

A
  • Appointed by client to control construction phase of a project involving more than one contractor
  • Must have skills, knowledge and experience in manageing health and safety risks during construction

Role is to:
- plan, manage, monitor and co-ordinate construction phase
- liaise with client and principal designer to manage risks
- Prepare Construction Phase Plan before construction phase, then implement it
- Ensure H&S on site, consulting with workers
- Take steps to prevent unauthorised access to site

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20
Q

Under CDM 2015 Regulations, what are the roles and responsibilities of the Principal Designers?

A
  • Appointed during the pre-construction phase of a project involving more than one contractor
  • Role in influencing how risks to health and safety are managed

Role is to:
- Plan, manage, monitor and co-ordinate pre-construction phase
- Advise clent in bringing together pre-construction information
- Work with other designers to eliminate foreseeable H&S risks
Liaise with principal contractor

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21
Q

Under CDM 2015 Regulations, what are the roles and responsibilities of the Designers?

A
  • Includes architects, engineers, QS’s etc

Role is to:
- Ensure client is aware of client duties under CDM
-When preparing designs, consider pre-construction information provided by client, eliminate foreseeable H&S risks
- Provide design information to Principal Designer for inclusion within pre-construction information
- Support client and Principal Contractor to comply with duties such as Construction Phase Plan
- Communicate with other designers and contractors

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22
Q

Under CDM 2015 Regulations, what are the roles and responsibilities of the Client?

A
  • Ensure dutyholders are appointed as appropriate
  • Ensure sufficient time and resources are allocated
  • Ensure relevant information is prepared
  • Welfare facilities are provided
  • Ensure Principal Designers & Contractors carry out their duties
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23
Q

What is the procedure for carrying out a valuation under the JCT Design and Build Contract 2016?

A

The contractor submits an application on the specified date within the Contract Particulars, which triggers the payment process.
The due date is 7 days from that date, and the Employer then has 5 days to submit a payment notice.
The final date for payment is 14 days from the due date, unless it has been amended

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24
Q

What is the procedure for carrying out a valuation under the JCT Standard Building Contract?

A

The contractor submits an application on the date stated in the Contract Particulars, which is 7 days prior to the due date.
The quantity surveyor values the works as of the due date, and issues a recommendation for payment to the contract administrator within 5 days of the due date.
Pay less notice due 5 days before final date of payment.
The final date for payment is 14 days from the due date, unless it has been amended.

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25
Q

What happens if the contractor does not submit application on the specified date under the D&B?

A

The payment process is not triggered.
Should a notice be issued after the 5 day period for interim certificate, the final date for payment is delayed by the same amount
A payment notice is still required

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26
Q

What happens if the contractor does not submit application on the specified date under the SBC?

A

Regardless of whether the contractor submits an application the quantity surveyor should still carry out a valuation and the contract administrator should issue a payment certificate within 5 days of the due date, otherwise the contractor can issue a default payment notice.

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27
Q

What is the procedure for carrying out a valuation under the NEC 3 Contract?

A

Assessment date is 7 days before Due Date
Interim Certificate due 5 days after Due Date
Pay Less Notice 7 days before Final Date For Payment

28
Q

What happens if the contractor does not submit application on the specified date under the NEC?

A

Provision under the NEC 4 is that the PM is obliged to assess the amount due to the contractor as the lesser of
- the amount assessed by PM
- amount due at previous assessment date

Meaning best case is Contractor receives zero but they may be liable for money due to the client in the event where contractors have caused delay

29
Q

What happens where Employer party fails to issue payment notice?

A

Contractor is entitled to submit a default payment notice under the Construction Act
This would then be obliged to be paid by the Employer, subject to any deductions in a Pay Less Notice

30
Q

What are the payment provisions under the JCT Design and Build Contract 2016?

A
  • Alternative A - Stage Payments
  • Alternative B - Periodic Payments (the default)
  • Contractor can suspend the works for non-payment 7 days after notifying the Employer
31
Q

What are Extensions of Time?

A

Occur when progress is delayed due to events that are the employers repsonibility, defers the contract completion date

Contractors apply for to avoid LADs

32
Q

What are the contractors responsibilities to avoid EoT?

A
  • Required to use best endeavours to prevent delay in the progress of works
  • Must do “all that is reasonably required to the satisfaction of the Architect / CA to proceed with the work
33
Q

How does the terminology change with NEC on EoT’s?

A
  • Compensation events - any event that occurs that is not from contractor fault
  • Time risk allowance - time allowed within programme to cover contractors realistc risks - not CE’s!
  • Float - spare time within programme after time risk allowances have been included
  • Assessment - cannot be reviewed after completion (different to JCT)
34
Q

Where does the NEC deal with Compensation Events?

A
  • Clause 16 - Early Warning Notices
  • Section 3 - time
  • Section 6 - compensation events
35
Q

Under NEC, what is the process of delay notices / Compensation Events?

A
  • EWN by Contractor or PM (as soon as reasonably aware / within 8 weeks of becoming aware)
  • EWN included within Early Warning Register
  • Attend risk reduction meeting
  • PM has 1 week from EWN to notify Contractor of decision to agree to CE or not
  • Failure to respond means Contractor gives notice of failure and PM has 2 further weeks. Failure to then respond results in confirmation of CE
  • Contractor has 3 weeks to provide quotation (to include programme)
  • PM has 2 weeks to respond
36
Q

What are the key features of EoT under ICE?

A
  • Information is to be provided within 28 days of delay arising
  • Engineer to assess delay and notify contractor of assessment
  • At completion of works, Engineer makes final determination of EoT due
37
Q

What methods of analysing delays should be adopted?

A
  • Dependant on terms of contract e.g. type of works, nature of delay, information available, timing of analysis;
  • Criticcal path - helpful for new builds but critical links may not be as reflective of reality
  • As built - as built information may not be available
38
Q

What methods of analysing delays are there?

A
  • Overview of facts; simple, quick and cheap but least analytical and can lead to different conclusions and disputes
  • Actual vs planned progress; simple and quick, overview, doesnt analyse cause & effect
  • Critical path analysis; time as a whole assessed, review of planned programme or retrospectively “as built”, using software, multiple delays removed sequentially, linking of activities can be subjective
  • Focused Methods of Analysis; reviews the time only where delay event has impact, used in NEC as uses updated programme to predict future likely delay, retrospective
  • BIM - linking model to programme allowing comparison in planned and actual progress of works, shows consequences of delay but not cause
39
Q

What happens with EoT where there are concurrent delays?

A
  • Walter Lily v Mackay & Anor 2012
  • Found where concurrent delays with multiple responsibilities, if there is one entitling contractor to an EoT, the interpretation is that the contactor is entitled to an EoT for the whole period of delay caused by the RE in question
40
Q

What are examples of force majeure?

A
  • Epidemics / pandemics
  • Unforeseen changes in legislation
  • Exceptionally adverse weather (fires / flooding)
  • War
41
Q

What are examples of force majeure?

A
  • Epidemics / pandemics
  • Unforeseen changes in legislation
  • Exceptionally adverse weather (fires / flooding)
  • War
42
Q

Can you list some Relevant Matters?

A
  • Variations
  • Instructions for opening up the works for inspection (unless that shows the work not to be in accordance with the contract)
  • Delay in receipt of permissions or approvals
  • Compliance with instructions regarding antiquities / archaeological finds
  • Impediment, prevention or default by the Employer
43
Q

What is loss and expense?

A

Additional costs or losses incurred by the contractor through the regular progress of the works being materially affected due to a Relevant Matter occurring for which the employer is responsible. It should be assessed based on direct costs.

44
Q

What are the typical headings for a loss and expense claim?

A
  • Prolongation
  • Disruption
  • Loss of profit
  • Increased head office overheads
  • Additional material purchase
  • Inflation
  • Interest
45
Q

What complications can arise from force majeure?

A

Needs to be specific enough to prevent disputes but flexible enough to cover events that are unforeseeable

46
Q

What is the process of reviewing a L&E claim?

A

”- Contractor notifies as soon as effect of RM is apparent
- Notice accompanied / followed by Contractor’s initial assessment of L / E and any reasonable substantiation
- Assessment should be updated on a monthly basis where required
- Employer to notify contractor of ascertained L / E incurred with 28 days of receipt of initial assessment
- Employer must respond to each subsequent update within 14 days of receipt

Stevenage Contract - not used but aware of the drafting”

47
Q

Can the contractor claim in their loss and expense for costs associated with the preparation of loss and expense claim?

A

Not directly, but this is often hidden in the contractor’s claim

48
Q

What is concurrent delay?

A

Concurrent delay refers to the complex situation where more than one event occurs at the same time, but where not all of those events enable the contractor to claim an extension of time or to claim loss and expense.

49
Q

What is the difference between RE and RM?

A
  • RE - event causes a delay to the date practical completion
  • RM - Event which materially effects the progress of the works for which the client is responsible “
50
Q

Extension of Time and Loss and Expense, how are those two points set out in the Contract?

A

Relevant Event (2.26) and Relevant Matter (4.21)

51
Q

What does at large mean?

A

The phrase ‘time at large’ describes the situation where there is no date for completion, or where the date for completion has become invalid. The contractor is then no longer bound by the obligation to complete the works by a certain date.

52
Q

When would you award Practical Completion?

A

When the building can be used for its intended purpose, but minimal incomplete works may remain (PC shouldn’t be awarded if there are patent defects as the contractor will not have a responsibility to remedy these).

53
Q

What should contractor submit at PC?

A
  • Owner manual
  • Maintenance manual
  • H&S file
  • Log book
  • Construction stage report
  • As built drawings
54
Q

What is Practical Completion?

A

RIBA - Point where construction work is certified as practically complete under the contract. Allows client to take possession and make use of the building .

Includes issue of information for Asset Management, Building Manual, Verified Construction Information, H&S file

Section 2.27 in JCT

55
Q

What other alternatives are there to Section Completion or Partial Possession?

A

Early use. The contractor remains responsible for that part of the works, both in terms of health and safety and insurance.
Consent of the contractor is required, and early access may be denied for either sequencing, access or health and safety reasons.
Contractor does not need to act reasonably
No relief of LAD responsibility / retention release
Requirement to notify insurers - may lead to expense

56
Q

When can the employer terminate the works?

A
  • Employer for convenience - e.g no longer viable, funding not available, Employer then not able to continue works
  • Employer for insolvency - Employer entitled to complete works, similar to default
  • Employer for default - 2 stage proces; warning to contractor and refusal to comply persists for 14 days after being notified. May be able to use sub-contractor or step in rights
57
Q

When can the contractor suspend the works? When can they terminate them?

A
  • Contractor for insolvency - can be done immediately
  • Contractor for non-payment of sum due - persists for 7 days after notification from contractor
  • Contractor for prolonged suspension of works - where longer than period stated in the CP’s due to default by employer and this persists 14 days after being notified
  • Contractor for force majeur
58
Q

What is repudiation?

A

Not a contractual termination. Complete abandonment of the contract.
If other party has repudiated, must ensure not to continue with contract else may mitigate right to terminate under repudiation

59
Q

What are step-in rights?

A

Enable a party to ““step in”” to the place of another party in relation to the rights and obligations of a contract

E.g. funder can step in to complete the works should the Employer become insolvent.

Right - not an obligation to step in

60
Q

What are the practical consequences of termination?

A

May lose rights to:

  • Payment
  • Access to site for removal of plant / materials
  • Adjudication
  • Right to remedy defects
  • Insurances
  • Termination costs
61
Q

What should be considered when items are needed to be paid for materials off-site?

A
  • When assessing non-fixed materials, it is important to trace the title to goods. Contractor can only pass this to client if they have the right to the title themselves
  • An on-demand / advanced payment bond - insures amount due of respect to items before their delivery. Expires on the delivery of goods to site / adjacent to works. Good where materials are abroad. On-demand means no need to meet preconditions
  • Vesting certificate - RICS BB refers to these as less preferable to bonds as not always enforceable
  • Items that are to be considered for payment off-site are to be listed within the contract
62
Q

What is included within a vesting certificate?

A
  • Details reflecting when title of goods is transferred
  • Takes in to account the payment certification / interim valuation process
63
Q

How can the risk to a client be reduced regarding off-site materials?

A
  • Checking the financial statues of the contractor to assess likelihood of insolvency
  • PCG
  • Entering in to a direct contract with the supplier
64
Q

What would be included in the contract documents for a traditionally procured project?

A
  • Articles of agreement and conditions of contract
  • Preliminaries
  • Pricing document i.e. bills of quantities
  • Drawings and specifications
  • Any bonds or warranties
  • Contractor’s Proposals if any contractor’s designed portion included
  • Pre-construction information
65
Q

What would be included in the contract documents for a design and build project?

A
  • Articles of agreement and conditions of contract
  • Employer’s Requirements
  • Contractor’s Proposals
  • Contract Sum Analysis
66
Q

What is acceleration?

A

A legally binding agreement where works are required to be completed quicker than the completion date
Entitles cotnractor to additional monies to reflect the increased requirements
E.g.
- OOH working
- Additional shifts
- Additional labour
- Additional supervision
- Resequencing works

67
Q

What if works are undertaken voluntarily by contractor?

A
  • May be done to mitigate delays or inefficiencies
  • Not entitled to claim additional costs

contract practice (13 decks)

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