Contract Practice Flashcards
What is a contract and what is a breach of contract?
Contract: Legally binding promise by one party to fulfil an obligation to another party in return for consideration. Must have key elements: offer, acceptance, consideration and intent to create legal relations.
Breach of contract: When one party in a binding agreement fails to deliver according to the terms of the agreement.
What is the difference between a procurement strategy, contract selection and tendering?
Procurement Strategy: Overall process of obtaining goods and services from a contractor, and strategy on how those goods/services are to be acquired by reviewing the employer’s requirements (time, cost, quality, responsibility for design) and their attitude to risk.
Contract Selection: Choice of appropriate contract flowing from analysis of employer’s requirements and the chosen procurement route.
Tendering: Bidding process and the actual process of appointing a contractor.
What are the key similarities and differences between JCT Minor Works and Intermediate contract types?
Similarities:
- Traditional procurement (client responsible for design)
- Fixed price lump sum, interim monthly payments
- CDP version of contract
- Public/private
- CA to administrate
- Provisions for collaborative working and sustainability
Differences:
- MW for smaller, lower value, basic/simple projects
- Intermediate can use BoQs
- Intermediate provision for named specialists (become domestic but contractor not responsible for sub-contractor design)
- Intermediate can have sectional completion
- Intermediate provision for BIM, advance payment, bonds, third party rights and collateral warranties.
What are the JCT forms suitable for a traditional procurement route?
Three main types:
1) Lump-sum contract: contract sum determined before the work is started
- JCT SBC with Quantities
- JCT SBC without Quantities
- JCT Intermediate / Minor Works, etc.
2) Measurement: contract sum determined after completion, but assessed on remeasurement on an agreed basis
- JCT SBC with approx. Quantities
- JCT Measured Term
3) Cost reimbursement: sum arrived at on the basis of actuals costs plus OH&P
- JCT Prime Cost
What are the main implications for the use of a JCT Intermediate over a JCT D&B contract?
- Client used to using D&B, required advice as to key differences.
Design:
- Intermediate: client control of design, but retains responsibility, design completed to Stage 4, can use CDPs for specialist design (M&E)
- D&B: client issues ER’s and contractor issues CP’s. ER’s based on Stage 3 design. Contract amended to make contractor fully responsible for design.
Programme:
- Intermediate: Longer programme due to sequential design and construction
- D&B: Design and construction can overlap, contractor single source of responsibility
Administration:
- Intermediate: Contract Administrator
- D&B: Employers Agent
Sub-contractors:
- Intermediate: provision for named sub-contractors
Cost Control (both fixed price, lump-sum):
- Intermediate: BoQ or work schedule
- D&B: Contract sum analysis
Changes:
- Intermediate: more leeway for changes, use of BoQ for pricing
- D&B: Contractor can object
Warranty/Insurance/Novation:
- D&B: Collateral warranty, novated design team, PI.
What are the advantages of collateral warranty over third-party rights?
- Client more familiar with collateral warranties
- Sub-contractors unfamiliar with third party rights - requires time / additional negotiation, likely to have limited legal advice
- Contract in its own right
- When lots of sub-contractors it might be difficult to get all to agree to third-party rights clause
- Usually more convenient than putting third-party rights clauses into every sub-contract
- Some lenders still prefer them
However;
- Takes time/cost to develop collateral warranties
What would be the implication of a contractor making design assumptions/decisions in traditional contracting?
- Contractor would assume design liability
- Contractor’s PI might not cover this design liability
- Contractor should refer any inconsistencies or gaps in information to the Contract Administrator for action
- Any delay caused can be subject to time/cost award
What is a back-to-back contract?
- Where the sub-contract terms mirror the main contract terms, so that a chain of responsibility is established through the supply chain
- Sub-contract provided for most forms of JCT contracts
Who shoulders what risk in traditional contracting?
Contractor risk:
- Construction programme
- Cost certainty (jointly)
- Performance of sub-contractors
- Quality of construction
Employer risk:
- Design programme
- Control of design/quality
- Performance of design teams
- Performance of main contractor
Who shoulders what risk in Design & Build?
Contractor risk:
- Programme
- Cost certainty
- Control of design/quality (jointly)
- Performance of design teams (jointly)
- Performance of sub-contractors
- Quality of construction
Employer risk:
- Performance of main contractor
What are the differences between a bond and collateral warranty?
- Bond is a financial commitment backed by a third-party, contained within the contract
- Collateral warranty passes on contractual obligations, a side agreement to the contract
What are the differences between domestic, nominated and named sub-contractors?
Domestic: Chosen by the contractor, not influenced by the employer or employer’s consultants
Nominated: Not used much, no provision in JCT. Employer selects sub-contractor and imposes on contractor to appoint. Allowed for by a prime sum plus OH&P. Contract may not hold contractor entirely responsible for failure, employer might indemnify.
Named: Employer provides a list of pre-approved sub-contractors. Contractor selects one through the tendering process. Become domestic sub-contractors once appointed, i.e. contractor responsible for performance. PS included at tender, and replaced with actual price once agreed.
What are some of the considerations when selecting an appropriate construction contract?
1) Type of works required: Construction/engineering, new build/refurb, major/minor, specialist design, etc.
2) Sector: Familiarity of contract type, unfamiliar might cause contractors to price for risks.
3) Size, value and complexity: appropriate and proportionate in terms of risk balance and administrative burden.
4) Employer and level of sophistication: familiarity with contract type, level of administrative and decision-making capability
5) Balance of risk/risk allocation: risk allocation even within contracts designed for same procurement route
6) Design responsibility: some forms work with wide range of design responsibility (e.g. NEC), whereas others are procurement route specific (e.g. JCT D&B)
7) Control of sub-contractors: certain contracts allow greater control over selection, i.e. domestic vs named
What are the contracts in the JCT suite?
Traditional / lump sum
- Standard Building Contract (with Quantities, without Quantities)
- Intermediate Building Contract (with CDP)
- Minor Works Building Contract (with CDP)
Traditional / measurement
- Standard Building Contract (with approx. Quantities)
- Measured Term Contract
Traditional / re-imbursement
- Prime Cost Contract
D&B:
- Major Project Construction Contract
- Design and Build Contract
Management / re-imbursement
- Management Building Contract
- Construction Management Contract
Partnering / lump sum or target cost
- JCT Constructing Excellence Contract
- Framework Agreement
- Repair & Maintenance Contract
- Homeowner Contract
When would you use a JCT Standard Building Contract?
1) Traditional procurement - design is complete, client retains design control and risk
2) Cost certainty - lump-sum (can also use re-measurement or reimbursement options)
3) Using BoQ (or approx. BoQ) or work schedules
4) Large or complex construction projects where detailed provisions needed
5) Options for:
- CDP
- Sectional completion
- Named specialists
- Bonds
- Advanced payment
- Third-party rights or collateral warranties
- Optional: fluctuations, BIM, collaborative working, sustainability
