contract administration Flashcards

Question

What is a collateral warranty? Who might want a collateral warranty? What are the common clauses / terms in collateral warranties?

Answer 1

1. Sectional Completion: Definition: A contractual mechanism where a project is divided into distinct sections, each with its own completion date, scope, and associated contractual terms. Purpose: Allows the client to take possession and use parts of the project as they are completed, while construction continues on other sections. Contractual: Sectional completion is a pre-planned, explicitly stated provision within the contract documents. Example: A developer can hand over a completed building block to tenants while construction continues on other blocks in a multi-block development. Key Features: Defined sections with specific completion dates. Separate liquidated damages for each section. Clear definition of each section's scope. May require clarification of how extension of time provisions will be applied if, for example, delays to one section of the works have a knock-on effect on other sections. 2. Partial Possession (or Partial Completion): Definition: A situation where the client takes possession of a part of the project before the entire project is completed, even if the contract doesn't explicitly provide for sectional completion. Purpose: Enables the client to use parts of the project earlier than if they had to wait for the entire project to be completed. Contractual: Partial possession is a more consensual process, as the sections are not defined in the contract. Example: A client may be allowed to store materials or use a part of the building for temporary purposes before the final completion. Key Features: The client takes possession of a part of the project before the entire project is completed. Any part for which partial possession is given is deemed to have achieved practical completion. Half of the retention for that part must be released. The defects liability period (or rectification period) begins for that part. 3. Beneficial Use: Definition: The ability of the client to use parts of the project for its intended purpose, even if there are minor defects or ongoing works. Purpose: Allows the client to derive benefit from the project, even if it is not fully completed. Contractual: Beneficial use is not a formal contractual term, but rather a concept that can arise in various contexts. Example: A client may be able to use a completed building section for storage or testing purposes, even if there are some minor defects that need to be rectified. Key Features: The client can use the project for its intended purpose. Minor defects or ongoing works do not prevent beneficial use. The client is responsible for any damage caused by their use of the project.

Answer 2

Performance bond for construction A performance bond (or performance security) is commonly used in the construction industry as a means of insuring a client against the risk of a contractor failing to fulfil contractual obligations to the client. Performance bonds can also be required from other parties to a construction contract. Whether or not a performance bond is required will depend, in the main, on the perceived financial strength of the party bidding to win a contract, as the most common concern relates to a contractor becoming insolvent before completing the contract. Where this occurs the bond provides compensation guaranteed by a third party up to the amount of the performance bond. Bonds are typically set at 10% of the contract value. This compensation can enable the client to overcome difficulties that have been caused by non-performance of the contractor such as, for example, finding a new contractor to complete the works. Bonds can be 'on demand' or 'conditional', with conditional bonds requiring that the client provides evidence that the contractor has not performed their obligations under the contract and that they have suffered a loss as a consequence. The obligation for the contractor to provide the client with a bond is set out in the tender documents. The choice of bondsman and terms with regard to cost falls entirely to the contractor who secures it prior to the start of work. From a client viewpoint it is wise to stipulate that the bond stays in place until the end of the defects liability period when the final certificate is issued. Bonds can be issued either by an insurance company or by a bank, and the cost of the bond is usually borne by the contractor (albeit, this is likely to be reflected in the contractor's tender price). The cost of the bond gives the client a good guide as to the credit worthiness and reputation of the contractor in the bond market, which will view each contractor differently in respect of its history, management and financial health. Strictly speaking, the bond is a guarantee and as such is a contingent liability in regard to the contractor's balance sheet. A smaller contractor might face a limit on how many bonds it can take out. The contractor sends the bond document to the beneficiary, i.e. the client who holds it until the end of the defects liability period. The bond is related to the contract conditions and the courts take a view that the bondsman has little protection against adverse risk. So it is wise to seek the bondsman's consent before acting outside the contract conditions, for example by paying the contractors in advance of work undertaken to ease its cash flow difficulties. Such conduct could jeopardise a subsequent claim on the bond.

Answer 3

In JCT contracts, a "relevant event" is an event that entitles the contractor to an extension of time, while in NEC contracts, a "compensation event" is an event that entitles the contractor to additional time and/or money. JCT (Relevant Event): A "relevant event" under JCT contracts is an event that causes a delay to the completion date, which is not the fault of the contractor. These events are typically specified in the contract and can include things like: Employer's instructions Variations Unforeseen site conditions Delays caused by statutory undertakers Exceptional weather conditions Specified perils such as fire, lightning, explosion, storm, flood, escape of water, earthquake, riot, civil commotion The contractor can apply for an extension of time (EOT) based on a relevant event. JCT deals with time and price variations separately, so an EOT does not automatically guarantee a price adjustment. NEC (Compensation Event): A "compensation event" under NEC contracts is an event that can affect the cost of the work, the time needed to complete it, or both. These events are usually not the fault of the contractor. Examples of compensation events include: Changes in scope Unforeseen ground conditions Other specified occurrences As a result of a compensation event, the prices, key dates, or the completion date may be reassessed, and the contractor may be entitled to more time or money. NEC groups both time and cost adjustments together under the compensation even

Answer 4

NEC compensation events are a mechanism for clients to pay contractors extra time and/or money for dealing with unexpected changes. Instructions to change the service (unless this results from accepting a defect, or from a change requested by the contractor). Failure to provide access. Failure of the client to provide equipment, plant or materials. An instruction to halt, or delay the works. Work done by others. Conditions that could not reasonably have been foreseen. Exceptionally adverse weather (beyond one in ten year frequency). Force majeure (such as an epidemic or an 'act of God').

Answer 5

A pre-construction services agreement (PCSA) is used to appoint a contractor to carry out services before entering into a formal building contract. This is often used on design and build contracts and two stage tendering. The Pre-Construction Services Agreement will define the services that are required of the contractor during the pre-construction phase and will generally be similar to a consultancy agreement. It should make clear whether the contractor is undertaking design work, whether they will have any design liability, and what will happen to this liability if they are not appointed for the second stage (the construction works). It should also set out the method of payment, and any provisions for deferred payment. The contractor appointed under the Pre-Construction Services Agreement will not necessarily be appointed for the second-stage construction contract. However, the client inevitably loses leverage in the second-stage of the tender negotiation process, as the contractor is already embedded in the project team and potential competitors lose interest once they find out that another contractor has been awarded the first-stage tender. However, a longer period of familiarity with the project creates better relationships as well as a reduction in learning curves and programme performance, and so, whilst tender prices for two-stage contracts may initially be higher than single-stage tenders, which are subject to full competition throughout, the final account tends to include fewer variations and fewer claims. Competition can be introduced into the second stage by an open-book approach to the tendering of sub-contracts. It is important that the client ensures they have some means of securing an alternative bid if second-stage negotiations fail, albeit this is likely to result in delays and difficulties regarding design liability.

Answer 6

employer agent works on behalf of the client and is typically used in design and build contracts. a ca is and impartial undertaken by an individual- either a in house appointment or an external consultant.

Answer 7

At Clifton House the client had obtained a specification from Bailey for the roofing system as they had used them before. The tender returns were very close with only 78 pounds between the lowest quotes. Within the tender documents the contractors were also invited to provide costs for alternate cost effective solution which also achieved a cost saving. I advised that the JCT minor works would

Answer 8

I received the valuation from the contractor and arranged a site meeting to assess the percentage completed were correct. The contractor had claimed that the window and door refurbishment was 100% complete however during my inspection the ironmongery had not been changed and 9 windows were not balanced and functioning correctly as required in the schedule of works. The loft insulation had been removed but new insulation had not been installed. I reduced the window and door items to 75% and the loft insulation to 50% under MW16 the contract administrator is obliged to include the unfixed materials when certifying interim payments. Clause 4.3.2, however, states that the obligation only extends to materials that are ‘reasonably and properly’ delivered and are adequately stored and protected. Contract administrators should pay careful attention to the exact wording of this qualification. I requested the delivery receipt to be included in the file for records along with photographs which confirmed they were suitably stored, in this instance they were stored within the building. I requested the contractor provide me with a revised application which correctly reflected these items and issued a certificate for payment. The client was concerned paying for materials with out them being fixed.