Contract Administration (L1)

Question 1

NEC3 - How many clauses are there and what are they?

Answer 1

There are 9 core clauses:

• General
• The Contractor’s main responsibilities
• Time
• Testing and Defects
• Payment
• Compensation Events
• Title
• Risks and Insurance
• Termination

Question 2

NEC3 - What are the different options and where would you use them?

Answer 2

• Option A: Priced Contract with Activity Schedule
• Option B: Priced Contract with Bill of Quantities
• Option C: Target Contract with Activity Schedule
• Option D: Target Contract with Bill of Quantities
• Option E: Cost Reimbursement Contract
• Option F: Management Contract

Question 3

What is an early warning?

Answer 3

An early warning can be given by both the Contractor and Project Manager as soon as any matter becomes apparent which could:

-Increase the total of the prices
- Delay completion
- Delay meeting a key date
- Impair the performance of the works in use

Question 4

What are the NEC3 Certificates?

Answer 4

• Completion Certificate (Completed works)
• Defects Certificate (No outstanding defects)
• Option X5: Sectional Completion (Secondary Option Clauses)

Question 5

What are your thoughts on withholding retention?

Answer 5

• Withholding retention from a contractor puts the Project Manager in an advantageous position to request the contractor to correct any discovered defects during the defect period.
• I decided to withhold retention for 52 weeks for this scheme due to the new heating system (Check the systems operates correctly during winter and summer months), heating and cooling.

Question 6

Retention - what are they trying to do nationally and why?

Answer 6

• A new bill is looking to abolish retention completely
• It is to avoid cashflow difficulties across whole supply chains

Question 7

When would you not withhold retention?

Answer 7

• Depending on the nature and complexity of the scheme
• The value
• The level of risk

Question 8

Talk me through the process of dealing with an early warning?

Answer 8

• The Project Manager enters the early warning matters in the Risk Register
• Either the Contractor or Project Manager can instruct the other to attend a risk reduction meeting
• The Contractor must give max 8 weeks’ notice of becoming aware of the event otherwise deemed to be no change in price (cost)
• If employer agrees to an Early Warning, they request the contractor to provide a quote within 1 week. (If no quote received the employer makes an assessment.)
• The Contractor provides a quote within one week and the employer must reply within 2-weeks either accepting or rejecting the quotation
• If rejected by employer, the contractor can resubmit a revised quote within 2 weeks
• If employer does not agree to the revised quote or receives no reply from the contractor, the employer will assess the compensation event and notify the contractor.

Question 9

What is a compensation event and can you give me an example of where you used one on this project?

Answer 9

• A compensation event is when the Project Manager gives an instruction changing the works information. They are events which are usually not the fault of the contractor and change the cost of the work, or the time needed to complete it.
• On this project, I changed the product finish of the school playground from a standard pattern and colour finish to a rainbow pattern with multiple colour finishes. The was a cost increase for this change.

Question 10

What are the procedures for quotations for Compensation Events?

Answer 10

• Notifying: The Contractor notifies the employer, if not notified within 8-weeks of the event occurring he is not entitled to charge for it. If the employer agrees with the Compensation Event, he instructs the Contractor to submit a quote
• Quoting: The Contractor submits a quote within 2-weeks
• Assessing: Price list can be used, other CE’s

Question 11

Term Service Contract; what is it?

Answer 11

The NEC Term Service Contract is designed to engage a contractor for a set period of time, to manage and provide a service—this might include construction works, but can be used for the provision of other services.

Question 12

What is the difference between partial and sectional completion?

Answer 12

Sectional Completion:

• Agreed up front and provided for in the contract
• Different completion dates for different sections of works
• Common on larger projects, allows clients to take
  possession of the completed works whilst other areas are being worked on
• Multiple completion dates, multiple defects dates.
• Very intensive for the Project Manager under the NEC3

Partial Completion:

• Requires are and agreement during the progress of the works. Contractor can refuse if he feels it will interrupt the progress of the works.

It an agreement to accept completion for part of the works

Question 13

What is the procedure for an employer to assess a compensation event?

Answer 13

2 methods

1. CEs with quantities shown in the price list are based on appropriate rates and multiplied accordingly.
2. Other works not in price list. Assessed by
   Labour (main contractor)
   Plant
   Materials
   Sub contractors
   Main contractors overheads and profit

Question 14

Can you explain loss and expense?

Answer 14

Loss and expense is the term often used (most notably, in the JCT contracts) to describe the additional costs incurred by a contractor as a result of disturbance to the regular progress of the works caused by matters either within the employer’s control or by breaches of contract by the employer.

Question 15

What is a pay less notice and when should it be served?

Answer 15

A pay less notice is the opportunity for a paying party to change their mind on what has already been agreed on payment, altering the payment due to the payee near to the end of the payment cycle.

If you are the payer and you want to reduce the sum certified already in the same payment period, you should serve a pay less notice.

Question 16

NEC3 - Explain the payment process?

Answer 16

I would check the value for the work the contractor was claiming for against the sum within the priced activity sheet.

I would carry out an inspection to ensure the work claimed for, was for work completed to date.

If I agreed with the payment application I would issue the contractor with an interim payment certificate on the date agreed within the contractor

If I did not agree with the amount I would issue a pay less notice.

Question 17

What is the procedure for processing delay damages?

Answer 17

• Issue an early warning certificate when I first became aware that there may be a potential problem with the completion date.
• Record the additional time taken to complete the work over the planned completion date
• Applied the delay damages per day as detailed in the contract document
• Deducted the delay damages from the penultimate payment certificate at completion stage.

Question 18

How did you calculate the delay damages?

Answer 18

Not a penalty, delay damages are for actual loss incurred.

Worked them out on time the school had to attend and open and close the site on a daily basis, Cost of caretaker on site to open and close the site. £40 per day.

Question 19

What was the purpose of the original Construction Act 1996?

Answer 19

• The right to be paid in interim, periodic or stage payments (for contracts at least 45 days in duration)
• The right to be informed of the amount due, or any amounts to be withheld
• The right to suspend performance for non-payment
• The right to adjudication
• Disallowing ‘pay when paid’ clauses (unless third party is insolvent)

Question 20

When were ‘pay when paid’ clauses commonly used and what were the implications?

Answer 20

Commonly used in sub-contracts where the contractor would only pay their sub-contractors once they had been paid themselves, meaning any delays could have serious consequences for small companies where cash flow is vital

Question 21

When do the provisions of the Construction Act apply?

Answer 21

Applies to all contracts for ‘construction operations’

Question 22

What constitutes a ‘construction contract’ under the Construction Act?

Answer 22

Construction, alteration, repair, maintenance, decoration, demolition and installation of buildings, walls, landscapes, roadworks, railways, runways, harbours, reservoirs, sewers, power-lines etc.
Installation of services (mechanical, electrical, drainage etc.)
Architectural, design, surveying and engineering advice

Question 23

What is excluded from the definition of a ‘construction contract’ under the Construction Act?

Answer 23

• Residential occupiers for work on their property where they intend to use the property as their residence
• Certain mining, drilling and extraction operations
• Manufacture and delivery of materials not involving installation (supply only)
• Artistic works
• Installation/demolition of machinery where the primary activity is nuclear processing, power generation, water or effluent treatment, processing of chemicals, pharmaceuticals, oil, gas, steel, food or drink

Question 24

Are consultant appointments covered by the Construction Act?

Answer 24

Yes, they are included within the definition of ‘construction operations’

Question 25

When and how was the Construction Act last amended?

Answer 25

The Construction Act was amended in October 2011 by the Local Democracy, Economic Development and Construction Act 2009

Question 26

What are the payment provisions required by the Construction Act?

Answer 26

1. Payment must be in interim for contracts at least 45 days in duration
2. Dates for payment must be set out in the contract
3. Client/specified person must issue a payment notice within 5 days of the date for payment, even if no amount is due (otherwise Contractor’s application for payment becomes the payment notice)
4. Client/specified person must issue a pay less notice if they intend to pay less than the amount in the payment notice, setting out the basis for its calculation
5. The notified sum is payable by the final date for payment
6. If the client/specified person fails to issue a payment notice, the Contractor may issue a default payment notice, where the final date for payment is extended by the period between when the client should have issued a payment notice and when the contractor issued the default payment notice. If the client/specified person does not issue a pay less notice, they must pay the amount in the default payment notice
7. ‘Pay when paid’ clauses (unless third party is insolvent) are not allowed
8. ‘Pay when certified’ clauses are no longer allowed
9. Release of retention cannot be prevented by conditions within another contract (e.g. contractors on a management contract must have their retention released when their part reaches practical completion, not the project as a whole)

Question 27

What happens if a construction contract does not conform to the Construction Act?

Answer 27

If contracts fail to comply with the Construction Act, then the Scheme for Construction Contracts (England and Wales) Regulations apply:

• Either supplements the provisions of the contract where it has deficiencies or replaces the contract where it is non-compliant
• Enables construction contracts to remain capable of performance, whilst allowing regulatory control over their provisions

Question 28

What is meant by Contract Execution?