Contract Practice Flashcards
1
Q
What are the Valuation Rules, where are they found in the contract and when are they used?
A
- Rules which reflect a sliding scale of options to agree variations based on how closely the variation resembles the work within the contract documents
- Found in Contract Conditions
- Used when an agreement has not been made with the contractor
2
Q
What are the 3 types of Standard Building Contract
A
- with Approximate Quantities
- with Quantities
- without Quantities
3
Q
What are the Valuation Rules?
A
- Pricing document
- Fair rates and prices
- Dayworks
4
Q
Explain the process of using the pricing document as a means of valuing variations and what considerations need to be made?
A
- Pricing document is used when work is of similar character
- Valuation should include a fair allowance to reflect any change in character / conditions / quantity of work carried out
- Allowance for preliminaries
5
Q
When would you use fair rates and prices as a means of valuing variations and what considerations need to be made?
A
- Used in instances where work is not of a similar character
- Considerations including quantity (economies of scale), preliminaries
6
Q
When would you use dayworks as a means of valuing variations and what considerations need to be made?
A
- a method of valuing additional or substituted work which cannot properly be valued by measurement
- a last resort basis of valuing works
- records need to be prepared by the contractor recording the labour, plant and materials used in the operation
- submit to CA/EA for verification
7
Q
What sort of variations could give rise to a change in character?
A
- change of material (e.g. medium duty containment to heavy duty containment)
- change of method of fixing to other work (i.e. containment being chased in to a wall instead of surface fixed)
- change of background of other work
8
Q
What sort of variations could give rise to a change in conditions?
A
- work carried out at varied depth (less productivity the deeper you go)
- seasonal variation e.g. winter working
- working in completed areas e.g. protection requirements
- working with varied access constraints e.g. increased number of trades working in one area
- height at which work is carried out
9
Q
When evaluating a variation, what sort of preliminaries should you consider?
A
- access equipment
- temporary protection
- insurances
- staffing / labour
- plant / tools
- temporary services
- waste removal
- OOH working
10
Q
What sort of variations would need to be valued using dayworks?
A
- a method of valuing additional or substituted work which cannot properly be valued by measurement
- minor additions of quantity to completed works
- disjointed operations with extreme changes of conditions
- opening up the works which are found to be in accordance with the contract
- cleaning and clearance operations
- testing and commissioning
11
Q
What is acceleration?
A
refers to increasing the originally planned or current
rate of progress of the works so as to complete the
project earlier than would otherwise be the case.
12
Q
Why might a contractor choose to accelerate the works?
A
- to complete the project early in order to reduce site running costs or to free up staff to work elsewhere
- to avoid claims of LDs
13
Q
Why might an employer want to accelerate the works?
A
- to avoid the building being handed over late
- if the project is no longer going to achieve PC, the costs / repercussions of not achieving PC might outweigh the costs for compensating the contractor to accelerate the works
14
Q
How is Acceleration dealt with in JCT?
A
- Schedule 2 Variation and Acceleration Quotations
‘If the Employer wishes to investigate the
possibility of achieving practical completion
before the Completion Date … the Architect/
Contract Administrator shall invite proposals
from the Contractor in that regard.’
15
Q
How should a contractor respond to an invitation from the CA to provide an acceleration quotation?
A
- must provide either an acceleration quotation or explain why it would be impracticable to achieve an early completion of the works
16
Q
What should an acceleration quotation identify / contain?
A
- the amount of time that can be saved
- the adjustment to the contract sum
- adjustments to the contract sum can include:
- direct costs,
- consequential loss and expense
- expenses for preparing the quotation
17
Q
What are the timescales of an acceleration quotation?
A
- The quotation must be provided within 21 days unless otherwise agreed and remain open for acceptance for 7 days (the start date = the date at which the contractor receives the invitation / sufficient information)
- 28 days to agree acceleration might be too long so this can be amended upon agreement however it must be noted that sufficient time must be allowed to fully understand the scope and submit accordingly to avoid ambiguity / disputes
18
Q
What if the contract does not provide for acceleration quotations?
A
If there is no mention of acceleration in the contract
that does not mean that the employer cannot ask
the contractor to accelerate. It is always open to
the parties to agree additional or separate
contractual terms and an acceleration agreement
can be entered into whether expressly envisaged
under the construction contract or not.
19
Q
How is risk allocated on an acceleration quotation?
A
- the employer should carry the risk unless the employer asks the contractor to provide a warranty that the acceleration will be successful (however this might mean the contractor prices in risk to the quotation)
- Due diligence should be carried out to ensure that the contractors quotation will have a high chance of succeeding and progress should be monitored to ensure the contractor is keeping to their side of the agreement
- The contractor is advised to ensure that it includes a caveat disclaiming liability in the event that further delays caused by new events that would entitle it to an extension of time
- Terms also should be included to abandon the acceleration agreement if it is not going to be successful
- Parties must agree on what is meant by completion to understand if acceleration has been achieved
20
Q
How can acceleration be achieved?
A
The contractor can change:
- the site working hours (consider OOH working 150%, planning approval, productivity)
- the level of resource (must be a balance in resource)
- the amount of temporary works allowing more works to continue
- the programme (focus on critical path, relatively easy and inexpensive but least effective)
- the methods of working
The employer can change:
- the specification, design or scope of works
21
Q
What are some forms of construction security and performance documents?
A
- Bonds
- Parent company guarantees
- Collateral warranties
- Third party rights
- Direct agreements
- Payment security methods (Project bank accounts opened in the names of the project parties in to which the employer must make payment in accordance with the contract, funds usually held in trust)
22
Q
Name some interested third parties to a construction contract?
A
- Funders
- Tenants
- Purchaser
- Building contractor / subcontractors
- Professional consultants
23
Q
When is a construction contract complete?
A
- a construction contract is not complete until all of the services required by the contract have been provided to a standard consistent with the requirements of the contract
- E.g. provision of manuals, demonstrations and training, etc
- When the contractual criteria of workmanship / specification has been met
24
Q
What actions are triggered upon completion of a construction contract?
A
- client takes possession of the site
- no further liability for liquidated damages
- risk of loss / damage to the works passes to client
- contractor no longer needs to insure or secure the
works (to be done by client) - commencement of defects liability period
- release of retention monies (typically 50%)
- final account to be prepared
- expiry of bonds / guarantees
25
Practical completion under the JCT forms of contract
- Completion is referred to as 'practical completion'
26
Sectional completion under the JCT forms of contract
- Sectional completion is anticipated by the contract documents and pre planned with separate completion dates, extension of time provisions and liquidated damages
- If delay to one section causes a delay to another subsequent section, then the contract will need to make adequate provision for an extension of time in those circumstances
27
Partial possession under the JCT forms of contract
- Sometimes the client will wish to take possession o part of the works even through it is not specifically anticipated in the contract documents
- Partial possession can only be taken with the consent of the contractor but that consent may not be unreasonably withheld
- For example, if occupation of completed areas would hinder the ability for the contractor to complete the remaining areas (limiting noise / dust, restricted from working in certain areas, ect)
28
Clarifying completion
- It is important for both parties to a contract before signing to clarify the basis upon which completion of the works will be certified and the discretion to be exercised by the contract administrator
29
Conditions precedent to completion
In some instances the contract might state that
completion of specific activities are conditions
precedent to completion being achieved.
Completion is not certified until:
- H&S manuals issued
- Training and demonstrations provided
- O&M manuals
30
What are some definitions of completion?
- Fault free completion
- Completion for all practical purposes
- The De Minimis Principle
- Impossibility of perfection
- Remedying Defects
31
Where is extensions of time dealt with in the JCT Standard Building Contract 2011?
- Clauses 2.26 to 2.29
32
For what reasons might a completion date be adjusted due to an extension of time?
Set out in a list of 'Relevant Events'
- Variations
- Instructions
- Deferment of possession of the site
- Suspension
- Works by statutory undertakers
- Exceptionally adverse weather
- Civil commotion
- Terrorism and strikes
- 'any impediment, prevention or default by the employer'
33
What are delay notices and when might they be issued?
- Issued by the contractor when it becomes reasonably apparent that the progress of the works is being or is likely to be delayed
The notice must set out:
- the cause / causes of delay
- identify relevant event(s)
- what the expected delay upon the completion date is
34
How are delay notices assessed?
The architect / CA is required to consider any notice of delay given by the contractor and to fix a new (later) completion date if it is considered fair and reasonable to do so
- CA must provide a written notice of the decision about the delay as soon as is reasonably practicable, but in any event, within 12 weeks of receipt of 'the required particulars'
- 'Required particulars' are the cause and effect of the EOT claim and any supporting information (these are to be provided either with the delay notice by the contractor or in writing as soon as possible thereafter)
- The EOT claim will be reviewed after completion of the works; a review of the time awarded must be made within 12 weeks of practical completion, to either confirm or increase the extension of time period unless there has been an omission to the works which justifies a reduction.
35
What are the contractors obligations in avoiding delay?
The contractor has an obligation under clause 2.28 to use their best efforts to prevent delay
36
Is there a standard document / format for a delay notice?
- No, in most cases the written notice does not have to be in a specific format and usually it will be nothing more than an email which provides the cause + effect and supporting information
37
What techniques can be used to assess an EOT claim and the actual delay caused?
What method of delay analysis should be adopted?
- Overview of the facts (if the cause of delay is apparent and uncontroversial)
- Comparing actual and planned progress
- Critical path analyses
- BIM
The technique adopted will depend on the terms of the contract, the types of work being undertaken, the nature of the delay, information available and timing of the analysis
38
What is termination and how might it arise?
Termination of a construction contract by one party to the contract can occur where the other party has breached the terms of the contract
Most construction contracts contain provisions detailing how in such circumstances it may be terminated
39
What is corporate recovery in terms of a construction company?
‘Corporate recovery’ is a term used to describe the process and actions taken to bring an ailing company back to full health; this can involve the provision of financial, restructuring, accounts and legal advice by those qualified to give such advice and the possible appointment of an insolvency practitioner
40
What is insolvency of a party in terms of a construction contract?
A company or party is deemed to be insolvent when it does not have sufficient assets to cover its debts or is unable to pay its debts when they are due. A common indication that a company may be insolvent is that it
consistently makes late payment to creditors (including HMRC). Also, the instigation of legal action against the company by a creditor to recover an unpaid sum of money is evidence that the company may be insolvent.
41
What are the 2 types of termination?
- Voluntary termination - where the parties mutually agree to terminate or it can be where one party ends the contractual agreement
- Involuntary termination - the consequence of insolvency and will occur when one party foes not have enough assets to cover its debts / unable to pay its debts when they are due
42
What is a release agreement?
A release agreement is an agreement drawn up
by the parties that, for the avoidance of doubt,
lays down the terms of the termination of the
contract. This provides a clean, unequivocal
break for the parties.
43
Where can termination clauses / mechanisms be found in the JCT contract?
- Section 8 of the contract conditions
44
If a party fails to perform as required in a contract, this may constitute a breach of contract - breaches of contract could include:
* Refusal to carry out work
* Abandoning the site
* Removing plant from the site
* Failure to make payment
* Employing others to carry out the work
* Failure to allow access to site
* Failure to proceed regularly and diligently
* Failure to remove or rectify defective works
45
What are the grounds for termination by the employer?
1) Default by the contractor
- Contractor suspends carrying out the works
- Failure to proceed regularly and diligently
- Refusal to comply with instructions
- Fails to obtain employers consent when subcontracting work / assigning rights
- Failure to comply with CDM
2) Insolvency of the contractor
3) Corruption of the contractor
46
What are the timeframes for termination (when the client terminates)?
1) Default by the contractor
- CA/EA issues notice specifying default
- If within 14 days the default continues, employer can notify of their intent to terminate (by no more than 21 days after the expiry of 14 days)
- If the employer does not give further notice after 21 days but the contractor repeats the default, the employer can terminate their employment
2) Insolvency of the contractor
- The employer may, at any time and by notice terminate employment
3) Corruption of the contractor
- The employer may, at any time and by notice terminate employment
(TIMEFRAMES ARE SAME FOR CONTRACTOR)
47
What are the steps of termination (when the client terminates)?
* Employer and contractor agree the works to be completed by termination (e.g. removal of any temporary buildings, plant etc)
* Agree what documentation needs to be handed over at termination (O&M’s, as built drawings, design work, surveys, reports)
* QS does an in depth analysis of the works done to date
* Final account should be prepared
* If an amount is due then the Employer should issue a Payless Notice
* If too much has been paid already, then the contractor should pay back the difference to the Employer
* After termination the employer may employ another contractor to finish the works (Although this could be very expensive as there will a lot of risk to the new contractor)
* If after 6 months of termination the employer decides not to complete the works, they should notify the contractor
48
Grounds for Termination by the Contractor?
1. Default by the Employer
a. Does not pay amount due by the final date of payment
b. Interferes and obstructs issue of certificates
c. Fails to comply with obtaining the contractor’s consent for assigning the contract or any rights
d. Fails to comply with CDM
2. Insolvency of Employer
49
Grounds for termination by either party?
- Force Majeure
- CA/EA instruction issued as a result of negligence
- Default of a statutory undertaker
- Civil commotion / threat of terrorism and relevant authorities dealing with terrorism
- Frustration - circumstances that are not the fault of either party but mean it is impossible to continue working (e.g. building is destroyed)
50
Timeframes for termination by either party on the basis of the works being suspended?
- If works are suspended for longer than the period of suspension set out in the contract particulars (default usually 2 months), then notice can be given by either party and provided the event does not cease within 7 days of notice the contract terminates.
1) Works suspended
- 2 months (or amount in CPs) -
2) Works still suspended
- +7 days of expiry date in CPs -
3) Termination by either party
51
What is a Suspension of Performance?
* Parties have the right to suspend performance of any or all contractual obligations when a required payment of a notified sum has not been made.
* Entitled to payment of reasonable cost incurred
* Cannot suspend statutory duties
* 7 days notice must be given of the intention to suspend work
* Expressed terms in JCT Contracts
* May be permitted due to a breach of the contract by the client, client becomes insolvent, force majeure,
52
What is a contract?
* A contract is a legally enforceable agreement between 2 or more parties.
* It may be oral or written.
* A contract is essentially a set of promises to do something for the other in exchange for a benefit.
53
What 5 things must a contract have to be legally binding?
- Offer and acceptance
- Consideration
- Capacity
- Intention
- Legality
54
What is the Law of Tort?
Law that deals with a civil wrong such as negligence which results in loss or harm to another
55
What are the elements of the law of tort?
1) Negligence
2) Duty of care
3) Breach of duty
4) Causation
5) Harm or injury
56
What are the two remedies of tort law?
- Damages
| - Injunction (requires a certain course of action to be taken)
57
What are the categories of tort?
* Intentional (e.g. hitting someone)
* Negligent (e.g. causing an accident by failing to obey traffic rules)
* Strict liability (e.g. making and selling a defective product)
58
What do you know about the term “Heads of Claim”?
Categories of damage that a party may incur
59
What is a simple contract?
* Contract that is signed under hand by both parties
| * Limitation period of 6 years
60
How can a contract be executed?
* By Hand
* By Deed
* Oral
61
What is Novation?
* A process by which contractual rights and obligations are transferred from one party to another.
* Normally associated with D&B, where design consultants are initially contract to the client, but then novated to the contractor
* Novation effectively re-writes contractual history to give the impression that the consultant has worked for the contractor all along
* Alternative to novation is a “Consultant Switch” whereby the original agreement between the consultant and the client terminates on appointment of the contractor and there is a new agreement between the contractor and the consultant
62
What is a Contract Under seal?
* Signed by the parties, witnessed and most importantly made clear that it is executed as a deed
* Limitation period of 12 years
63
How many sets of contract documents would you usually produce?
• Usually 2 (1x set for client signature, 1x set for suppliers)
64
What is a Letter of Intent?
* A document expressing an intention to enter into a contract at a future date but creating no contractual relationship until that future contract has been entered into.
* NOT an agreement to enter into a contract
* Can be used as an interim arrangement to mobilise construction prior to a formal contract being executed
* Should NEVER be seen as an alternative to a contract
* Should place a limit on expenditure & client’s liability prior to the contract being put in place
65
Name some items that are generally included within a letter of intent?
- Client authorisation
- The agreed contract sum
- Reference to tender documents
- Instruction to proceed on a certain date / site possession date
- Contract completion date
- Description of the proposed form of contract
- Terms for cancelling the letter
- Provision for the contractor to have access to the site under license only
66
Dangers of a letter of intent?
* Do not cover all eventualities set out in a building contract (less robust)
* Allow the contractor a position of back-negotiation from a position of strength (e.g. unknown/uncovered ground work risks)
* May act as a disincentive to execute the formal contract.
67
What is a Purchase Order?
* A document that is issued by a buyer to a seller, indicating their intention to purchase certain products or services.
* In construction they are typically used to control the purchasing of products and services from suppliers, and retained for record.
* A PO is legally binding when a supplies accepts the PO
68
What information would a PO typically contain?
* PO number
* Description of the product/service being purchased
* Technical details
* Quantities
* Any discount if required
* Agreed prices
* Payment terms
* Shipment dates
69
What goes into Contract Documentation?
* Articles of agreement (Recitals, articles, contract particulars & attestation)
* conditions of contract
* Schedule of amendments
* Amendment 1 (JCT update for 2011 contracts, which updates for CDM 2015)
* Specifications, Preliminaries & Appendices
* Pricing Document / BOQ’s (if required) / CSA
* Employer’s Requirements / Contractor’s Proposals (If D&B / CDP)
* Tender addendums
* Performance bond / PCG / Bonds
* Collateral Warranties
70
What are Articles of Agreement?
• Set out the core obligations of the parties involved. Typically they include 4 sections:
1. Recitals
2. Articles
3. Contract Particulars
4. Attestation
71
What are Recitals?
Contextualise the agreement, giving factual explanations for the basis of the contract.
72
What is an Information Release Schedule?
If not all the information required to construct the works has been prepared or issued when the tender documentation is issued, or the contract executed, then an information release schedule may be prepared which gives dates for the release of information from the consultant team.
73
What are Articles?
Set out what is agreed between the parties
74
What are contract particulars?
Sets out the aspects of the contract that are particular to the project to which the contract relates.
Part 1 – General
Part 2 – Third Party Rights & Collateral Warranties
75
Name some contract particulars?
- Base date
- Completion dates
- Rectification period
- Amount of retention
- Joint fire code
- Fluctuation options
- Insurance
- Adjudication
- Period of suspension
76
What are the conditions of a contract?
* Sets out the principle legal relationships between the parties to a construction project
* Determine the allocation of risk
77
What are Schedules?
Detailed procedural rules for certain situations:
* Schedule 1 – Contractors design submission procedure
* Schedule 2- Variation and acceleration quotation
* Schedule 3 – Insurance options
* Schedule 4 – Code of Practice
* Schedule 5 – Third party rights
* Schedule 6 – Form of bond
* Schedule 7 – Fluctuations options
* Schedule 8 – Supplemental provisions
78
What is attestation?
* Process of confirming that something is genuine, or that a particular requirement has been met.
* Can be a signature, oath or some other form of certification
79
What is the base date?
* A reference date from which changes in conditions can be assessed
* Sets a reference point from which the conditions of the Tender was prepared
* The period of time between a Tender being priced and a contract being signed can sometimes be very long and therefore changes that may occur could have a big impact of cost
* JCT D&B suggests 10 days before date of tender return
80
What is the Final Account?
The process of calculating and agreeing any adjustments to the contract sum
Signifies the agreed amount the client will pay the contractor
81
What does the JCT say about the Final Account?
* Known as “Final Statement”
* Includes any proceedings (If applicable) including measured works, instructions, fluctuations, prime cost sums, provisional sums, statutory fees, loss and expense, extension of time, LD’s, contra claims)
* After “Final Certificate” issued this can be contested within 28 days
* The standard JCT contract states that the final account should be ascertained no later than 3 months after receipt by the architect/contract administrator of information supplied by the contractor (which itself should not arrive any later than 6 months after issue of the practical completion certificate).
* If the contractor does not submit the Final Statement within 3 months of PC, the employer may on / or after the expiry of that period, give the contractor notice than unless the statement is not submitted within 2 months of this notice, the Employer may himself issue a statement in lieu of that.
82
What is typically excluded from final account?
- Liquidated damages
| - VAT
83
What is a rolling final account?
Rolling final accounts will ensure that all instructions and cost effects to a project are agreed and up-to-date at the point of the latest financial report. This relies on an organised quantity surveyor and contractor and willingness of the parties to make agreements on a regular on-going basis.
84
What certificates are issued once the works are complete?
- Practical completion certificate (or certificate of non-completion)
- Final certificate (issued at the end of the DLP, cannot be issued until the final account is agreed)
85
What are contra claims?
Where the employer recovers costs from the contractor, that the contractor has caused the employer to incur (such as a third-party claim resulting from contractor negligence or contractual breach)
The Construction Act makes it very clear that any contra claim must comply with the pay less notice mechanisms of the contract
86
What are the timescales for agreeing final account?
The standard JCT contract states that the final account should be ascertained no later than 3 months after receipt by the architect/contract administrator of information supplied by the contractor (which itself should not arrive any later than 6 months after issue of the practical completion certificate).
Information to be supplied by the contractor includes:
- substantiations to variations
- schedule 2 quotations
- daywork sheets
- loss and expense claims
- build up to fluctuations
