Contract Practice Flashcards
1
Q
What is needed for a contract to exist?
A
Offer,
Acceptance,
Consideration,
Intent,
Capacity,
Legality
2
Q
What is the Construction Act 1996?
A
Housing Grants, Construction and Regeneration Act 1996. Help payments and dispute resolutions be resolved quickly
- Interim/Periodic or Stage Payment required if programme over 45 days
- The right to know how much is due or being withheld
- The right to suspend works for non-payment
- The right to adjudication
3
Q
What is the LDEDC Act 2009?
A
Local Democracy, Economic Development and Construction Act 2009. Closed loopholes in the 1996 act.
- Contracts do not need to be in writing
- Pay-when-certified clauses are ineffective. (MC cannot withhold payment to subbie until they are paid)
- Default payment notice introduced - if payer doesn’t introduce payment notice, payee can issue and this amount becomes due
4
Q
What are some differences between JCT and NEC?
A
LAMP
- Language - JCT has complex legal jargon, NEC is plan English
- Administration - JCT managed by EA/CA, NEC by PM
- Money/Time - JCT has Relevant Events/Matters, NEC Compensation Events
- Programme - NEC is a key contractual document
5
Q
What is the Limitation Act?
A
Provides timescales within which action may be taken for breaches of the law.
As a deed - 12 years
Simple contract - 6 years
6
Q
What is the difference between CA/EA?
A
Nothing really. Contractual terms under JCT for SBC / D&B respectively
7
Q
How are claims for time / money dealt with under JCT & NEC?
A
JCT - a claim for money is a Relevant Matter, a claim for time is a Relevant Event
NEC - Both are Compensation Events
8
Q
How do you pick which contract to use?
A
- Consider project specific requirements
- Procurement route
- Scale of project
- Method of payment / quantification
- Design
- Client’s approach to time / cost / quality / risk
9
Q
When would you use the JCT Standard Building Contract?
A
- For traditional procurement
- Where detailed contractual provisions are required
- Both ‘with’ and ‘without’ quanities are Fixed Price Lump Sum
- with ‘approximate quantities’ is remeasurable
10
Q
When would you use the JCT Intermediate Contract?
A
- For traditional procurement
- Used to bridge the gap between Standard and Minor Works
- Fixed price lump sum
- Intermediate with Contractor Design Portion available as a separate document
11
Q
When would you use the JCT Minor Works contract?
A
- For traditional procurement
- Used for smaller, lower value basic construction works where detailed contractual provisions are not required
- Not suitable where the project is complex enough to require bills of quantities, detailed control procedures, or provisions for named specialists
- Fixed price lump sum
12
Q
When would you use a JCT Design and Build Contract?
A
- For Design & Build procurement
- Client wants contractor to take design and construction responsibility
- Used where detailed contractual provisions are required
- Fixed price lump sum
13
Q
What are the disadvantages of entering a D&B contract on Stage 2 information?
A
- Employer has less control of the design and outcome of the project
- Contractors may include greater risk allowances in their tender returns due to uncertainties in the project
14
Q
What is the process of an Interim Valuation?
A
- Contractor submits their interim valuation
- I review ahead of site visit to understand what’s included
- Visit site, assess work done to date and ensure valuation reflects this
- Agree valuation with the Contractor
- Produce recommendaiton for payment and issue to CA/EA
- CA/EA reviews and issues their Payment Notice
- Assuming no pay less notice is issued, by FInal Date for Payment the Contractor is paid
15
Q
How would you value materials off site?
A
Needs to be pre-agreed in the contract documents.
- All items stored off site to be listed
- Should be annexed to the contract with an expected value and date for payment
Vesting certificate required confirming that
- The transfer of ownership to the Employer
- Confirms items are insured to their full value
Need to be set apart and clearly marked as the Client’s property.
16
Q
How would you value materials on site?
A
Need to be delivered in a timely manner according to the programme, unless agreed otherwise as storage
Need to be adequately protected
Need to be valued in accordance with the contract- quantity amount on site
Need to be seen and photographed on site
17
Q
How would you value day-works?
A
- Check schedule of day works in contract documents
- Check the mark-ups the contractor has applied
- Need a day-works certificate, signed by the EA/CA to confirm works complete
- Include in valuation, if agreed with EA/CA
18
Q
What is the standard payment schedule under JCT?
A
- 7 days before Due Date the Contractor submits Interim Valuation
- 5 days after Due Date - EA/CA issues Payment Notice
- 14 days after Due Date - Final Date for Payment
- 5 days before Final Date - deadline for Pay Less Notice
19
Q
What is the standard process to agree a final account?
A
- If Contractor issues Final Statement:
From PC the Contractor has 3 months to submit Final Statement. From issue of Final Statement there is 1 month till Due Date to agree. 28 days after Due Date is the Final Date for Payment. - If Contractor does not issue FS.
Employer gives notice that they will issue a Final Statement in the next 2 months (after 3 months elapsed). Then the 1 month to due date and 28 days to final date.
20
Q
What happens at the Completion Date?
A
- The EA/CA will review site and assess if Practical Completion has been achieved.
- If yes, Practical Completion Certificate issued
- if no, Certificate of Non Completion
21
Q
What happens if a Certificate of Non-Completion is issued?
A
- Liquidated Damages are deductable if notified no later than 5 days before fianl date for payment
- If a new completion date is agreed the notice is cancelled. Cannot deduct LDs unless the revised PC date is not achieved
22
Q
What do you need to do at Practical Completion?
A
- 50% of Retention is released
- State this within covering letter and reference the PC certificate
- Client required to insure the works from this point
- Ability to claim liquidated damages ends
- Recitification period commences
23
Q
How are defects addressed in a JCT contract?
A
- Under JCT the Employer can issue a Schedule of Defects up to 14 days after the rectification period ends
- Contractor must return at no cost to the Employer and rectify the defects unless otherwise instructed
- Can be agreed that the Contractor will not return and reasonable adjustments made to the CSA
- Once defects are rectified a ‘Notice of Completion of Making Good’ will be issued by the CA/EA.
24
Q
What is Partial Possession?
A
- Agreement post-contract that the Employer wishes to take possession of part of the site
- When this is agreed the PC date is agreed to have been passed in that section and the ability to claim LDs for that portion of the works is removed
25
What is Sectional Completion?
- Agreement within the Contract that sections of the work will be completed by a specified date. Each section has its own Value, Liquidated Damages and PC date.
26
What is the structure of a JCT D&B contract?
- Agreement - who is entering the contract
- Recitals - where is the project and what is required
- Articles - Sets out the principles of the contract
- Contract Particulars - project specific details
- Attestations - execution as a deed / underhand
- Execution - signed by parties
- Conditions - unamended JCT clauses
27
What insurances are there in JCT?
- Option A - Taken out by CONTRACTOR (joint names)
- Option B - Taken out by CLIENT (joint names)
- Option C - Taken out by CLIENT (joint names) for work to EXISTING STRUCTURES
28
What insurances would you expect under JCT?
- Contractor's Public Liability Insurance - injury to persons or property in the course of completing the works
- Employer Liability - Contractor takes out insurance in names with Employer, protecting employer against any claims due to injury / damage to property etc.
- Works insurance - Option A/B/C
- Terrorism cover - Pool Re cover against loss or damage to the works/materials due to terrorism
- Professional Indemnity Insurance - Contractor takes out insurance to protect against negligence claims
29
What is All Risk Insurance?
- Covers against any physical loss or damage to works/materials
- Covers cost to remove debris, shoring and propping of works
- Excludes repair, replace and rectify costs
30
What is a Joint Names policy?
- Insurance that includes the Employer and Contractor as composite insurers
- Means insurers have no recourse against another named party
31
What is subrogation?
- Subrogation is another party's legal right to collect a debt or damages on your behalf
- Insurers have the right to subrogate and claim back from another party
- Does not apply on Joint Names policies
32
What is Pool Re cover?
- Insurance against damage to works or materials from terrorism
33
What is a specified peril?
- Fire/Flood/Earthquake/Civil Commotion/Lightning
34
What are some examples of a Relevant Event?
- Client Variation
- Deferment of possession
- Civil disruptions
- Ecological / Archaeological finds
35
What are some examples of a Relevant Matter?
- Client Variation
- Impediment by client to prevent works
- Opening up / testing works (unless neglience by contractor found)
- Archaeological finds
36
What are the heads of claim under Loss & Expense?
- Prolongation
- Disruption
- Loss of Profit
- Interest charges
37
How do you value Loss & Expense?
- Must be actual loss incurred by the Contractor
- Needs to be substantiated - invoices, proof of additional abliur
- Based on agreed rates where applicable
- Reasonable rates if not applicable
38
What is an express term?
Terms of an agreement that are expressly agreed between the parties. Ideally, they would be written down in a contract but where the contract is verbal they will be the terms discussed and agreed.
39
What is an implied term?
A contractual term that has not been expressly agreed between the parties but has been implied into the contract either by common law or statute.
40
What is tort?
Tort is a civil wrong
Part of the civil law
A claim in tort is concerned with loss or harm
41
What is a statuatory provision?
Statutory provisions are set out by law and must be complied with regardless
42
What is a contract provision?
Contract provisions relate to the contract in question and therefore only apply to a specific project.
43
What is your opinion of oral contracts?
While legally binding, there is difficulty in proving the specific terms and conditions of the agreement. Having a written contract is always the preferred option.
44
What is a letter of intent?
Typically used to describe a letter from an employer to a contractor indicating the employer's intention to enter into a formal written contract for works described. Typically asks the contractor to begin those works before the formal contract is executed.
45
What information is typically included in a letter of intent?
- Detailed description of the work to be completed
- Contract Sum (if agreed)
- Date for possession and completion
- Insurance provisions required
- Method of payment
- Expiry date of letter
- Typically states the employer's right not to award the main contract
- ADR method
46
What are the advantages of a Letter of Intent?
Allows work to commence before the main contract is signed / agreed
47
What are the disadvantages of a Letter of Intent?
May lead to complacency and disincentivises both parties from signing the main contract
Contractually less robust
Employer loses incentive in negotiations for the main contract
48
In what circumstances might a letter of intent be used?
- Where the Employer needs to commence works before a certain date
- Where materials have long lead times and early procurement would aid the programme
49
What would you say if the client asked you to draft a letter of intent?
It's a legally binding agreement like a contract - we would not draft those
50
What are the different types of letters of intent?
- Comfort letter - letter expressing a parties intention to act a certain way
- Instruction to proceed with intent to spend - allows work to proceed up to a certain value
- Recognition of contract- also referred to as a letter of acceptance. Usually marks the completion of negotiations
51
Are you aware of any relevant case law relating to letters of intent?
Ampleforth Abbey Trust vs Turner & Townsend
The defendant project managers were retained by the Trust in relation to a project to build new accomodation at a school. The defendant's retainer included obligations 'faciliating, assisting and being involved in the procurement of the building contractor and the building contract'. The Contractor never signed the building contract and the whole of works (which were completed late) were procured using letters of intent. The effect of this was that the Trust was not able to claim Liquidated Damages for the late completion of the works.
HHJ Keyser QC held that the defendant had been negligent in failing to take the steps reasonably required a competent project manager for the purpose of finalising the building contract.
52
What is a Parent Company Guarantee (PCG)?
A form of security that may be required by clients to protect them in the event of default on a contract by a contractor that is controlled by a parent company (or holding company). Typically, such a default might be caused by the insolvency of the contractor.
53
In what circumstances might a PCG be required?
They can be particularly useful where a small contractor is part of a large, financially stable group of companies. The guarantee is given by the parent company to the client and in the event that the contractoe defaults on their obligations, the parent company is required to remedy the breach, meeting all the contractor's obligations under the contract.
54
Are there any acts which govern Third Party Rights?
Contracts (Rights of Third Parties) Act 1999
55
What is the overarching purpose of the act?
The Act allows third parties to enforce the terms of contracts that they are not a party to, but which benefit them in some way, or which the contract allows them to enforce.
It gives parties access to various remedies in those contract terms are breached.
56
What are the advantages of third party rights?
- Time and Cost- Since no separate doucment is being entered into, using the Act cuts down on the time and cost associated with warranties being drawn up, signed and circulated
- Certainty - Once the rights to be conferred on third parties are negotiated and agreed by all parties, there is limited room to revisit wording when protection is required
- Subcontractors - The third party rights process can be extended into subcontracts, so that (provided the relevant building contract and subcontract are drafted accordingly) an employer can confer third party rights in relation to work done by subcontractors unilaterally. This avoids the need to chase a large number of individual warranties.
57
What are the disadvantages of third party rights?
- Lack of flexibility - once the schedule of third party rights being conferred has been agreed, there is limited room for negotiation. This can keep costs down, but in some circumstances the inflexibility can cause a problem if a specific provision is required for a particular party, such as an incoming tenant or purchaser.
- Need for careful drafting to ensure that all the necessary rights are conferred on the third party, for example the right to commence adjudication proceedings
58
Why might third party rights be used instead of collateral warranties?
If a lot of collateral warranties are required, it can involve a lot of administration and cost.
No separate document required, so easier to get in place.
59
What is a collateral warranty?
A formal contractual agreement that runs alongside another contract. Its purpose is to create a contractual relationship where one would not otherwise exist. For example, between employer and subcontractor
60
Who might want a collateral warranty?
Any third party with a financial interest in the project but is not a party to the main contract. E.g. funding institution, future tenants, purchaser. The Employer may want one with subcontractors so that they have a contractual relationship for redress if main contractor went into liquidation.
61
What is the difference between a bond and a collateral warranty?
Bond a financial commitment backed up by a third party. A collateral warranty passes on contractual obligations.
Bonds contained within the contract whereas a collateral warranty are a side agreement.
62
What are three ways that benefits can be transferred under a building contract?
- Collateral Warranties
- Third Party Rights
- Assignment
63
Are you aware of any case law relating to collateral warranties?
Parkwood Leisure vs Laing O'Rourke
In light of the particular wording used in the colleteral warranty, there was no doubt it should be treated as a construction contract under Section 104 of the House Grants, Construction and Regeneration Act 1996
64
Why would collateral warranties be particularly likely in a Design & Build contract?
To enable the Client to retain a direct contractual link with the Design Team.
65
What is assignment?
The process where the benefit of a contract is transferred from one party to another, but the burden of the contract remains with the original party.
66
What are some typical clauses of assignment?
It is standard to allow assignment of rights twice without consent
The assignment should be notified in writing to the other party
67
What bonds might be used on a project?
- Performance
- Retention
- Off site materials
- Advance payment
- Tender
68
What is a performance bond?
A form of security provided by a contractor to the employer.
It consists of an undertaking by a bank or insurance company to make a payment under circumstances where the Contractor has defaulted under the contract.
69
When might the Employer want a performance bond?
- If the contractor is new or unapproved
- If there is concern over the contractor's finances / commercial standing
- The economy might be heading into recession
- The employer simply wants to protect their commercial exposure
70
What is the difference between on-demand and conditional performance bonds?
On demand bonds have the money immediately available on demand without needing to satisfy any pre-conditions (including establishing the Contractor's liability) unless the demand is fraudalent.
Conditional bonds require the Employer to provide evidence that the Contractor has not performed their obligations under the contract and that they have suffered a loss consequently.
71
What is the typical value of a performance bond?
10% of the Contract Sum
72
What is the typical cost of a performance bond?
The cost largely depends on the financial stability of the Contractor and the number of previous claims
73
What is the risk of not having a performance bond?
If the Contractor goes insolvent, the Employer will be liable to pay all costs to deal with it
Costs include sourcing a new contractor to complete the works and any premium that will attract.
The Employer will not be able to pursue the contractor as the company will be in the process of liquidation
74
What is a tender bond?
Requested by the Employer when inviting contractors to tender for a contract. Provides security against the risk of the successful bidder failing to enter the contract. Should help prevent idle tendering.
75
What is an off-site materials bond?
Covers an employer against the risk of paying the contractor for materials being manufactured off site. If the contractor becomes insolvent, the employer can claim oin the bond for goods paid for (in the event they are not delivered to site)
76
What is a retention bond?
A bond that provides the Employer the same level of comfort as retention, but the contractor has the real benefit of retaining the cash in their account.
77
What are the disadvantages of a retention bond?
- The Employer will have to pay the premium for taking out the bond (usually via the Contract Sum)
- May reduce the Contractor's incentive to complete the works promptly and to the desired standard
78
Why might a retention bond be used?
May be used in difficult market conditions to aid the contractor's cash flow
79
What is an advanced payment bond?
An advanced payment bond is required to protect and support payments to contractors in advance of work being done.
Some contracts require the purchase of materials in advance of a contract commencing. There is always a risk to the employer in advancing money to a contractor who may not be well know to them to allow the purchase of goods to enable the contract to commence
An advanced payment bond protects the payment being advanced in exchange for a bond underpinned by a suitable guarantor to give peace of mind to both parties.
80
What are antiquities?
Items such as historical artefacts (pottery, coins), bones or fossils, something of historical interest or value
81
What should the contractor do if they discover antiquities?
Use best endeavours to avoid disturbing
Cease work if it would endanger the object
Take necessary measures to preserve in existing location and condition
Inform the CA or PM of the discovery and location
82
When objects of interest are discovered, who is liable for the delay and expense incurred?
Usually the Employer. Significant delays and costs can arise.
83
What are defects?
Broadly defined as a defect in workmanship, design, materials or systems used. The result is a failure of the building project or structure that causes damages to people or property, which in turn leads to financial losses or harm to the owner.
84
What are patent defects?
Patent defects are those which can be discovered by reasonable inspection. Examples include wall cracks, sagging gutters, broken windows etc.
85
What are latent defects?
Latent defects are those which cannot be discovered by reasonable inspection, for example problems with foundations.
86
Why is the defect rectification period typically 12 months?
12 months will allow the building to go through all the seasons of the year, therefore most defects will become apparent during this period.
87
What is novation?
The transfer of the rights and obligations of a contract to a third party. In a D&B contract used to describe the process by which design consultants are transferred from the Client to the Contractor
88
What are some of the advantages of novation?
Reduced learning curve - working with the Client at an early stage the design team can gain a strong understanding of the Client's requirements.
Reduced contractual risk for the Employer - responisbility is transferred to the Contractor so the Employer has minimum risk contractually.
89
What are some of the disadvantages of novation?
- The Employer will generally require collateral warranties
- The Employer may need to employ a shadow team for compliance purposes
- There is potential for a conflict of interest, particularly in relation to services that are yet to be performed
90
What is the purpose of retention?
It is used as an assurance of project completion and is intended as a safeguard against subsequent defects that the Contractor may fail to remedy
91
What can the Employer use retention money for?
If the Contractor does not return to correc the defects, then retention may be used to fund the payment of others to correct the defects.
The Contract Administrator will need to check the contract on the ability to do this and the relevant notices will need to be given to the Contractor
92
How is retention typically released?
Half at the time the Practical Completion Certificate is released, half at the expiry of the defect rectification period
93
What is professional negligence?
Professional negligence is when a professional fails to perform their responisbilities to the required standard or breaches a duty of care. This poor conduct subsequently results in a financial loss, physical damage or injury to their client or customer.
94
How can the employer/client recover a loss if the consultant or contractor is professionally negligent?
Make a claim on their professional indemnity insurance
95
What is product liability insurance?
Manufacturers and/or suppliers of products used in construction works are at risk of claims being made against them for damages if defects in those products result in damage or injury. Product liability insurance protects the policy holder against liability resulting from these defects.
96
What is public liability insurance?
Public liability insurance protects against liabilities for injury to third parties or their property. For example, a member of the public could make a claim if a fallen brick damaged their car, or if a supplier trips over a cable.
97
What is Employer's liability insurance?
Employer's liability insurance can pay the compensation amount and legal costs if an emploee claims compensation for a work-related illness or injury
98
What is CDP?
Contractor Designed Portion. Typically used on traditionally procured projects, design responisbility for specific elements of the work is transferred to the contractor
99
What's the difference between CDP and Design & Build?
With CDP the design responsibility lies with the employer except for certain defined elements that are transferred. Under D&B all responsibility for the design rests with the contractor.
100
How are CDP elements executed?
A performance specification is provided at tender stage, which the contractor provides design proposals in response. These are reviewed by the design team and either accepted, commented upon, or rejected.
101
Can you list some typical CDP elements?
Steelwork connections
Cladding
Roofing
Temporary work
MEP Elements
102
What are domestic subcontractors?
Domestic subcontractors are chosen by the contractor to execute a package of works. Neither the Employer or their consultants influence the appointment or the conditions.
103
What are named subcontractors?
The Employer provides a list of subcontractors that are pre-approved. The contractor selects one from the list through the tendering process. Once appointed by the contractor, they become a domestic subcontractor.
104
What are the advantages of naming subcontractors?
It provides the Employer with more control on the slection of a subcontractor by the contractor, while still leaving them with the element of choice and the responsibility of monitoring their performance.
105
What are nominated subcontractors?
A subcontractor is selected by the Employer to carry out an element of the works. They are still employed by the Contractor.
106
What are the disadvantages of nominated subcontractors?
As they are being imposed on the contractor, the contractor will generally be allowed to object under certain conditions (for example safety).
The contractor and subcontractor may have conflicting procedures, ethics, attitudes etc
107
What are the advantages of nominated subcontractors?
As the Employer has selected them in the first instance, their work should be of high quality and acceptable to the employer
108
What is insolvency?
Insolvency is concerned with the inability to pay debts
109
What can be done at Tender Stage to identify potential contractor insolvency?
- Thoroughly check financial accounts for stability
- Check for front loading in their tender submission
- Bank references
- Use credit checking agencies (Dun and Bradstreet report)
- Previous referenes from consultants and employers
- Request a bond and / or PCG - this won't prevent insolvency but will give the employer comfort.
