Contract Practice Flashcards
1
Q
What is a contract?
A
A legally binding promise (written or oral) by one party to fulfil an obligation to another in return for consideration.
For a contract to be legally binding, it must have:
- offer
- acceptance
- consideration
- legality of contract (cannot contain illegal terms)
- capacity to contract (must understand contract consequences e.g. not minors or mentally disabled people)
- intent to create legal relations
2
Q
Define “express terms”
A
The terms of the agreement expressly agreed between the parties.
Ideally they’re written in the contract but if the contract is agreed verbally, these will be the terms discussed and agreed between the parties.
3
Q
Define “implied terms”
A
The contractual terms not expressly agreed between parties but are implied into the contract by case law or statute.
4
Q
What is tort?
A
Tort is a civil wrong causing a claimant to suffer loss or harm, resulting in legal liability for the person who committed the tortious act.
5
Q
How do statutory provisions and contract provisions differ?
A
Statutory provisions are set out by law and must always be complied with,
whereas contract provisions relate to the contract and therefore only apply to a specific project.
They’re also set out by the parties and their solicitors, they control what these are.
6
Q
What is your opinion of oral contracts?
A
Although they’re legally binding, I think they’re not the most ideal because it’s more difficult to prove the expressed terms of the agreement as they aren’t written down. Therefore I prefer written contracts.
7
Q
What is a breach of contract?
A
This occurs when a party in a binding agreement fails to fulfil their obligations under the contract.
This can happen in both written and oral contracts.
8
Q
What is the LDEDC (Local Democracy, Economic Development and Construction) Act 2009?
A
This Act amended the Construction Act (Housing Grants Construction and Regeneration Act 1996) in 2011.
It impacted adjudication, payment, suspension provisions in all “construction contracts” entered into on or after 1st October 2011.
9
Q
What are the key provisions under the LDEDC Act?
A
Contracts!
- The Act covers construction contracts that are partly or completely oral, parties can now go to adjudication over these type of contracts.
Payment!
-
Suspension of performance for non-payment!
- Clarifies the contractor’s right to suspend the works in the event of non-payment.
- However, a default notice must be issued and there must have been failure to pay. The party in default is liable to pay the contractor a reasonable amount for the costs and expenses incurred by suspending all or part of the work.
10
Q
What is a letter of intent (LOI)?
A
A letter from the client to a contractor (or MC to a subcontractor) indicating the client’s intention to enter into a formal written contract for works described.
It usually asks the contractor to begin those works before the main contract is executed.
11
Q
What information is typically included in a LOI?
A
- Name of client and contractor (or MC and subcontractor)
- Expiry date of letter
- Detailed description of the work to be completed
- Contract sum (if agreed)
- Method of payment
- Date for possession
- Date for completion
- Insurance provisions required
- Typically states employer’s right not to award the main contact for whatever reason
- ADR method
12
Q
What are the advantages of a LOI?
A
Works on-site can commence before the main contract is agreed (earlier start on-site as LOI faster to produce than main contract)
Can see how the contractor performs before entering into a main contract with them.
13
Q
What are the disadvantages of a LOI?
A
- Contractually less robust than the main contract
- Can disincentivise both parties from signing the main contract
- Employer loses incentive in negotiations of the main contract
14
Q
Who issues the LOI?
A
The client
15
Q
In what circumstances might a LOI be used?
A
- When an early start on site is important to the employer
- Where materials have long lead times and early procurement would aid the programme
- Starting construction works might trigger early founding
16
Q
Who signs a LOI?
A
The client and contractor (or main contractor and subcontractor)
17
Q
What would you say if the client asked you to draft a LOI?
A
LOIs are legally binding agreements like a contract, therefore I would not draft those.
18
Q
What are the different types of LOI?
A
Comfort Letter:
- Expresses a party’s intention to act in a particular way at some point in the future, or at the time of issuing the letter.
Instruction to proceed with consent to spend:
- Allows works to proceed up to a certain value while the main contract is being finalised.
Recognition of contract (letter of acceptance):
- generally issued only once the contract has been substantially agreed and usually marks the completion of negotiations between the parties
- some forms of contract e.g. FIDIC use this to formally execute the main contract.
19
Q
Are you aware of any case law relating to LOIs?
A
Ampleforth Abbey Trust vs Turner & Townsend:
The defendants were the PMs for building school accommodation for the claimant Trust. The defendants were responsible for procuring the building contractor and building contract. The building contract was never signed and the entire works (which were completed late) were procured under LOIs. Therefore, the Trust couldn’t claim liquidated damages under the building contract for the late completion of the works.
The judge held that the defendant had been negligent by failing to take the steps reasonably required of a competent PM to finalise the building contract between the Trust and contractor.
20
Q
What is a parent company guarantee (PCG)?
A
A form of security that protects the client should the contractor default. The parent company (or holding company) guarantees to the client that if the contractor defaults on their obligations (typically through insolvency), they will remedy the breach, meeting all the contractor’s obligations under the contract (and/or covering loss and expense incurred by the client).
21
Q
In what circumstances may a PCG be required?
A
- When a small contractor is part of a large, financially stable group of companies.
- The client may simply want this extra form of security.
22
Q
Are there any Acts which govern third party rights?
A
Contracts (Rights of Third Parties) Act 1999
23
Q
What is the overarching purpose of the Contracts Act 1999?
A
The Act allows third parties to enforce terms of a contract which they are not party to, on the condition that:
1) third party must be expressly identified in the contract, by name, class or description
2) the provision must confer a benefit on the third party.
E.g. tenant or building purchaser suffers loss due to subcontractor’s poor workmanship can now create a contractual relationship between them.
It also gives parties access to various remedies if those contract terms are breached.
https://www.lexisnexis.com/uk/lexispsl/construction/document/391372/56NS-GV21-F186-33HC-00000-00/Contracts__Rights_of_Third_Parties__Act_1999_in_construction_overview
24
Q
What are the advantages of third-party rights?
A
Certainty:
- Once the third party rights are agreed, there is little room to revisit the wording when protection is required as is often the case with collateral warranties. This can help reduce costs.
Time & Cost:
- Since no separate document (i.e. collateral warranty) is being entered into, using the Act cuts down on the time and cost associated with warranties being drawn up, signed and circulated.
Subcontractors:
- Third party rights can be extended into subcontracts so that (provided the relevant building contract and subcontract are drafted accordingly) a client can grant third party rights in relation to work done by subcontractors unilaterally, without needing to chase many individual warranties.
unilaterally = undertaken by one person or party
25
What are the disadvantages of third-party rights?
Lack of flexibility:
- Once the schedule of third party rights has been agreed, there is limited room for negotiation. This could be problematic if a specific provision is required for a particular party e.g. incoming tenant or purchaser.
Need for careful drafting:
- Recent cases have shown the importance of drafting clauses relating to third party rights very clearly to ensure all necessary rights are conferred on the third party, e.g. the right to commence adjudication proceedings if required.
26
Why might third party rights be used instead of collateral warranties?
- Third party rights are easier to setup because they're in the contract, no separate document is required.
- If many collateral warranties are required, it can involve lots of administration, time and cost.
27
What is a collateral warranty?
A collateral warranty is a contractual agreement whose purpose is to create a contractual relationship between two parties where one would not otherwise exist.
28
Can you provide a working example of how a collateral warranty could be used?
Should a client place a contract with a contractor, the contractor then places contracts between themselves and many subcontractors, the client has a direct contractual relationship with the contractor, but not with the subcontractors ("privity of contract")
Should the client want a direct contractual relationship with a subcontractor, e.g. to enforce obligations or create other obligations between them, a collateral warranty would be required.
This could be a security measure if the contractor became insolvent or its employment was terminated for any reason.
29
Who might want a collateral warranty?
- Any third party with a financial interest in the project but is not party to the main contract e.g. future tenant, building purchaser, funder.
- The employer may want a collateral warranty with key subcontractors or suppliers, otherwise if the contractor went into liquidation, they would have no contractual link with them for redress in case of defective workmanship etc.
30
What is the difference between a bond and a collateral warranty?
- A bond is a financial commitment backed up by a third party, whereas a collateral warranty passes on contractual obligations.
- Bonds are contained within the contract, whereas collateral warranties are a side agreement to the contract.
31
Are there any alternatives to collateral warranties?
The Contracts (Rights of Third Parties) Act 1999 provides an alternative where third parties can obtain benefits from contracts which they are not party to.
32
What are the three ways that benefits can be transferred under a building contract?
1. Collateral warranties
2. Third party rights
3. Assignment
33
Are you aware of any case law relating to collateral warranties?
Parkwood Leisure v Laing O'Rourke:
Laing O’Rourke gave a collateral warranty to Parkwood, the tenants of the Cardiff International Pool, concerning Laing O’Rourke’s construction of that facility. The Court was required to determine whether this collateral warranty was a “construction contract” under Section 104 of the Housing Grants, Construction and Regeneration Act 1996. The court ruled the collateral warranty was a construction contract based on its particular wording.
34
There is a high probability that collateral warranties will be needed under a D&B contract, can you explain why?
The design team typically sit below the contractor under a D&B contract. Therefore the client needs to create a contractual link with the design team using a collateral warranty.
35
What is assignment?
Assignment is the process whereby the benefit of a contract is transferred from one party to another, but the burden of the contract remains with the original party to the contract.
36
Can you provide a working example to explain how assignment might be applied?
Common example in construction projects:
Main contractor assigns the benefit of their key sub-contracts to the employer. Then in the event of contractor default and consequent termination of the main contract, the employer can enforce the rights in the sub-contract against the subcontractor, including rectification of the works and the performance of particular obligations.
37
What are some of the typical clauses of assignment?
- The assignment should be notified in writing to the other party.
- It's standard to allow assignment of rights twice without consent of the other party to the contract.
38
What is a bond?
- An arrangement where a contractual duty owed by one party to another is backed up by a third party.
- Construction bonds are protection for the owner against non-payment, lack of performance, company default and warranty issues.
39
Can you list 5 different bonds which might be used on a project?
- Performance bond
- Retention bond
- Off-site materials bond
- Advance payment bond
- Tender bond
40
What is a performance bond?
- Protects the employer against the risk of the contractor defaulting over the contract.
- Provided by a contractor to a developer or employer.
41
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 may be heading into recession
- The employer may simply want to protect their commercial exposure
42
What is the difference between on-demand and conditional performance bonds?
On-demand bonds: Immediately available on demand without needing to satisfy any preconditions whatsoever (including establishing the contractor's liability) unless the demand is fraudulent.
Conditional bonds: Employer must provide evidence that the contractor has defaulted under the contract and that they have consequently suffered a loss.
43
What is the typical value of a performance bond?
Usually 10% of the contract sum
44
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 (if any)
45
What is the risk of not having a performance bond?
- If the contractor becomes insolvent and there is no bond, the employer will be liable to pay all costs to deal with the insolvency, i.e. 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.
46
Are there any alternatives to a performance bond?
- If the contractor is part of a group of companies, then the employer may wish to consider a Parent Company Guarantee (PCG).
- If the smaller company breaches the contract, the parent company is obligated to step in and remedy the breach.
47
What is a tender bond?
- Protects the employer against the risk of the successful bidder failing to enter the contract.
- Requested by the employer when inviting contractors to tender for a contract.
- It should help to prevent idle tendering.
48
What is an off-site materials bond?
- Protects the employer against the risk of paying the contractor for materials being manufactured off-site which are never delivered to site due to insolvency of the contractor or subcontractor.
49
What is a retention bond?
- Protects the employer against the risk of the contractor failing to remedy defects after PC.
- The amount which would usually be retained through a percentage is instead held by the insurer.
- Like the usual percentage retention, 50% is released at PC and the other 50% at the end of the rectification period.
50
What are the disadvantages of a retention bond?
- The employer will ultimately have to pay the premium for taking out the bond (usually through the contract sum)
- May reduce the contractor's incentive to complete the works promptly and to the desired standard.
51
Why might a retention bond be used?
May be used in difficult market conditions to aid the contractor's cash flow.
52
What is an advance payment bond?
- Protects the employer against the risk of making an advance payment to a contractor who then defaults.
53
What are antiquities?
Items of historical interest or value such as:
- Historical artefacts, pottery and coins
- Bones or fossils
54
What should the contractor do if they discover antiquities?
- Cease work and seek advice prior to proceeding.
- Take necessary measures to preserve antiquities in existing location and condition.
- Inform the contract administrator or project manager of the discovery and location
55
When objects of interest are discovered, who is liable for the delay and expense incurred?
- This depends on how the risk is allocated in the contract.
- Significant delays and costs can arise - can be a serious event for the employer and/or contractor.
56
What are defects?
Aspects of the works which are not in accordance with the contract, e.g. in terms of workmanship, design or materials used. Defects can be 'patent' or 'latent'.
57
What are patent defects?
Defects which are obvious or can be discovered by reasonable inspection e.g. wall cracks, sagging gutters, broken windows, missing tiles etc.
58
What are latent defects?
Defects which cannot be discovered by reasonable inspection or which become apparent over time.
- E.g. problems with foundations may not become apparent until several years after completion when settlement causes cracking in the building.
When a latent defect becomes apparent it becomes patent rather than latent.
59
Why is the defect rectification period typically 12 months?
Allows the building to experience all four seasons of the year, therefore most patent defects will become apparent during this period.
60
What is novation?
A process where contractual rights and obligations are transferred from one party to another. For example, the design rights and obligations of an architect to a client transferred to a contractor (under D&B)
61
Are novation agreements required under traditionally procured projects?
Not usually, because designers are typically retained by the client.
62
What are some of the advantages of novation?
- Reduced learning curve: working with the client at an early stage means the design team can gain a strong understanding of the project requirements. If they aren't novated, this learning is lost as a new design team joins
- Reduced contractual risk for client: responsibility is transferred to the contractor through novation, meaning the client assumes less risk contractually.
63
What are some of the disadvantages of novation?
- After novating consultants, the client will generally require collateral warranties
- Client may need to employ a shadow team for compliance purposes
- There is potential for conflict-of-interest, particularly in relation to services that remain to be performed
64
What is retention?
An amount retained from payments (typically 3-5%) due to the contractor to ensure they complete the works. Half is released at Practical/Sectional Completion and the other half is released at the end of the rectification period.
65
Are you aware of any guidance issued by RICS associated with retention?
Retention - 1st edition 2012
66
What is the purpose of retention?
To assure project completion and protect the client should the contractor fail to remedy subsequent defects
67
What can the employer use retention monies for?
- If the contractor doesn't return to correct the defects, then the retention held may be used to fund the payment of others to correct the defects
- The project manager/contract administrator will need to check the contractual provisions on this and the relevant notices that should be given to the contractor prior to appointing others to undertake the works.
68
How is retention released to the contractor?
Typically released in two stages:
1. when the practical completion certificate is issued the first half is certified and released
2. at the end of the defect liability period the second half is certified and released
69
Who typically benefits from interest accruing on retention money?
The client.
70
Are there any alternatives to holding retention?
Procure a retention bond to cover retention that would otherwise have been deducted.
71
What is professional negligence?
When a professional fails to perform their responsibilities to the required standard or breaches a duty of care, resulting in a financial loss, physical damage or injury of their client.
72
How can the client recover a loss if the consultant or contractor is professionally negligent?
Make a claim on their professional indemnity insurance (PII)
73
What is professional indemnity insurance (PII)?
- Protects the policy holder against the cost of compensating clients for loss or damage resulting from their professional negligence.
74
What is product liability insurance?
- Protects the policy holder against liability from manufacturing or supplying defective products which result in damage or injury.
75
What is public liability insurance?
- Protects the policy holder against liability for injury to third parties or their property
- e.g. a member of public could make a claim if a fallen brick damaged their car
76
What is employer liability insurance?
- Protects the policy holder against the cost of compensating employees who are injured or become ill through work.
- All firms who employ staff are legally required to hold Employer’s Liability Insurance.
77
What is Contractor's Design Portion (CDP)?
Design responsibility for specific elements of the building is transferred to the contractor.
Typically used on traditionally procured projects.
78
What is the difference between traditional procurement with CDP and D&B?
Traditional w/ CDP: design responsibility lies with client except for certain elements that are transferred under CDP.
Design & Build: all responsibility for the design rests with the contractor.
79
How are CDP elements executed?
Employer provides performance specification at tender stage, contractor responds with design proposals. Proposals are reviewed by design team and accepted, commented on or rejected.
80
Can you list typical CDP elements which the employer may wish to transfer?
- Cladding
- Roofing
- MEP elements
- Steelwork connections
- Temporary works
81
What are domestic subcontractors?
- Chosen by the contractor to execute a package of works.
- The employer's consultants nor the client influence the appointment or the conditions.
82
What are named subcontractors?
- Employer provides a list of named subcontractors which are pre-approved
- Contractor selects one from the list through the tendering process
- Once appointed by the contractor, they become a domestic subcontractor
83
What are the advantages of naming subcontractors?
Balanced approach: gives the client more control over subcontractor selection but still gives the contractor a choice and the responsibility of monitoring their performance
84
What are nominated subcontractors?
- Selected by the employer to carry out an element of the works (still employed by the contractor)
- Usually imposed upon the contractor
85
What are the advantages of nominated subcontractors?
On the basis the client nominated them in the first instance, their work should be of high quality and acceptable to the client
86
What are the disadvantages of nominated subcontractors?
- As the subcontractor is imposed on the contractor, the contractor generally has the right to object under certain conditions (e.g. safety reasons)
- The contractor and subcontractor may have conflicting procedures, ethics, attitudes etc.
87
What is insolvency?
The inability to pay debts owed.
88
What can be done at tender stage to identify potential contractor insolvency?
- Check for front loading of the tender submission
- See previous references from consultants and employers
- Check financial accounts for stability
- Credit checks through relevant agencies
- Get bank references
Request a bond and/or parent company guarantee - won't prevent insolvency but will give client comfort in the event of default
89
What is termination?
Legally ending the contract, the parties to the contract are no longer obliged to perform their obligations under the contract.
90
Can the contractor suspend works for non-payment?
- Under the Construction Act 2009, if the notified sum is not paid by the final date for payment, the contractor can suspend performance of any or all its obligations, e.g. stop insuring the works or refuse to implement a variation instruction.
- The payee is entitled to a 'reasonable amount' for its re-mobilisation costs, as well as an extension of time.
91
What are delay damages/LDs?
A genuine pre-estimate of loss suffered by the client due to late completion of the works. The damages are inserted into the contract prior to its signing.
- They should not be a penalty.
- Quick remedy to avoid having to prove actual loss due to the breach
- Contractor knows their liability
- Client should calculate the figure (consultants shouldn't do this on their behalf)
92
What sort of expenses/costs can the employer include in the damage calculation?
- Cost of not having facility (loss of rent or other income, storage, abortive costs etc)
- Additional professional fees
- Associated legal costs
- Capital salaries
- Expected costs incurred by other parties
Figure shouldn't be construed as a penalty; client must be realistic when identifying potential costs
93
What if you client tells you the damages are £100,000 per week?
- Exercise due diligence: check they believe its a genuine pre-estimate of likely loss
- If there is concern: explain the damages might be construed to be a penalty (may not be enforceable)
94
Under JCT contracts, what contractual documents should be in place before damages can be deducted?
- A non-completion notice/certificate is in place
- Contractor is notified that the employer may require the payment of; or deduct LDs
- A pay less notice is served
95
What is a LD holiday or LD free period?
A grace period where the contractor has no commercial liability for delay.
e.g. if the contractor has a two week LDs holiday, LDs will only begin accruing after delays pass two weeks
96
What is the implication of inserting 'nil' or £0 against the damage clause?
- There are no liquidated damages.
- May also prevent the client pursuing the contractor for unliquidated damages.
97
What is the implication of leaving the damage clause blank?
The employer can pursue the contractor for unliquidated damages if they so choose.
98
What is the difference between liquidated and unliquidated damages?
- LDs: an agreed contractual provision to pay a certain amount on breach of the contract.
- Unliquidated damages: granted by the courts based on an assessment of the loss or injury caused to the party suffering such breach of contract.
99
If an extension of time is issued, what effect would this have on delay damages?
Damages cannot be deducted from the original date; damages are levied from the revised practical completion date.
100
Can the employer levy liquidated damages if they do not actually incur the loss identified in the initial calculation?
Yes, provided that the damages:
1. are a genuine pre-estimate of loss
2. are NOT a penalty on the contractor
101
What is a pre-construction services agreement (PCSA)?
A contract between the employer and contractor for pre-construction services, documenting the services the contractor will perform before singing the building contract and identifies the terms and conditions under which these are to be performed.
102
When might a PCSA be used?
In a two-stage tender approach to facilitate early contractor involvement.
103
How can a PCSA benefit the project?
Early involvement of the contractor should improve the buildability and cost certainty of the design as well as creating a better integrated project team which reduces the likelihood of disputes
104
What sort of activities can the PCSA be used for?
- Contribute to the design process
- Advise on buildability, sequencing and construction risk
- Help develop the cost plan and construction programme
- Advise on the selection of specialist subcontractors
- Help develop the method of construction
- Assist with any planning application matters or other approvals
105
What should be considered when drafting the PCSA?
- Arrangements do not commit the client to entering the building contract. It's important the client can secure an alternative bid if second-stage negotiations fail.
- The scope of service for the contractor is clearly defined and unambiguous.
- Usual programme and delay damage clauses are carefully drafted by the legal team.
106
What are the main forms of building contract?
- JCT: Joint Contracts Tribunal
- NEC: New Engineering Contract
- FIDIC: International Federation of Consulting Engineers
- Bespoke contracts
107
What are some of the considerations when selecting the appropriate construction contract?
- Nature of client e.g. public or private
- Client priorities - cost, time, quality, risk allocation
- Procurement route
- Type/nature of work
- Value of work
- Size and location of work
- Complexity of work
108
What is a bespoke contract?
Contracts that are tailored to fit the specific requirements of a project, they're often used when standard forms are not suitable.
109
What are the advantages of standard forms over bespoke contracts?
- Parties should be familiar with the provisions in the form - reduces administration costs and contains less
unforeseen anomalies.
- Less time consuming and expensive (legal fees) to draft
- Contractually robust: rights and obligations of each party are clearly set out to the required level of detail.
- Written by legal experts
110
What are the disadvantages of bespoke contracts?
- Familiarity is decreased as its bespoke
- More time consuming and expensive to draft (legal fees)
- Can be poorly drafted and lead to ambiguity
- Clauses/provisions might be untested in court
- This type of contract could be unappealing to the contractor
111
When would a bespoke contract be appropriate to use (rather than a standard form)?
When amending a standard contract will not do, the most efficient means of achieving a client's requirement might be to create a bespoke contract.
112
Have you amended a standard contract? Can you explain exactly how you did this?
- As consultants, we do not have legal training so we don't amend the contract ourselves.
- All amendments should be drafted by the legal team.
113
What are some risks associated with amending a standard contract?
- Amendments can spoil the delicate balance of risk allocation
- Can create legal uncertainty
- Can attract a cost premium to tenders
- Courts can strike out amendments if contrary to good faith
Amendments must be reasonable and comply with legislation
114
What does JCT stand for?
Joint Contracts Tribunal
115
What are some of the contracts in the JCT family?
- Standard Building Contract
- Minor Works Building Contract
- Major Project Construction Contract
- Design & Build Contract
- Management Building Contract
- Construction Management Contract
- Prime Cost Building Contract
etc...
116
What are key project characteristics which influence which JCT contract is used?
- Size, value and type of project
- Employer experience
- Appetite for risk ownership and risk transfer
- Need for contractor design
- Programme requirements
- Certainty on final cost
117
What are relevant events?
A relevant event causes a delay to the completion date of the works, leading to an extension of time for the contractor.
E.g. delay manufacturing a component off-site.
118
What is an extension of time?
Moving the practical completion date into the future due to the occurrence of a relevant event
119
Can you provide examples of relevant events in the contract?
- Variations and instructions
- Suspension by the contractor for non-payment
- Loss or damage by a Specified Peril (fire, flood etc).
- Force majeure
- Exceptionally adverse weather conditions
- Deferment of possession of the site
- Impediment, prevention, or default by the employer
- Carrying out of work by statutory undertakers
- The exercise of any statutory power after the base date by the UK Government or Local or Public Authority
120
What is force majeure?
Clause that frees both parties from their obligations if circumstances beyond the control of the parties prevents one or both parties from fulfilling their obligations under the contract.
121
Can you provide some examples of a force majeure event?
- Natural disasters
- Contamination by radioactivity
- Acts or threats of terrorism
- War, hostilities, invasion, act of foreign enemies.
- Rebellion, revolution, insurrection, civil war.
- Riot, commotion, strikes, go slows, lock outs or disorder
122
What happens if a relevant event occurs?
- Upon it becoming reasonably apparent that a delay will occur, the contractor notifies the CA in writing, identifying the relevant event and resultant estimated delay.
- The CA responds within 12 weeks, they accept or reject whether delay was caused by a relevant event.
- If they accept, the CA assesses the delay and sets a new completion date (extension of time)
123
Assuming the relevant event has occurred and is accepted by the contract administrator, is the contractor entitled to loss and expense?
No, relevant events entitle the contractor to claim an extension of time only. The contractor will need to demonstrate a relevant matter has occurred to claim loss and expense.
124
What are relevant matters?
A matter for which the client is responsible that significantly affects the progress of the works.
(this may enable the contractor to claim direct loss and/or expense that has been incurred)
125
Can you give some examples of relevant matters?
- Failure to give contractor possession of, or access to and from the site
- Delays in receiving instructions
- Disruption caused by work carried out by the client
126
What is the difference between a relevant event and relevant matter?
- Relevant events entitle the contractor to claim additional time (extension of time)
- Relevant matters entitle the contractor to claim additional costs (loss and expense), and are caused by the client
127
What is a loss and expense claim?
Claims for any event where the contractor incurs loss due to failure of the employer (relevant matter)
128
When should you assess a loss and expense claim?
AFTER the actual loss has been incurred.
129
What is the key thing to remember when assessing loss and expense claims?
- It should be ACTUAL loss incurred by the contractor.
- The prices in the contract BoQ, contract schedule of rates or preliminaries shouldn't be used (actual costs may vary from these)
130
Do you need an extension of time for a loss and expense claim?
No, loss and expense can be due without an extension of time.
131
What is included in a typical claim?
- Prolongation costs (increased prelims i.e. staff, plant, site accommodation costs)
- Disruption causing plant and labour to be underutilised
- Inflation (increases in labour, plant and material costs during the period of delay)
- Head office OH&P
- Finance charges i.e. interest
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What are prolongation costs?
The cost of time-related resources (e.g. site management, site accommodation, plant) incurred by the contractor due to delay of the works for which the contractor is not responsible.
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What is partial possession?
Where the employer requests and the contractor consents to the client taking possession of part of the works before practical completion.
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What are the key points of partial possession?
- Voluntary agreement between employer and contractor, not agreed before signing the contract
- Usually that section is complete
- Contractor must give consent, but that consent cannot be unreasonably withheld
- Contractor could withhold if occupation of completed areas would hinder their ability to complete the remaining areas.
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What are the typical implications of partial possession?
- Any part for which partial possession is given is deemed to have achieved practical completion...
- Half retention is released (proportionate to area of possession)
- Liquidated damages reduce (proportionate to area of possession)
- Defect period commences (for area of possession)
- Employer becomes responsible for any damages to the works, so they should insure it
(Basically the same as Practical Completion, just not pre-defined in the contract)
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What is sectional completion under a JCT contract?
- This provision allows different completion dates to be set for different sections of the works.
- Once it is in the contract, the contractor has an obligation to achieve the sectional completion date. LDs are agreed up front should the section be delivered late.
Typically, if a client knows in advance they want one part of the works finished ahead of the rest, they should use sectional completion.
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What is the difference between sectional completion and partial possession?
Sectional completion is pre-planned and in the contract, partial possession can be requested at any point and is not pre-defined in the contract.
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What are the benefits of sectional completion over partial possession?
- Sectional completion leaves less to chance as the parties agree the consequences in advance i.e. LDs.
- If something goes wrong (e.g. delays to practical completion), it's easier for the CA to deal with delays, changes or even acceleration with sections in place.
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What are the main options for insuring the works under a JCT contract?
OPTION A (New Buildings): Contractor takes out and maintains joint names all risks insurance of the works
OPTION B (New Buildings): Client takes out and maintains joint names all risks insurance of the works
OPTION C (Existing Structures): Client takes out and maintains a joint names all risks insurance of the works
- This policy also insures the existing structure and contents against 'specified perils'.
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What is contractor's 'all risk' insurance?
CAR insurance: protection against the physical loss or damage to the works being undertaken provided it's caused by an insured event.
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What are specified perils?
Significant events that cause very significant damage to the works, e.g. fire, explosions, earthquakes, flooding etc.
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What is subrogation?
A concept that allows an insurance company that has paid a loss to step into the shoes of its insured to then sue a party that may be responsible for causing the loss.
E.g. a contractor drops a steel beam onto a building and damages it. The building owner's risk insurer pays the loss, but can then step into the shoes of the building owner and sue the contractor for the loss it caused.
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What is a joint names insurance policy?
Policy in the names of two or more parties (i.e. contractor and client)
Under a joint names policy, the insurer has no right of subrogation against any of the insured parties, even where an insured party has caused the loss for which the insurer has had to pay out.
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What are compensation events?
- Events which are not the fault of the contractor and affect the time and cost of the works.
- Therefore usually results in loss and expense and/or an extension of time.
- Referred to in NEC3
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Does the NEC contract have relevant events and relevant matters like JCT?
No, NEC contracts deal with these issues under compensation events, which deal with both time and money.
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What happens if the contractor notifies a compensation event 12 weeks after becoming aware of the event?
- The contractor isn't entitled to a change in price or completion date because they most notify a compensation event within 8 weeks of becoming aware of it (under Clause 61.3).
- However, this doesn't apply if the event arises from the PM giving an instruction, issuing a certificate, changing an earlier decision, or correcting an assumption.
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What are the key differences between NEC and JCT construction contracts?
- KEY DIFFERENCE --> JCT has relevant events and relevant matters that lead to extensions of time or loss and expense, whereas NEC has compensation events that deals with both time and money.
- NEC uses 6 main options and secondary options, JCT uses separate contracts (e.g. Standard Building Contract, Minor Works, Design & Build)
- Each has an allotted person to act on behalf of employer (JCT: CA, NEC: PM)
- NEC is drafted in plain English, JCT isn't.
- JCT contains provisional sums, NEC doesn't.
- Programme is a contract document in NEC
- No final account process in NEC
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What do you do if contractor goes bust?
- Cease works on site
- Secure the site
- Pay the contractor for the works they have done up until that point.
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