Contract Practice Flashcards
1
Q
What is a contract?
A
- Legally binding (writing/oral) for one party to fulfil obligation in return for consideration
- Basic binding contract comprises offer, acceptance, consideration and intent to create legal relations
2
Q
Please define ‘express terms’
A
Terms of agreement expressly agreed between parties, can be written or discussed between parties
3
Q
What’s your opinion of oral contracts?
A
Whilst legally binding, there’s difficulty proving specific T&Cs of agreement. Written contract is preferred option
4
Q
What is a breach of contract?
A
Where one party in a binding agreement fails to perform their promised obligations in the agreement. This can result in negotiations to resolve, claims against PI insurance or legal action (litigation).
5
Q
Please define ‘implied terms’
A
Contractual terms not expressly agreed but implied either by common law / statute
6
Q
What is tort?
A
- Tort = civil wrong, part of civil law
- Claim in torts related to loss or harm
7
Q
How do statutory provisions and contract provisions differ?
A
- Statutory = set out by law, must be complied with regardless
- Contract provisions = terms that only apply to specific project
8
Q
What is the purpose of the Construction Act?
A
- Housing Grants Construction and Regeneration Act 1996
- Provide guidance and obligations for payment and dispute resolution
9
Q
What is the Local Democracy, Economic Development and Construction Act 2009?
A
2009 Act came into force in England and Wales October 2011 to amend 1996 Construction Act. Changed how construction contracts are entered into, particular with regime for payment and adjudication
10
Q
Key provisions under the 2009 Act?
A
The 1996 Construction Act was amended in the local democracy, economic development and construction act 2009, which came into force in October 2011 for England and Wales.
This amended and sought to close loopholes in the previous Act with key provisions for:
- Oral contracts not fully in writing are now covered by the Act
- Pay-when-certified clauses can no longer be used to prevent paying a subcontractor the money they are due
- Payment notices - so if the client’s side doesn’t provide the correct documentation in time, the contractor will be due a default payment notice which the client must pay
- Pay less notices - The client can issue this if, say, the work applied for was inadequate or incomplete, but they must do it within the contractual timescales, which is usually 5 days before the final date for payment
- If the client doesn’t pay the monies due under the contract, the Contractor has a right to provide a notice and stop all or part of the construction works
11
Q
Are there any Acts governing third party rights?
A
Contracts (Rights of third parties) Act 1999
12
Q
What’s the overarching purpose of the Contracts Act 1999?
A
- Allows third parties to enforce contract terms they aren’t a party too, but which benefit them in some way
- Provides access to various remedies if contract terms are breached
13
Q
Basic principles of contract law?
A
Offer, acceptance, consideration, capacity, intention to create legal relationships and legally binding document
14
Q
What is a bespoke contract?
A
- Contract tailored to fit specific project requirements
- Used when standard forms not suitable
15
Q
Advantages of standard forms over bespoke contracts?
A
- Written by legal experts
- Detailed rights and obligations clearly set out
- Parties should be familiar with provisions in standard forms - greater consistency in application
16
Q
Disadvantages of bespoke contracts?
A
- Less familiarity
- More money and time to write and understand
- Clauses / provisions may be untested in court
- May be appealing to contractor
17
Q
When are bespoke contracts appropriate to use?
A
When amending standard form won’t do- if bespoke is the most efficient means of meeting client requirements
18
Q
Have you amended a standard contract? How did you do this?
A
- QS’ don’t have the apt legal training so don’t amend the contract ourselves
- Amendments should be drafted by the legal team
19
Q
What are some typical contract amendments?
A
- Contractor satisfies themself that contractor’s proposals meet employer’s requirements
- Extend final date for payment beyond 14 days from due date
- Extend defects rectification period
20
Q
Risks associated with amending a standard contract?
A
- Can impact balance of risk allocation - cost premium to contractors
- Can create legal uncertainty
- Amendments must be reasonable and comply with legislation, otherwise courts can strike amendments out
21
Q
What is a limitation clause?
A
- Clauses that limit a party’s liability for potential losses
- i.e. limitation to a fixed sum / extent of PI insurance / loss that can be recovered from a third party / responsibility or net contribution clause, exclusion of consequential loss
22
Q
What is reasonable skill and care?
A
Ordinary skill and care expected of an ordinary competent person carrying out particular service
23
Q
What is fitness for purpose?
A
- Provision of a service suitable for employer’s intended purpose
- More onerous obligation than reasonable skill and care
24
Q
What provisions are available for ensuring the Contractor carries out works properly?
A
- PCG / performance bond
- PCG can guarantee performance
- Performance bond can protect client in the event the contractor breaches obligations
25
When does the scheme for Construction Contracts apply?
- In instances where construction act does not apply
- Ensures clear legal concept for payment mechanism
26
What is a deed of variation?
- Mechanism to alter and amend original contract post agreement
- Used when there's a requirement to significantly alter conditions under main contract
27
What would you include in a deed of variation?
- As a QS I wouldn't draft
- Would include alterations to original contract clauses and reference to original contract being changed
- Director's signature
28
Main elements you would include within an interim valuation?
- Preliminaries
- Measured work
- Variations
- Materials
- Loss and expense
- Retention
29
What needs to be in place for you to include payment for materials on site?
- Materials need to be for the works
- Adequate protection
- Delivered to programme
- Reasonable qty
30
What needs to be in place for you to include payment for materials off site?
- Proof that ownership transfers to employer upon payment (vesting certificate)
- Insurance (until materials arrive at site)
- Materials clearly labelled as for site and set apart from other materials
- Materials off site bond provided if required
31
What is a retention of title clause?
- Subcontractor / supplier retains ownership of materials until they are paid for by contractor
- Highlights importance of vesting certificates
- Legal principle can lead to disputes in the event of insolvency
32
How do you evaluate interim valuations?
- Go to site, inspect works and view what's been undertaken
- Check for materials (on and off site)
- Value time-related and fixed preliminaries
- Value any agreed variations and claims
- Valuation is presented as gross, minus previous payment and retention
- Send my recommendation to CA to prepare payment certificate
33
How do stage payments work?
- Stages and their values set out in contract particulars
- Stages usually related to completion of significant design items i.e. substructure / achieving watertight structure
34
Are interim certificates conclusive?
- No- they carry no contractual significance that quality of materials / workmanship is satisfactory
- Only the final certificate is conclusive
35
What is included in contract recitals?
JCT:
- Description of the works
- [CDP]
- Where drawings and numbers are listed
- Drawings and pricing document defining works
- Division of works into sections
- Whether the work is supplemented by a Framework Agreement
36
What's included within contract documents?
i.e. ICD:
- Tender drawings and specification
- Pre-Construction H&S Information
- Client policies
- Existing site photos
- Preliminaries
- Contractor's design portion
- Warranties and bonds
- Contract sum analysis
- Tender queries and correspondence
37
Which section of the JCT contract covers EoT?
Section 2 - relevant events that constitute EoT
38
What's included in your contract preliminaries?
- Project particulars (who different parties are, points of contact)
- Site information (access and logistics, investigations)
- Description of the work, form of contract
- CDP
- Tender conditions
- Minimum standards and targets (i.e. BREEAM), quality standards
- Management of works
- Documents to be sent to CA / EA
- Security / safety provisions and limitations
- Operation / maintenance of finished building
39
What's the difference between valuing works for D&B and standard contracts?
- Standard - QS is a specified role, contractually bound to value works even if contractor doesn't submit valuation
- D&B no obligation to value with no application
40
How do you ascertain loss and expense?
[RICS Black Book document now archived]
- Review contractor records of actual loss and expense incurred (i.e. programme and amendments, invoices, timesheets, site reports, dayworks, photographs)
- Review contract costs i.e. for prolongation of preliminaries, overheads and profit
- Consider disruption of labour, any aborted works
- Ensure correct notices in place under contract
- Assess any other provisions i.e. Fluctuations, inflation
[- Loss of profit - reference profit that would have been made with other projects - must deduct additional profit from current project]
41
What is a letter of intent?
- Describes a letter from an employer to a contractor (or from main contractor to subcontractor), indication their intention to enter into a formal written contract for works described
- Typically asks contractor to begin works before formal contract executed
42
What information is typically included in a letter of intent?
- Detailed description of work to be completed
- Contract sum (if agreed)
- Date for possession
- Date for completion
- Insurance provisions
- Method of payment
- Expiry date of letter
- ADR method
- Employers' right not to award main contract for whatever reason
43
Advantages of a letter of intent?
Allows work to commence before main contract agreed / signed
44
Disadvantages of a letter of intent?
- Could lead to complacency
- May dicincentivise parties from signing the main contract
- Contractually less robust than main contract
- Employer loses incentive in negotiations of main contract
45
Who issues the letter of intent?
Employer
46
In what circumstances might a letter of intent be used?
- If employer needs to commence works before a certain date
- Long lead in times, where early procurement would aid programme
- Starting construction works might trigger early founding
- Can instruct initial design / survey works to be carried out / procuring materials
47
Are letters of intent legally binding?
- No legal significance but courts will look at correspondence between parties to establish if contract has been formed
- If contract found, determines obligations
- If no contract, LOI has no contractual effect and quantum meruit applies
48
What is quantum meruit?
Reasonable sum of money to be paid for services rendered / work done when amount due is not stipulated in a legally enforceable contract
49
Who signs the letter of intent?
Both employer and contractor
50
What would you say if the client asked you to draft a letter of intent?
Legally binding agreement, like a contract- beyond my expertise so I wouldn't draft
51
Different types of letters of intent?
Comfort letter
- Expresses 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
- "if" contract
- Allows work to proceed up to a certain value while contract itself being finalised
Recognition of contract
- Letter of acceptance, used by some forms of contract (i.e. FIDIC) to formally execute itself
- Only issued once contract substantially agreed
- Marks completion of negotiation between parties
52
Risks of using a short letter of intent (consent to spend)?
- Client committed to expenditure but no guarantee of agreeing contract sum
- Cannot have stringent contractual terms
53
Are you aware of any case law relating to letters of intent?
Ampleforth Abbey Trust v Turner and Townsend
- Defendent PMs retained by the Trust to build new school accommodation
- Defendent's retainer included obligations: "facilitating, assisting and being involved in the procurement of the building contractor and the building contractor"
- Contractor never signed building contract, whole of the works procured using letters of intent
- Trust could not claim damages under contract
- Judge deemed T&T negligent in taking steps reasonably required of a PM for finalising contract between Trust and contractor
54
Is a LOI that includes a spend limit any use to a contractor?
- Only useful to contractor if LOI legally binding
- To be legally binding, must have basis of simple contract (offer, acceptance and consideration) and both parties must intent to create legal relations
- Without either of these 4 criteria, LOI is worthless
55
What is a PCSA?
Pre-Construction Services Agreement
- Contract between employer and contractor for pre-construction services undertaken before signing the building contract
- Identifies T&C's under which services are to be performed
56
When might a PCSA be used?
Two-stage tender approach to facilitate early contractor involvement
57
How can a PCSA benefit the project?
- Early contractor involvement can help buildability
- May help cost-certainty of design
- Creates better integrated project team
- Reduces likelihood of disputes
58
What sort of activities can the PCSA be used for?
- Contribution to design process
- Advise on buildability, sequencing and construction risk
- Advise on selection of specialist subcontractors
- Help develop cost plan and construction programme
- Help develop method of construction
- Assist with planning application matters / approvals
59
What should be considered when drafting the PCSA?
- Arrangements don't commit employer to enter into building contract- employer should have the means of securing an alternative bid if second-stage negotiations fail
- Scope of services needs to be clearly defined - not ambiguous
- Usual programme and delay damage clauses carefully drafted by legal team
60
What is a fixed price contract?
Lump sum price agreed before the works begin, though often changes in context due to changes
61
What is a fluctuating price contract?
Contract sum adjusted for changes in the costs of materials and labour, as well as statutory contributions, taxes and levies
62
What are the main forms of building contract?
- JCT (Joint Contracts Tribunal)
- NEC (New Engineering Contract)
- FIDIC (International Federation of Consulting Engineers)
- Bespoke
63
Considerations when selecting the appropriate construction contract?
- Nature of the client
- Priorities - cost / time / quality / risk allocation
- Procurement choice
- Value, type / nature, complexity, location of work
- Public / private employer
64
What does JCT stand for?
Joint Contracts Tribunal
65
What are some of the contracts in the JCT family?
- Standard
- Intermediate
- Minor works
- Major project
- Design and Build
- Management
- Construction management
- JCT Constructing Excellence
- Measured Term
- Prime Cost
- Repair and Maintenance
- Homeowner
66
What are key project characteristics which influence which JCT contract is used?
- Size, value and type of project
- Need for contract design
- Final cost certainty
- Appetite for risk ownership and risk transfer
- Employer experience
- Programme requirements
67
When would you use the JCT Minor Works Contract?
- Smaller, basic construction projects with work of a simple nature
- Projects procured via traditional method
68
Key features of JCT Minor Works Contract?
- Employer responsible for design - employer('s designers / advisors) provide drawings, specification, work schedules to specify qty and quality
- MWD with contractor's design portion if the appointed contractor to be responsible for designing specific part of works
- Not suitable where project complex enough to require bills of quantities, detailed control procedures or provisions to govern work carried out by named specialist
- Administered by architect / CA
69
Why would you use the JCT intermediate contract?
- Construction projects involving all recognised trades and skills of the industry
- Fairly detailed contract provisions without building complex building services or other specialist work
- Suitable when projects procured via traditional method
70
When would you use the JCT standard building contract?
- Large / complex construction projects where detailed contract provisions needed
- Suitable when projects procured via traditional method
- Employer responsible for design, though have optional provision for CDP if appointed contractor responsible for design of specific parts of the works
- Works can be carried out in sections
71
When would you use the JCT major project construction contract?
- Large-scale construction projects where major works involved
- For employers that regularly procure large-scale construction work- to be carried out by contractors with experience and ability to take greater risk
- Suitable for projects procured via D&B method
72
Key features of the JCT major project construction project?
- 'Novation' agreement so architects / designers complete design under contractor's responsibility
- Employer usually appoint representative to exercise their powers and functions under the contract
- Project can be carried out in sections
- Employer and contractor have own detailed in-house procedures- limited ones set out in contract conditions
- Contractor responsible for design and construction (scale of design work varies)
73
When would you use the JCT design and build contract?
Construction project where contractor does both design and construction work; varies in scale but generally suitable where detailed provisions needed
74
Key features of the JCT D&B contract?
- Scale varies greatly
- Contractor completes design based on employer's concept / produces and completes design from outset
- Design requirements go beyond traditional contract with CDP
- Employer normally uses agent to administer contract
- Works can be carried out in sections
75
When would you use the JCT prime cost contract?
- Designed for projects requiring early start (alterations / urgent repair work)
- Nature and extent of works unknown until project underway - full design docs not complete until work has commenced
- Suitable for projects procured via traditional method - uses cost reimbursement or cost-plus payment structure
76
When would you use JCT MTC?
Measured term contract
- Employers with regular flow of maintenance, minor works and improvements and projects they want to be carried out by single contractor over specified period
- Suitable for projects procured via traditional method, using measurement payment structure
77
When would you use the JCT construction management contract?
- Employer appoints several trade contracts to carry out the works
- Contruction manager appointed to oversee works completion
- Projects procured via management method
78
What are the key features of the construction management contract?
- Works can be carried out in sections
- Separate responsibility for design, management and construction desired
- Employer provides design and enters into separate trade contracts
- Construction manager appointed to manage project and act as agent on employer's behalf
- Construction manager administers conditions of the trade contract
79
When would you use the JCT management building contract?
- Large, complex projects requiring flexibility and early start
- Series of separate works contracts which management contractor appoints and manages for a fee
- Management contractor employs works contractors to carry out construction
- Works can be completed in sections
- Employer responsible to design, usually supplied to management contractor by architect / design team working on employer's behalf
80
What are the different certificates you are aware of under JCT forms of contract?
- Interim certificate
- Practical completion / sectional completion certificates
- Non completion certificates
- Certificate of making good
- Final certificate
81
3 ways that benefits can be transferred under JCT contracts?
- Collateral warranties
- Third party rights
- Assignment
82
Does JCT have a target cost contract?
Yes, JCT construction excellence incorporates target cost option
83
What are the different sections of a JCT contract?
- Section 1 – Definitions
- Section 2 – Carrying Out the Works – e.g. relevant events, PC and certificates
- Sections 3 – Control of the works – e.g., Instructions form CA
- Section 4 – Payment
- Section 5 – Variations
- Section 6 – Injury, damage and Insurance
- Section 7 – Assignment, 3rd part rights and Collateral Warranties
- Section 8 – Termination
- Section 9 – Dispute Resolution
84
Intermediate vs standard building contract?
- Intermediate doesn't have 3rd valuation rule for receiving a quote for retentions
- IC doesn't have provision for retention bond
- IC retention 5% vs SBQ 3%
- No provision for third party rights
85
Intermediate vs minor works?
- MW doesn't have provision for possession (deferment, early use, partial possession)
- MW no provision for assignment, collateral warranties, performance bonds
86
JCT 2011 vs 2016?
- Payment provision more aligned to construction act
- Choice between PCG and performance bond in contract particulars
- Introduction of notice of delay by contractor
- Introduction of Insurance Option C
87
What legislation has been introduced between JCT 2011 and 2016?
- Public Contract Regulations 2015- rules for public sector procurement, fair valuation timescales, BIM provision
- CDM Regulations 2015 - Principle designer replaces CDM co-ordinator
88
What does NEC stand for?
New Engineering Contract
89
What does ECC stand for?
Engineering and Construction Contract
90
Can you list the NEC4 Suite of Contracts?
- Engineering and Construction Contract (ECC) - Has 6 main options
- Engineering and Construction Short Contract (ESC)
- Engineering and Construction Subcontract
- Engineering and Construction Short Subcontract
- Dispute Resolution Service Contract
- Design Build Operate
- Alliance Contract
91
Can you give an overview of NEC ECC contract?
- Suitable for any construction-based contract between employer and contractor (including civil, building nuclear)
- 6 main options
- No reference to QS
- PM assumes full authority on behalf of the employer, controls time and cost as admin function, issues instructions and updates risk register
- Lots of paperwork / administration with contract
- Programme is a contract document
- Requirement for parties to give early warnings
92
Advantages of NEC ECC contract?
- Based on mutual trust and cooperation
- Focuses on proactive risk management
- Encourages parties to resolve cost and programme issues upfront
- Contract written in plain, simpler English
93
6 main NEC options?
Option A - Priced contract with activity schedule
Option B - Priced contract with bill of quantities
Option C - Target contract with activity schedule
Option D - Target contract with BoQ
Option E - Cost reimbursable contract
Option F - Management contract
[Option G - Professional Services Contract]
94
Can you give an overview of NEC Option A?
- Priced contrtact with activity schedule
- Lump sum contract
- Risk of carrying work at agreed price largely borne by contractor
- Activity schedule = simplified administration of payment process (payment only upon completion of activity)
- Project usually well defined at tender
- Suitable for traditional and D&B procurement
95
Can you give an overview of NEC Option B?
- Priced contract with BoQ
- Risk of carrying out work borne by contractor
- Contractor can be paid for % of items complete
96
Can you give an overview of NEC Option C?
- Target cost with activity schedule
- Shared outturn financial risk between client and contractor in agreed proportion
- Encourages contractor to deliver works in most cost-efficient way
- Target cost agreed between parties, set by activity schedule
- Target moves with compensation events
- Pain and gain mechanism for sharing risk
97
Can you give an overview of NEC Option D?
- Target cost with bill of quantities
- Shared outturn financial risk between client and contractor in agreed proportion
- Like C, but with BoQ instead of activity schedule
98
Can you give an overview of NEC Option E?
- Cost reimbursable / cost-plus
- Employer takes financial risk- contractor reimbursed for actual costs + pre-agreed OH&P %
- Usually where nature / scope cannot be properly defined at outset (i.e. emergency work, alteration, repair)
99
Can you give an overview of NEC Option F?
- Cost reimbursable management contract
- Works designed and/or constructed by multiple subcontractors contracted to a mangement contractor (MC)
- MC responsible for work and paid a fee (costs paid to works contractors + fee)
- Financial risk largely taken by client
100
Which NEC ECC main option carries the least financial risk for the employer?
Option A - fixed price contract
101
Which NEC ECC main option carries the most financial risk for the employer?
Option E - Contractor reimbursed actual costs + fee
102
Secondary options under NEC ECC?
- Dispute resolution (i.e. W1, W2)
- X clauses (i.e. inflation, sectional completion, PCG, bonus for early completion, retention, performance bond, KPIs)
- National legislation (Y(UK)2 - HGCRA 1996 and Y(UK)3 - Contracts (rights of 3rd parties act 1999)
- Z clauses - Additional conditions
103
What are z clauses?
Used to amend standard form NEC contracts, inserted into NEC as means of adding conditions / amending wording
104
What problems can potentially arise when drafting z clauses into the contract?
- Problematic if poorly drafted and doesn't work effectively with core clauses (these can have multiple implications)
- Z clauses should only be drafted by individuals with good knowledge of NEC contracts who can understand parties' intentions and full effects on the rest of the contract
105
What are the different types of float on a NEC programme?
- Total float
- Time risk float
- Terminal float
106
What is total float on NEC programmes?
- The time an activity can be delayed from early start date without delaying planned completion
- Available either to employer / contractor
107
What is total float on NEC programmes?
- The time an activity can be delayed from early start date without delaying planned completion
- Available either to employer / contractor
108
Can you explain what time risk allowance is on NEC contracts?
- Duration allowed in each activity by contractor to account for risk in not completing activity in minimum possible period (i.e. due to weather)
- 'owned' by contractor; cannot be used to mitigate effect of compensation event
109
Can you explain what terminal float is please?
- Duration between planned completion and current contract completion date
- 'owned' by contractor and cannot be used to mitigate effect of compensation event
- if planned completion moves forward due to unused risk allowance and the gap between planned and contract completion becomes greater, this can be 'banked' as terminal float
110
How can the completion date be changed on NEC contracts?
Compensation event or acceleration
111
How can the planned completion date be changed?
Anything, i.e. contractor delay in completing activities or works going faster than originally anticipated
112
With reference to the contractor's programme, how does NEC differ from JCT?
- NEC programme is a contract document, not in JCT
- Programme plays significant role in NEC, assists with CE assessment process
113
What are the key responsibilities of the project manager under NEC?
- PM is focal point- fully manages and administers contract on behalf of employer
- Authority to issue instructions, notifications and other contract communications
- Only person who can change works information
- Attending site regularly, being aware of progress including changes to price, defectts and CEs - monitors project execution
- Ensures all parties adhere to contract conditions
114
What are the key responsibilities of the supervisor under NEC?
- Individual / team responsible for contractor's compliance with works information
- Checks for defects, independent of PM
- Most similar to clerk of works in JCT, but supervisor is more involved and has more significant authority
- Raises defects notices for works not in accordance, can issue instructions to search for a defect
115
What are the key responsibilities of the employer under NEC?
- Give site access
- Ensure any transfer of authority over and above usual contract is communicated to contractors
- Make payments
- Take out any necessary insurance provisions
116
Key requirement for the contractor under NEC?
Outlined in clause 2 - key responsibility is to provide works in accordance with the works information
117
What is works information?
- Specifies the works the contractor is to provide
- Sets out constraints
- Good quality WI vital to achieving better outcomes for projects and reducing misunderstandings and disputes
- Prepared with each individual project with ECC operation in mind
- Can have risk of varying interpretation from employer's intention if not precise
118
What's included in works information?
- Technical information
- Specifications and drawings
- Constraints
- Employer's requirements for works to be designed by the contractor
119
How can you make the NEC ECC a design and build contract?
Specify in the works information that the contractor is responsible for carrying out all aspects of the design
120
What are compensation events?
- Events usually not the contractor's fault that change the cost of the work / time needed to complete it
- Reassesses price, key dates or completion dates (enables contractor to get more time and money)
121
Does the NEC contract have relevant events and relevant matters like JCT?
No- time and money are dealt with together under compensation events
122
Where are compensation events detailed in the NEC ECC contract and can you provide examples?
Clause 60.1
- PM gives instruction changing works information
- Employer doesn't allow access to / use of part of site
- PM instructs to stop work or change a key date
- Supervisor test / inspection causes unnecessary delay
- PM / supervisor changes decision which he has previously communicated to the contractor
123
What happens if the contractor notifies a CE 12 weeks after becoming aware of the event?
- Contractor not entitled to change in prices, completion date or key date
- Clause 61.3 requires contractor's notification within 8 weeks of becoming aware of the event
- Exceptions: if event arises from PM / supervisor giving instruction, issuing certificate, changing earlier decision or correcting assumption
124
Will a PMI always result in a compensation event?
No, i.e. instructing contractor to submit a revised programme or removing a person from site
125
What are early warning notices?
- Mechanism for both parties to identify potential problems to the project
- Both contractor and PM notify the other as soon as they become aware of a matter that could affect time, cost or quality
- Clause 16.1
126
NEC3 vs NEC4?
- NEC4 has 2 new contracts- DBO (Design build and operate- enables contract to be procured from single supplier) and ALC (alliance contract- for clients who want to enter single contract with several participants- focuses on collaborative working)
- Risk register is now Early Warning Register to distinguish between project risk registerr with wider use
- Employer now Client
- Works information now scope
- 4 week period for escalation and negotiation of dispute introduced (before commencing formal proceedings - senior representatives of parties meet to negotiate solution)
- Secondary option X12 partnering now 'collaboration' to better reflect intent
- Now only 1 fee percentage- no separate one for subcontracted works
- Payments - contracts now must submit payment applications, instead of PM obliged to assess if they fail to do so
- Now gender neutral
127
NEC vs JCT?
- NEC drafted in plain English- less use of legal ters
- NEC has early warning process
- JCT splits up dealing with time and cost, whilst NEC deals with them together
- JCT: Variations; NEC: Compensation events
- JCT - EA/CA; NEC - PM
- NEC has 6 main options, JCT has a larger suite of separate contracts
- No QS in NEC
- NEC considered more collaborative approach to working- work in spirit of 'mutual trust and cooperation'
- NEC - programme is a contract document (withhold 25% of monies if contractor doesn't submit accepted programme)
- NEC has 'periods of reply'
- NEC heavy on administration
- JCT allows for provisional sums, NEC does not
128
Similarities between NEC and JCT?
- Standard forms of contract
- Suites that accommodate for different circumstances
- Both set out provisions specifically for construction contracts
- Set out information and obligations for contractor and employer
- Provisions for change control, adjudication, payment
129
What is the schedule of cost components listed in NEC and what does this is mean agreeing claims?
-The schedule of cost components is a section of the contract that lists everything that is included in the ‘defined cost’ generally includes preliminary items such as: people, plant and materials, design fees, insurances and finance charges.
- A fee percentage is agreed with the contractor to cover any items not listed in the shorter schedule of cost components.
- When agreeing time related claims you are assessing the effect on the defined cost, i.e an elongated programme increase ‘people costs’ as they would be working on the project for longer, therefore the defined cost would be affected. Under the conditions of the contract any items that are not a defined cost, i.e items not listed in the schedule of cost components are deemed to included in the contractors fee. Therefore if the contractor is claiming for such an item you simply strike it out stating it is included in their fee.
- This makes agreeing claims much for straight forward compared with JCT where actual loss and expense can encompass a large range of cost items and gives the contractor opportunity to exaggerate.
130
You have been approached by a client. They have progressed design to RIBA stage 4 for a reconfiguration of one of their satellite office. The Architectural works are simple but due to the work the client delivers their office must remain live meaning there are added complexities to the project. The works value is £500k. The client has asked you to propose and justify the appropriate contract for the works?
Depends - could be intermediate contract which can accommodate for a level of complexity but not as stringent as Standard
131
What is Contractor's Designed Portion (CDP)?
Typically on traditionally procured projects, design responsibility for specific building elements transferred to the Contractor
132
Difference between traditional procurement with CPD vs design and build?
- Trad with CPD - design responsibility lies with employer except CDP elements where responsibility is transferred
- D&B - all responsibility for design rests with contractor
133
How are CDP elements executed?
Performance spec provided at tender stage, contractor provides design proposals in response, which is reviewed by design team and either accepted / commented on / rejected
134
Can you list typical CDP elements which the employer may wish to transfer?
- Steelwork connections
- Cladding
- Roofing
- Temporary works
- MEP elements
135
What case law relates to design liability?
MT Højgaard A/S v E.On Climate
- MTH engaged by EON to design, manufacture and install foundation structures for offshore wind turbines
- Contract had provisions that 'design life' would be 20 years, but due to error in international standard, did not have a service life of 20 years
- Remedial work cost 26m euros
- Supreme court said MTH liable - should have been designed to last 20 years
- Where provisions or standards are inconsistent, proper interpretation is that higher standard must prevail
136
Most common type of guarantee in the construction industry?
Performance bonds
137
What is a parent company guarantee?
- Form of security that may be required by clients to protect them in the event of contractor default
- Would typically be caused by contractor's insolvency
- Protection from parent or holding company that they will complete works or pay financial equivalent
138
In what circumstance might a PCG be required?
- Small contractor part of large, financially stable group of companies
- Parent company able and required to remedy any breach, to meet contractor's obligations under contract (and/or covering loss and expense incurred by client)
139
Pros and cons of a PCG?
:)
- Don't need to be paid for- can be unlimited
- Can make PCG responsible for performance too
:(
- Not as secure as Bonds because of financial link between parent company and subsidiary- performance bond is by third party
- Agreement is only as good as financial standing of parent company
140
What is a bond?
- Protection for owner against non-payment / lack of performance / company default / warranty issues
- Arrangement where contractual duty owed by one party to another is backed up by third party
- Does not guarantee completion of the works
141
What form must a bond be in?
- Writing, commonly executed as a deed
- Usually contains duration (i.e. until PC) and financial limit
142
Can you list different bonds that might be used on a project?
- Performance bond
- Retention bond
- Off-site materials bond
- Advance payment bond
- Tender bond
143
What is a performance bond?
- Security by contractor to employer / developer
- Undertakes bank / insurance company to make payment to employer in circumstances where the contractor has defaulted / breached contractual obligations
- No reliable PCG
144
When might the employer want a performance bond?
- If contractor new / unapproved
- Concern over contractor finances
- Economy heading into recession
- Employer wants to protect commercial exposure
145
What is an 'on demand' bond?
- Paid straight away upon default occurring and request for payment
- No requirement to satisfy review / specific condition to demonstrate default
146
Why would a contractor not sign up to an on demand bond?
- Expensive to procure
- Can be called in easily and cause contractor insurance premium to increase
147
What's the difference between an on-demand and conditional performance bond?
On demand - money set out immediately available without satisfying preconditions, unless demand is fraudulent
Conditional - requires employer to provide evidence the contractor has not performed their obligations under the contract and they have suffered consequential loss
148
Typical value of a performance bond?
10% of the contract sum
149
Typical cost of a performance bond?
Largely depends on financial stability of the contractor and number of previous claims (if any)
150
How can the employer call for payment under a performance bond?
Prove the contractor has defaulted in their obligations under the main contract and that loss has been suffered
151
What is the risk of not having a performance bond?
- If contractor goes into insolvency,, employer liable to pay all costs to deal with this
- Costs include sourcing new contractor to complete works and any other premium
- Employer not able to pursue contractor as company in process of liquidation
152
Alternatives to performance bond?
Parent company guarantee
153
Pros and cons of a performance bond?
:)
- Client entitled to sum of money on termination
- Sum of obtaining performance bond can give indication of financial standing of contractor
:(
- 10% of the works might not be enough to re-tender and complete works
154
What is a tender bond? / What is the purpose of a tender bond?
- Requested by employer when inviting contractors to tender for a contract
- Provides security against risk of successful bidder failing to enter into contract
- Important if the inviting party is in turn tendering for work on the basis of that tender.
- Helps prevent idle tendering
155
Standard value of a tender bond?
1-5% of tender sum
156
What is an off-site materials bond?
- Covers employer against risk of paying contractor for materials manufactured off-site
- If contractor / subcontractor becomes insolvent, employer can claim on bond for goods paid for (if they're not delivered)
157
How would you make payment for a materials offsite bond?
As value of materials off site incorporated into the works onsite, the value of the bond reduces proportionally
158
How would you assess payment for materials off site?
(i.e. project)
- Ask for vesting certificate
- Visit factory
- Ensure materials stored safely and labelled appropriately
159
How can you minimise risk for payment of off-site materials?
- Off-site materials bond
- Value of bond can be reduced as it's delivered to site
160
What does JCT say about materials on-site?
- Should not be removed from storage except for use of works
- Become client's property upon payment
- Should not be brought prematurely
161
What is the difference between uniquely and non-uniquely listed items?
- Uniquely - contractor has provided bond for listed items from surety approved by employer
- Non-uniquely - contractor has provided bond that has not been put forward by client
162
What is a retention bond?
- Type of performance bond, surety acts as guarantor to pay employer full amount if contractor fails to perform obligations or remedy defects after contract completion
- Equal to retention deducted
- Requirement for bond stated in contract particulars (there's a standard form in JCT contract schedules)
163
Disadvantages of a retention bond?
- Employer pays premium to take out bond (i.e. via contract sum)
- May reduce contractor's incentive to complete works promptly to desired standard
- Reduces employer's cashflow
- Employer doesn't get interest accruing on the amount of the retention bond
164
Why might a retention bond be used?
- Difficult market conditions, aids contractor's cash flow
- If the client requires assurance for rectifying defects but does not wish to hold retention
165
Why are retention bonds not often used?
Limited benefit to client - they have to pay a premium to obtain vs deducting monies off contract
166
What happens if the contractor does not maintain the retention bond?
- Employer can deduct retention from interim payments
- If the bond is subsequently taken out, deducted retention must be repaid
167
What is an advanced payment bond?
- Protects and supports payments to contractors by employer in advance of works being done
- Some contracts require purchase of materials in advance of contract commencing - risk to employer in advancing money to contractor
- Allows purchase of goods
- Protects payment being advanced in exchange for bond by suitable guarantor - peace of mind
168
What is a Highway Bond?
- Developer undertaking speculative housing developments frequently required to enter into agreement with Local Authority to adopt roads and sewers
- If developer fails to complete adoption of roads and sewers to required standards, Local Authority will complete on his behalf and call on bond to claim back costs
169
What are the arguments against requesting bonds?
- Shouldn't be needed if tenderer selection process is operated effectively- only reliable and capable contractors should be selected
- Unnecessary premiums added to contract sum which might be unlikely to be called upon
- If the developer is a serial developer this may add a lot of money to their project costs
170
Where might bonds be appropriate?
- If contractor is new / unproven
- Protect the interests of a 'one off' developer
- Where risk of insolvency is higher and PCGs are risky in difficult economic climate
171
Why might contractors struggle to procure bonds?
Following Brexit and COVID and Ukraine, increased numbers of insolvencies push up prices of obtaining bonds - harder to obtain
172
Is it your decision which bonds clients should obtain?
No- I can make recommendation but final decision is for client and their legal team
173
RICS guidance on bonds?
Construction security and performance documents
174
Are there any acts which govern third party rights?
Contract (Rights of Third Parties) Act 1999
175
What is the overarching purpose of the Contracts Act 1999?
- Allows 3rd parties to enforce terms of contract they are not a party to but benefit them in some way or which the contract allows
- Gives parties access to various remedies if contract terms are breached
176
Advantages of third-party rights?
- Time and cost (less for both)
- Certainty - limited room to revisit wording compared to collateral warranties
- Subcontractors - 3rd party rights extended to subcontracts so an employer can confer 3rd party rights in relation to work done by subcontractors. Avoids need to chase lots of individual warranties
177
Disadvantages of third-party rights?
- Lack of flexibility - limited room for negotiation
- Need for careful drafting - ensures necessary rights conferred on third party (i.e. adjudication)
178
Why might third-party rights used instead of collateral warranties?
- If lots of CW required, can be lots of admin and cost
- Easier to get in place (no separate document required
179
What are step in rights?
- Permit funders to step into another parties' shoes (typically the employer)
- Provide funders protection in the event the employer defaults on its loans
- Funder can take ownership of development and sell off if required
- Key issue: main cause often results from developer not being able to sell development- so funder stands less of a chance of selling asset
180
Benefits of third party rights over collateral warranties?
- Third party rights don't have to procure separate agreement, less admin
- Don't necessarily have to know who third party is at time of drafting contract
181
Benefits of collateral warranties over third party rights?
- Separate agreement specifically references and provides assurances to client
- Clauses can be specifically tailored to suit employer
182
What is a collateral warranty?
Formal contractual agreement alongside another contractual agreement- creates contractual relationship between 2 parties where one would not otherwise exist
i.e. enables architect to be liable for defects even if not in contract with resident / housing association
183
Why would a collateral warranty be used?
Give remedies to external third parties that privity of the contract would not otherwise have between 2 parties not contractually related
184
Can you provide a working example of how a collateral warranty could be used?
- Employer places contract with contractor
- Contractor places several subcontractors and suppliers
- To have direct contractual relationship between employer and subcontractors, CW can help enforce obligations that subcontractor owes
- Considered security measure if the contractor becomes insolvent or terminated employment
185
Who might want a collateral warranty?
- 3rd party with financial / inherent interest in the project but not a party to the main contract (i.e. funders, tenants, purchasers)
- Employer with subcontractors / suppliers (protection in the case of contractor insolvency)
186
Bond vs collateral warranty?
- Bond = financial commitment backed up by 3rd party, contained in contract
- CW = passes on contractual obligations, side agreement to contract
187
Alternatives to collateral warranties?
- Confer rights as per Contracts (Rights of Third Parties) Act 1999
- Allows 3rd parties to obtain benefits from contracts entered into by others
188
Three ways benefits can be transferred under a building contract?
- Collateral warranties
- Third party rights
- Assignment
189
Are you aware of any case law relating to collateral warranties?
Parkwood Leisure v Laing O'Rourke
- In light of CW wording, no doubt it was treated as a construction contract under S104 of HGCRA 1996
190
There is a high probability that collateral warranties will be needed under a D&B contract, can you explain why?
Design team typically sits below contractor- enables employer to retain contractual link with design team
191
Common clauses / terms in collateral warranties?
- Collateral warranties should mirror that of the main agreement
- Limitation of liability
- Reasonable skill and care / fitness for purpose
- Requirements for PI insurance
- Assignment rights
- Novation rights
- Net contribution clause
- Step-in rights
192
Name some standard forms of collateral warranty that may be used
- CWa/F - JCT standard form of CW for a funder
- CWa/P&T - JCT standard form of CW for a future purchaser or tenant
193
What is assignment?
Benefit of a contract transferred from 1 party to another, but burden of contract remains with original party
194
Can you provide a working example to explain how assignment might be applied?
- Arises where party to contract wants to assign benefit to a third party, i.e. purchaser / tenant
- Banks / funders frequently take assignment of benefit as additional security to their loan
- Banks want to acquire benefits to assume position of employer if they defaulted on financial obligations
195
What are some of the typical clauses of assignment? / Standard commercial position regarding assignment?
- Standard to allow assignment of rights twice without consent
- Assignment notified in writing to other party
196
Assignment vs Rights of Third Parties act?
- Assignment deals with transferring benefits of a contract
- Rights of Third Parties enables 3rd parties to enforce terms of contract
197
What is novation?
- Process where design consultants (initially contracted to client) become contracted to the contractor
- Contractor manages remaining design process with existing design team
198
Are novation agreements required under traditionally procured projects?
Not usually- typically designers are retained by the employer
199
Are novation agreements required under traditionally procured projects?
Not usually- typically designers are retained by the employer
200
What are some of the advantages of novation?
- Reduced learning curve (design team can understand project requirements)
- Reduced contractual risk for employer - transfers responsibility to contractor
- Architect encouraged to consider buildability
201
What are some disadvantages of novation?
- Employer may require more collateral warranties
- Client may need to employ shadow team for compliance purposes
- Potential for a conflict of interest for services remaining to be performed
- Contractor unable to use preferred designers
202
Novation vs assignment?
- Novation is where new contract transfers rights and obligations of one contractual party to a new third party
- Assignment is the transfer of contractual rights / benefits only as burdens cannot be assigned
203
What is the key issue after a design team has been novated?
Whether new party has the right to take action against novated party for breaches before the novation
204
How does novation affect the employer's rights?
- Lose all contractual relations with novated party- cannot take action for a breach
- Therefore common for CW between employer and novated party
205
What are domestic subcontractors?
- Subcontractors chosen by contractor to execute works package
- Employer's consultants nor employer influence appointment / conditions
206
What are named subcontractors?
- Employer provides list of named contractors pre-approved
- Contractor selects one from list through tendering process
- Once appointed, they become a domestic subcontractor
207
Advantages of naming subcontractors?
- Provides employer with more control to selection of subcontractor by the Contractor
- Leaves contractor with element of choice
- Contractor responsible for monitoring their performance
208
What are nominated subcontractors?
- Selected by employer to carry out an element of the works (still employed by contractor)
- Imposed upon contractor
209
Disadvantages of nominated subcontractors?
- Imposed - contractor can object under certain conditions (i.e. safety reasons)
- Contractor and subcontractor may have conflicting procedures / ethics / attitudes etc.
- May result in price premium
210
Advantages of nominated subcontractors?
Work should be of high quality / acceptable to the employer
211
Are you aware of any guidance issued by RICS associated with subcontracting?
Subcontracting, 1st edition, April 2021
212
What is available to protect clients from subcontractors failing?
- Collateral warranties provide employer a contractual remedy for breach of contract
- Performance bond
213
What are antiquities?
- Historical artefacts, pottery, coins
- Bones / fossils
- Something of historical interest / value
- Archaeology
214
What should the contractor do if they discover such objects such as antiquities?
- Cease work, seek advice before proceeding
- Take necessary measures to preserve in existing location and condition
- Inform CA / PM of discovery and location
215
When objects of interest are discovered, who is liable for delay and expense incurred?
- Depends on how risk is allocated
- Significant delays and costs can arise - can be serious for both employer and/or contractor
216
What are defects?
- Some deficiency in workmanship, design, materials or systems used - results in a failure of building project or structure that causes damage to people / property - leads to financial losses or harm to the owner
NEC definition:
- Part of the works not in accordance with works information or
- Part of works designed by contractor, not in accordance with applicable law / contractor's design which the project manager has accepted
217
What are patent defects?
Defects that can be discovered by reasonable inspection (i.e. wall cracks, snagging gutters, broken windows, missing tiles etc.
218
What are latent defects?
Defects that cannot be discovered by reasonable inspection (i.e. foundation problems) - may not be apparent for several years after completion when settlement causes cracking in the building
219
Why is the defect rectification period typically 12 months?
Allows building to go through all seasons- most defects (apart from latent ones) become apparent in this period
220
What is the rectification period?
Time after PC for the contractor to make good any defects, shrinkages or other faults that arise during this period
221
How long is the rectification period?
- Depends on form of contract
- Typically 12 months so building can be observed in all seasons
222
What is retention?
% of sums certified for payment under construction contract (typically 3-5%) held by employer during construction phase
223
Are you aware of any RICS guidance associated with retention?
Retention - 1st edition 2012
224
What is the purpose of retention?
- Used as an assurance and incentive of project completion to required standard, intended as a safeguard against subsequent defects the contractor may fail to remedy
- Provides financial security to employer in the event of a contractor default
225
What can the employer use retention monies for?
- If contractor does not return to correct defects, retention can be used to fund others to correct
- PM / CA needs to check on contract on ability to do this and relevant notices that should be given to the contractor prior to appointing others to undertake the works
226
How is retention released to the contractor?
2 stages:
- Upon issue of PC statement 1st half certified and released
- 2nd half released upon expiry of rectification period
227
Who typically benefits from interest accruing on retention money?
Typically the employer
228
Alternatives to holding retention?
Retention bond
229
What is a typical retention percentage under JCT contracts?
3% or 5%
230
What items are not subject to retention?
- L&E
- Fluctuations
- Insurance options
- Costs incurred with contractor's suspension
231
Insurance vs indemnity?
- Indemnity protects against legal responsibility / compensate - open ended
- Insurance is a fund that enables indemnifying party to make payments that may arise, includes time and financial limits
- Contract sets out insurances required to cover indemnities the party is liable for
232
What is insurance?
Transfer of defined risk to an independent 3rd party (insurance company) in exchange for a premium
233
Two main types of insurance?
Liability and loss insurance
234
What is liability insurance?
Financial cover for legal liabilities that insured party owes to others
235
What is loss insurance?
Financial cover for losses that fall directly on uninsured party
236
What is professional negligence?
- When a professional fails to perform their responsibilities to the required standard or breaches a duty of care
- Poor conduct subsequently results in financial loss, physical damage or injury of their client / customer
237
How can the employer / client recover a loss if the consultant / contractor is professionally negligent?
Make a claim on PII
238
What is product liability insurance?
Manufacturers and/or suppliers of products incorporated in construction works at risk of claims made against them for damages if defects result in damage or injury - Products liability protects policy holder against liability from these defects
239
What is public liability insurance?
- Protects against liabilities for injury to third parties / their property
- i.e. member of the public could make claim if a fallen brick damaged their car or if supplier trips over unsecured cable
240
What is employer's liability insurance?
Pays the compensation and legal costs if employee claims compensation for a work-related illness or injury
241
What are the main options for insuring works under a JCT contract?
- Option A - Contractor takes out and maintains joint names all risks insurance of the work for new buildings
- Option B - employer takes out and maintains as above
- Option C - for renovations and existing structures-employer takes out and maintains joint names all risks insurance
242
What is contractor's 'all risk' insurance?
- Protection against physical loss / damage to works being undertaken
- Policy pays for repair / replacement of insured works following damage caused by insured event
243
What are specified perils?
Significant events causing significant damage to works, including but not limited to:
- Fire
- Explosions
- Earthquakes
- Flooding
244
What is subrogation?
- Concept allowing insurance company that has paid a loss to step into shoes of its ensured, then sue a party that may be responsible for causing loss
- i.e. contractor's crane drops steel beam causing damage, owner's builder's risk insurer pays loss, owner's insurer can sue contractor for loss it caused
245
What is a joint names insurance policy?
- Policy in the names of 2+ parties (i.e. contractor and employer)
- Joint names -> insurer has no right of subrogation against insured parties, even if they have caused loss the insurer has to pay for
246
Different insurance provisions included in JCT contracts?
- Risk for the works - insurance Options A/B/C
- Pool Re Cover
- Professional Indemnity
- Employers Liability
- Contractor Public Liability
247
What is insolvency?
Concerned with a party's inability to pay debts
248
What can be done at tender stage to identify potential contractor insolvency?
- Thoroughly check financial accounts for stability
- Check for front loading tender submission
- Bank references
- Credit checking (i.e. Dun and Bradstreet report)
- Previous references
- Request a bond and/or PCG (gives comfort in the event of default)
249
What is termination?
Parties to the contract no longer obligated to perform their duties under the Contract
250
Can the contractor suspend works for non-payment?
- Construction Act 2009 (LDEDC) puts payee in stronger position - contractor can suspend performance of any / all obligations
- Contractor can stop insuring works, postpone applying for necessary consent / refuse to iimplement variation instruction
- Payee entitled to "reasonable amount" for re-mobilisation costs and extension of time
251
What is a Notional Final Account?
- Final Account prepared when Main Contractor is facing insolvency
- Typically of greater value than the original forecast final account due to costs incurred by client to appoint new Contractor to complete works
252
What is the meaning of insolvency?
- Company enters into administration - cannot pay debts on time
- Winding up order placed against company
- Individual becomes insolvent if declared bankrupt
253
What is liquidation?
Assets sold off to pay off debts
254
What is the definition of bankruptcy?
Administration of a sole entity
255
What is administration?
Continuing to trade but external administrator brought in to manage debts
256
Instances where employer can terminate the contract?
- Default - contractor not undertaking works in accordance with obligations
- Insolvency
- Bribery and corruption
- Suspension period ending
257
How would an employer terminate a contract as a result of contractor default?
- 1st stage - notice of default setting out reasoning and justification
- Contractor has 14 days to rectify
- 2nd Stage - after 21 days of expiry of 14 days employer gives further notice to terminate contract
258
Considerations when terminating a contract?
- Don't terminate unreasonably, can be taken as opportunity to harass, oppress or annoy
- Select correct grounds for termination
- Give proper notice and timelines - consider additional timescales for postage times
259
What are the consequences for employer termination?
- Contractor supplies contract design completed to date
- Remove plant and equipment from site
- Potential additional costs to retender works could be contractor's liability
- Employer has to justify additional costs, and refund monies if additional
260
What if the employer decides not to complete the works after termination?
Within 6 months, notify contractor of final value of works, date of termination and any sums considered due
261
When can the contractor terminate the contract with the Employer?
- Employer insolvency
- Default - doesn't pay by final date, non compliance with CDM regs, failure to release information, suspension for 2+ months
262
Are there instances in which both parties can opt to terminate?
Yes if works are suspended for given period following relevant events, force majeure, government legislation, employer instructions, terrorism
263
What are delay damages / LDs?
- Genuine pre-estimate of loss suffered by employer because of late completion of works
- Damages inserted into contract prior to signing by contracting parties
- NOT a penalty
- Quick remedy to avoid having to prove actual loss and contractor aware of the liability
- Employer calculates figure
264
What sort of expenses / costs can the employer include in the damage calculation?
- Loss of rent / other income
- Additional professional fees
- Expected costs incurred by other parties
- Costs for not having facility (storage, rent, abortive costs etc)
- Capital salaries
- Associated legal costs
265
What if your client tells you the damages are £100,000 per week?
- Exercise due diligence - check they do believe this is a genuine pre-estimate of likely loss
- If there is a concern, explain dangers that damages might be construed to be a penalty (no longer enforceable)
266
Under JCT contracts, what contractual documents need to be in place before damages can be deducted?
- Non-completion notice / certificate
- Formal notification to contractor that the employer intends to levy
- Pay less notice served
267
What is a non-completion certificate?
Issued by CA to certify that works / works section have not been completed by relevant completion date
268
What are consequences of a non-completion certificate?
Employer has a right to withhold liquidated damages, as long as withholding notice has been given
269
What is a LD holiday / LD-free period?
Grace period during which contractor has no commercial liability for delay (i.e. contractor has 2 weeks with no LDs and they only begin accruing after
270
What is the implication of inserting 'nil' against damage clause?
No liquidated damages- may prevent employer pursuing contractor for unliquidated damages
271
What is the implication of leaving the damage clause blank?
Employer can pursue contractor for unliquidated damages if they choose to do so
272
Liquidated vs unliquidated damages?
- LDs - contracting parties may agree to pay certain amount on breach of contract
- Un-LDs - granted by courts based on assessment of loss / injury caused to party suffering such breach
273
If the date for completion is adjusted, what affect would this have on delay damages?
Damages levied from revised PC date
274
Can the employer levy liquidated damages if they do not actually incur the loss identified in the initial calculation?
In essence yes, provided that:
- Damages not deemed to be penalty on contractor
- Original calculation is a genuine pre-estimate of loss
275
What are relevant events?
Event causing delay to completion of the works that entitles contractor to en EoT
i.e. something during design and manufacture causing delays or a site event prolonging installation
276
Can you provide examples of relevant events in JCT Contracts?
Depends on the contract, generally:
- Variations / instructions
- Deferment of possession
- Suspension for non payment
- Carrying out work of statutory undertakers / exercising statutory power by government or local authority
- Employer impediment / prevention / default
- Loss or damages occasioned by Specified Peril
- Exceptionally adverse weather conditions
- Strike / lockout
- Civil commotion / terrorism
- Force majeure
- Execution of approx. quantity not reasonably accurately forecasted
277
What is force majeure?
Defined as certain acts, events or circumstances beyond the control of the parties (i.e. natural disasters, national lockdowns)
278
Can you provide some examples of a force majeure event?
- War, hostilities, invasion, act of foreign enemies
- Rebellion, revolution, insurrection, civil war
- Contamination by radioactivity
- Riot, commotion, strikes, disorder
- Acts or threats of terrorism
279
What happens when a relevant event occurs?
- Upon being reasonably apparent that a delay will occur, contractor notifies CA in writing, stating particulars and extent
- Contractor must state relevant events in detail, how and why delay is occurring or likely to occur
- Contractor should give an estimate of delay in his notice so CA can form their own opinion
- CA responds within 12 weeks stating whether relevant event has / not occurred
- If it has occurred, CA assesses delay
- New completion date fixed (EoT granted)
280
Assuming the relevant event has occurred and is accepted by the CA is the contractor entitled to loss and expense?
- Relevant events entitle contractor to EoT only
- Contractor also needs to demonstrate relevant matter has occurred
281
What is an extension of time?
Adjust completion date and relieves contractor's liabilities
282
Benefits of being able to grant an extension of time?
- Relieves contractor's liability for liquidated damages for a delay they did not cause
- Enables another completion date to be set, which maintains the employer's ability to deduct liquidated damages if another delay occurs
283
What does a contractor need to demonstrate has occurred to merit an EoT?
Demonstrate a relevant event in section 2 of JCT contracts
284
What happens when 'time is at large'?
- No set completion date
- Contractor only has to complete works in a 'reasonable time'
- Liquidated damages cannot be claimed- there's no date to take them on
- Employer would have to try and prove the contractor had not completed the project in a reasonable time
285
How do you ascertain an extension of time?
- Overview of the facts
- Cause and effect
- Look at guidance notes
286
What are relevant matters?
- Matter which employer is responsible that materially affects progress of the works
- May enable contractor to claim direct loss and/or expense that has incurred
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Can you give some examples of relevant matters?
- Failure to give contractor possession of site
- Failure to give contractor access to and from site
- Delays in receiving instructions
- Disruption caused by work carried out by employer
288
Relevant event vs relevant matter?
- Relevant event -> contractor claims additional time
- Relevant matter -> additional cost
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What is a loss and expense claim?
Often associated with delays but can be for any event where Contractor incurs loss due to failure of the employer (relevant matter)
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Key thing to remember when assessing loss and expense claims?
- Should be actual loss incurred by the contractor
- Prices in BoQ, contract schedule of rates or preliminaries should not be used (actual costs could be more or less)
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What are common heads of claim in loss and expense?
- Prolongation (extra site overheads, prelims)
- Thickening of prelims (more supervision)
- Disruption (causing plant and labour to be underutilised / unproductive)
- Increased material and labour costs
- Finance charges (i.e. interest)
292
What are prolongation costs?
- Financial claim made by contractor related to running late projects
- Typically include claims for cost of time-related resources such as site management, site accommodation, plant, machinery
293
Which section of the contract are relevant matters listed under?
Section 4 - payment
294
What is a global claim?
- Multiple claims stemming from multiple relevant matters wrapped into 1 L&E claim
- Can distort the reality of situation and what the actual L&E is
295
What is acceleration?
Acceleration is the completion of works in a shorter time frame than that anticipated at tender / act of programme recovery by the contractor if they are in delay
296
What options may be considered to achieve acceleration?
- Re-sequencing the works or making sequential activities parallel
- Working longer hours
- Increasing the resources employed
- Changing the working methods i.e. using a dehumidifier to dry out the works faster
- Increasing incentives for example offering bonus payments
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What are the most and least efficient acceleration options?
- Most cost effective and efficient - re-sequencing
- Least efficient - increasing working time and resources
298
What fluctuation provisions does JCT have?
D&B
- Option A - Change Contract Sum in line with contribution, levy and tax fluctuations - DEFAULT
- Option B - Change Contract Sum in line with tax and insurance changes + changes in labour and material costs
- Option C - Change Contract Sum in line with specific index, i.e. BCIS
- No fluctuations provision
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Is adjudication legally binding?
Yes but can be overturned by arbitration / litigation
300
What is the process for resolving disputes under JCT?
- Negotiation
- Mediation
- Adjudication
- Arbitration
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What is the process for resolving disputes under JCT?
Adjudication (can be referred to tribunal)
302
Adjudication vs arbitration?
- Governed by separate acts
- Adjudication - HGCRA and LDEDC
- Arbitration Act 1996
- Arbitration can overturn adjudication
- Arbitration not legal necessity
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If the contractor advises you he will handover the building 3 months early, what would you do?
- See if client accepts taking possession- contractually they don't have to
- Check cashflow is acceptable
- If yes to both of above, issue PC certificate and relevant sundries (half retention, defects liability etc.)
304
What is partial possession?
- Contract allowing employer to take possession of part of the works before they have been formally completed
- Often requires contractor agreement, allows employer to use portion for its intended purpose
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Key points of partial possession?
- Not agreed prior to signing building contract
- Completion deemed occurred for that section
- Contractor must give consent
- Voluntary agreement between employer and contractor
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Can the contractor refuse to give partial possession?
- Consent cannot be unreasonably withheld
- Contractor could withhold occupation if it hinders their ability to complete the remaining areas
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What are the typical implications of partial possession?
- Half retention released (proportionate to area of possession)
- Contractor's responsibility for insuring works there ends
- Contractor's liability for damages ends (proportionate as above)
- Employer responsible for any damages to the works
- Defect rectification period commences
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What does the CA have to do at partial possession?
Issue written statement to the contractor showing relevant part and stating relevant date
309
What is sectional completion under a JCT contract?
- Provision allowing different completion dates for different sections of the works
- Contractor has obligation for achieving sectional completion dates
- Liquidated damages agreed up front should section be delivered late
310
Sectional completion vs partial possession?
- Sectional completion is pre-planned and defined in contract documents - typically contract should provide if employer knows in advance
- Partial possession relies on contractor's consent
311
What are the benefits of sectional completion over partial possession?
- Sectional completion leaves less to chance - parties have agreed many practical consequences
- If something goes wrong (i.e. delay), easier for CA to deal with delays, changes and acceleration
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What is early use?
- Employer can occupy site / part of site for storage or otherwise before PC
- Contractor gives consent, subject to confirmation that this doesn't impact insurance
- Insurance option A / if Contractor covers own risks and this results in insurance premium, contractor notifies employer to be added to contract sum if still required (contractor produces receipt if requested)
313
What is the date for completion?
Date fixed and stated in contract particulars for finishing works
314
How does the date for completion differ from the completion date?
Date for completion of the works that might be adjusted to take into account agreed EoT
315
What is practical completion?
- When works substantially complete with minor defects only
- Employer able to gain beneficial occupancy of the development
- Triggers half of retention monies being released
- Employer surrenders right to apply liquidated damages
- Employer takes back possession of works and responsible for arranging insurances
316
What is sectional completion?
Completion and handover of works to the employer in agreed stages
317
Do the works have to be totally completed before practical or sectional completion is achieved?
- PC is a vague concept not defined in JCT
- Reliant on CA's opinion that works are complete- should not be conditional
- There may be minor defects / omissions that don't prevent employer taking beneficial occupancy
