Contract practice Flashcards
(220 cards)
1
Q
What contracts have you primarily used in your industry experience?
A
In my industry experience, I’ve primarily used JCT contracts but am familiar with other UK contract forms like NEC.
2
Q
How familiar are you with other UK contract forms besides JCT?
A
I am familiar with other UK contract forms like NEC, understanding the differences in responsibilities, terminology, and obligations between these contracts.
3
Q
What international contract forms are you aware of?
A
I am aware of international contract forms like FIDIC and ICE
4
Q
How do you recognize the pivotal role of contracts in construction?
A
I understand how various aspects in construction, such as retention, valuations, change orders, delays, and rectification periods, are tied to contractual agreements.
5
Q
What do you emphasize in terms of project management related to contracts?
A
I emphasize the need for clear responsibilities, risk allocation, pricing options, and specific clauses for effective project management in construction contracts.
6
Q
What is a JCT Contract ?
A
A JCT (Joint Contracts Tribunal) Contract is a standardized agreement commonly used in the construction industry in the UK to outline terms and conditions between parties involved in a construction project.
7
Q
What are the main elements of a JCT contract?
A
The main elements of a JCT contract typically include provisions regarding project scope, payment terms, completion deadlines, responsibilities of parties, dispute resolution mechanisms, and insurance requirements.
8
Q
What does JCT stand for?
A
Joint Contracts Tribunal
9
Q
What is NEC ?
A
It is a suite of contracts used primarily in the construction industry, known for its flexibility, clarity, and emphasis on collaboration and risk management.
10
Q
What does NEC stand for?
A
NEC stands for New Engineering Contract
11
Q
What are the main elements of NEC?
A
The main elements of NEC contracts include clear roles, detailed project specifications, change management procedures, risk management, dispute resolution mechanisms, and collaborative working principles.
12
Q
What is the difference in responsibilities in JCT and NEC ?
A
In JCT contracts, responsibilities are traditionally allocated and defined among parties, whereas NEC contracts emphasize collaborative working, shared risk management, and proactive problem-solving.
13
Q
What is the difference in terminology in JCT and NEC ?
A
In JCT contracts, you’ll often encounter terms like “employer” and “contractor,” whereas NEC contracts commonly use terms like “client” and “contractor.” Additionally, JCT contracts may refer to “practical completion,” while NEC contracts use the term “completion.” JCT also tends to use more traditional legal language, whereas NEC employs simpler, clearer terminology aimed at facilitating collaboration and understanding among project participants.
14
Q
What is the difference in obligations in JCT and NEC ?
A
In JCT contracts, obligations are often more rigidly defined, focusing on specific duties and responsibilities outlined in the contract documents. In contrast, NEC contracts emphasize a collaborative approach where parties are obliged to work together to achieve project objectives, manage risks, and promptly address issues as they arise, often through mechanisms like early warning notices and compensation events.
15
Q
What are the advantages of NEC contracts ?
A
- Flexibility
- Clarity and simplicity
- Emphasis on collaboration
- Effective risk management
- Transparency
- Promotion of innovation
- Timely dispute resolution
16
Q
What are the disadvantages of NEC contracts ?
A
- Complexity of administration
- Emphasis on collaboration may not suit all parties
- Potential for increased administrative burden
- Risk allocation concerns
- Limited precedent and case law
- Requirement for active project management
- Cost implications
17
Q
What are the advantages of JCT contracts ?
A
1.Familiarity
2.Comprehensive documentation
3.Clear allocation of responsibilities
4.Certainty and predictability
5.Established precedent and case law
6.Structured payment mechanisms
7.Proven track record
18
Q
What are the disadvantages of JCT contracts ?
A
- Rigidity
- Complexity
- Potential for disputes
- Limited adaptability
- Risk allocation concerns
- Cost implications
- Dependence on precedent
19
Q
What is FIDIC ?
A
It is an organization that produces standard forms of contracts for the construction industry, widely used internationally to govern the relationships between the various parties involved in construction projects.
20
Q
What are FIDIC contracts recognized for?
A
recognized for their fairness, clarity, and flexibility in addressing the diverse needs of construction projects around the world.
21
Q
What does FIDC stand for?
A
FIDIC stands for the International Federation of Consulting Engineers
22
Q
What are the advantages of FIDIC contracts?
A
1.International recognition
2.Fairness and balance
3.Flexibility
4.Clarity and comprehensiveness
5.Risk management
6.Promotion of best practices
7.Support for project success
23
Q
What type of JCT contract do you use most often ?
A
In the UK fit-out sector, the most commonly used JCT contract is typically the JCT Standard Building Contract with Quantities (SBC/Q), sometimes supplemented with bespoke amendments or additional provisions tailored to fit-out projects.
24
Q
What is retention?
A
A common practice in construction contracts where a portion of the payment due to a contractor or subcontractor is withheld by the client or main contractor until the satisfactory completion of the project.
25
What are valuations ?
the process of assessing and determining the value of work done by contractors or subcontractors on a construction project.
26
What are change orders?
Change orders refer to formal documents that authorize changes to the scope of work, specifications, or contract terms agreed upon in the original construction contract
27
What are contractual delays?
situations where the completion of a construction project is delayed beyond the agreed-upon timeframe specified in the contract
28
What is a rectification period ?
29
How is retention tied to contractual agreements ?
30
How are valuations tied to contractual agreements ?
31
How are change orders tied to contractual agreements ?
32
How are delays tied to contractual agreements ?
33
How are rectification periods tied to contractual agreements ?
34
Why is it important that various construction aspects tied into contractual agreements?
35
What does tying construction aspects to construction agreements emphasize ?
This emphasizes the need for clear responsibilities, risk allocation, pricing options, and specific clauses for effective project management.
36
Do NEC contracts work on large scale projects?
the benefits of NEC contracts outweigh the challenges, particularly in complex or large-scale construction projects where collaboration, flexibility, and effective risk management are paramount.
37
NEC advantage; flexibility
NEC contracts are highly adaptable to various project types, sizes, and complexities, allowing for customization to meet specific needs.
38
NEC advantage; Clarity and simplicity
The contracts use clear, straightforward language and terminology, reducing the likelihood of misunderstandings or disputes.
39
NEC advantage; Emphasis on collaboration
NEC contracts promote collaborative working relationships among parties, fostering cooperation, communication, and problem-solving throughout the project lifecycle.
40
NEC advantage; effective risk management
The contracts include mechanisms for early identification and management of risks, such as early warning notices and compensation events, enabling proactive risk mitigation.
41
NEC advantage; Transparency
NEC contracts promote transparency in project processes, costs, and decision-making, enhancing trust and accountability among project participants.
42
NEC advantage; Promotion of innovation
The contracts encourage innovation and efficiency by allowing for flexible project management approaches and incentivizing performance improvement.
43
NEC advantage; Timely dispute resolution
NEC contracts provide clear procedures for resolving disputes promptly and fairly, minimizing project delays and associated costs.
44
NEC drawbacks: Complexity of administration
Despite their aim for simplicity, NEC contracts can still be complex to administer, requiring a thorough understanding of the contract terms and procedures.
45
NEC drawbacks: Emphasis on collaboration may not suit all parties
Some parties may prefer more traditional contract structures with clearly defined roles and responsibilities, which may not align well with the collaborative approach of NEC contracts.
46
NEC drawbacks: Potential for increased administrative burden
The mechanisms for risk management and dispute resolution in NEC contracts may require more administrative effort compared to other contract forms, potentially increasing project overheads.
47
NEC drawbacks: Risk allocation concerns
While NEC contracts promote risk-sharing among parties, there may be instances where one party feels unfairly burdened with risks or liabilities, leading to disputes or dissatisfaction.
48
NEC drawbacks: Limited precedent and case law
Compared to more established contract forms like JCT, NEC contracts may have less precedent and case law to guide interpretation and application, potentially leading to uncertainty in certain situations.
49
NEC drawbacks: Requirement for active project management
NEC contracts necessitate proactive project management and collaboration among parties, which may pose challenges if there are disagreements or conflicts among stakeholders.
50
NEC drawbacks: Cost implications
While NEC contracts aim to promote transparency and efficiency, the administrative requirements and potential for disputes could result in increased project costs if not managed effectively.
51
JCT Advantages; Familiarity
JCT contracts are widely used in the UK construction industry, making them familiar to many parties involved in construction projects, including contractors, subcontractors, and consultants.
52
JCT Advantages; Comprehensive documentation
JCT contracts provide comprehensive documentation that covers various aspects of the construction process, including scope of work, payment terms, responsibilities of parties, and dispute resolution mechanisms.
53
JCT Advantages; Clear allocation of responsibilities
JCT contracts typically include well-defined roles and responsibilities for each party involved in the project, reducing the likelihood of misunderstandings or disputes.
54
JCT Advantages; Certainty and predictability
The standardized nature of JCT contracts provides a level of certainty and predictability for project participants, helping to manage expectations and mitigate risks.
55
JCT Advantages; Established precedent and case law
JCT contracts have a long history of use in the construction industry, resulting in a substantial body of precedent and case law that can guide interpretation and application, reducing uncertainty.
56
JCT Advantages; Structured payment mechanisms
JCT contracts include structured payment mechanisms, such as interim payments and retention provisions, which help to ensure that contractors are paid fairly and promptly for work done.
57
JCT Advantages; Proven track record
Many construction professionals trust JCT contracts due to their long-standing reputation for fairness, balance, and effectiveness in facilitating construction projects.
58
Overall advantage of NEC contracts?
Overall, NEC contracts are valued for their adaptability, clarity, collaborative nature, and effectiveness in managing risks and resolving issues in construction projects.
59
JCT Disadvantages: Rigidity
JCT contracts can be seen as relatively rigid compared to other contract forms, with less flexibility to accommodate unique project requirements or changes in circumstances.
60
JCT Disadvantages: Complexity
Some parties may find JCT contracts to be complex and lengthy, requiring careful review and interpretation, particularly for those unfamiliar with the contract format or legal terminology.
61
JCT Disadvantages: Potential for disputes
Despite the clear allocation of responsibilities, disputes can still arise under JCT contracts, especially if there are ambiguities in contract terms or unforeseen circumstances during the project.
62
JCT Disadvantages: Limited adaptability
While JCT contracts provide a comprehensive framework for construction projects, they may not easily adapt to emerging project management practices or evolving industry standards without significant modifications.
63
JCT Disadvantages: Risk allocation concerns
The allocation of risks in JCT contracts may not always be perceived as equitable by all parties, potentially leading to disagreements or disputes over liability for unforeseen events or delays.
64
JCT Disadvantages: Cost implications
JCT contracts may involve higher administrative costs due to their comprehensive documentation and potential for disputes, which could impact project budgets and timelines if not managed effectively.
65
JCT Disadvantages: Dependence on precedent
While the established precedent and case law associated with JCT contracts can provide guidance, it may also limit innovation and flexibility in contract interpretation and application.
66
What are the disadvantages of FIDIC contracts?
1.Complexity
2.Potential for disputes
3.Limited applicability
4.Cost implications
5.Dependence on contract administration
6.Cultural and jurisdictional differences
7.Limited standardization of practices
67
FIDIC Advantage: International recognition
FIDIC contracts are widely recognized and used across the globe, providing consistency and familiarity for parties involved in international construction projects.
68
FIDIC Advantage: Fairness and balance
FIDIC contracts are drafted with input from industry experts and aim to achieve a balanced allocation of risks and responsibilities among parties, promoting fairness and equity in contractual relationships.
69
FIDIC Advantage: Flexibility
FIDIC contracts offer a range of contract forms and options that can be tailored to suit the specific needs and complexities of different construction projects, allowing for customization while maintaining a common framework.
70
FIDIC Advantage: Clarity and comprehensiveness
FIDIC contracts are known for their clear and comprehensive documentation, which helps to minimize misunderstandings and disputes by clearly defining the rights, obligations, and procedures of each party.
71
FIDIC Advantage: Risk management
FIDIC contracts include mechanisms for managing risks and resolving disputes in a fair and efficient manner, such as provisions for claims, variations, and dispute resolution procedures.
72
FIDIC Advantage: Promotion of best practices
FIDIC contracts incorporate industry best practices and standards, helping to promote professionalism, efficiency, and quality in construction projects.
73
FIDIC Advantage: Support for project success
By providing a structured framework for project management and contractual relationships, FIDIC contracts help to reduce uncertainty, manage expectations, and facilitate the successful delivery of construction projects.
74
FIDIC Disadvantage: Complexity
FIDIC contracts can be complex and lengthy, requiring careful review and interpretation, particularly for parties who are not familiar with the contract format or legal terminology.
75
FIDIC Disadvantage: Potential for disputes
Despite the clarity and comprehensiveness of FIDIC contracts, disputes can still arise, especially if there are ambiguities in contract terms or disagreements over interpretation.
76
FIDIC Disadvantage: Limited applicability
While FIDIC contracts are widely used internationally, they may not always be suitable for certain types of projects or jurisdictions with specific legal or regulatory requirements.
77
FIDIC Disadvantage: Cost implications
FIDIC contracts may involve higher administrative costs due to their comprehensive documentation and potential for disputes, which could impact project budgets and timelines if not managed effectively.
78
FIDIC Disadvantage: Dependence on contract administration
The successful implementation of FIDIC contracts relies heavily on effective contract administration and project management practices, which may pose challenges if not adequately resourced or experienced.
79
FIDIC Disadvantage: Cultural and jurisdictional differences
FIDIC contracts may need to be adapted to accommodate cultural differences or specific legal requirements in different jurisdictions, which could introduce complexities and uncertainties.
80
FIDIC Disadvantage: Limited standardization of practices
While FIDIC contracts provide a common framework for construction projects, variations in industry practices and interpretations may still exist, leading to inconsistencies in contract administration and implementation.
81
What is the benefit of retention on the clients behalf ?
It serves as security against defects or incomplete work and is typically released upon achieving certain milestones, such as practical completion or the rectification of defects during the defects liability period.
82
How is Retention an incentive to contractors ?
Retention aims to incentivize contractors to complete their work to a high standard and address any outstanding issues promptly, providing assurance to the client or main contractor that the project will be completed satisfactorily.
83
What are the two main incentives of Retention?
1. Security for the client
2. Incentive for the contractor
84
What do valuations typically involve ?
1. Quantifying the completed work according to the terms of the contract
2. Assessment of completed milestones or stages
3. Valuation of variations or additional works
85
Why are valuations important?
Valuations play a crucial role in ensuring that payments are made fairly and accurately in accordance with the progress of the construction works.
86
What are valuations used to calculate ?
These valuations are used to calculate payments due to contractors or subcontractors, including interim payments and final account settlements, based on the agreed pricing mechanisms outlined in the contract documents.
87
Why may change orders be initiated?
due to various reasons, such as design modifications, unforeseen site conditions, or client requests for additional or altered work.
88
What do change orders typically outline?
the details of the proposed changes, including any adjustments to the contract price, contract duration, or other contractual terms impacted by the change
89
Who needs to approve change orders ?
all relevant parties, such as the client, main contractor, and subcontractors, before implementation
90
What crucial role do change orders play in construction projects ?
maintaining clear communication among project stakeholders, and ensuring that the project remains on track in terms of budget, schedule, and quality.
91
7 reasons why delays can occur
1.Unforeseen site conditions
2.Design changes or errors
3.Delayed approvals or permits
4.Weather conditions
5.Labor shortages or disputes
6.Material shortages or delays
7.Changes in project scope
92
Contractual delays: Unforeseen site conditions
Unexpected issues encountered during construction, such as ground conditions, archaeological discoveries, or environmental factors, can cause delays.
93
Contractual delays: Design changes or errors
Revisions to the project design, errors or omissions in the initial design, or late issuance of design information can lead to delays in construction.
94
Contractual delays: Delayed approvals or permits
Delays in obtaining necessary approvals, permits, or permissions from regulatory authorities can impede progress on the project.
95
Contractual delays: Weather conditions
Adverse weather conditions, such as heavy rain, snow, or extreme temperatures, can disrupt construction activities and cause delays.
96
Contractual delays: Labor shortages or disputes
Shortages of skilled labor, industrial action, or labor disputes can hinder progress on construction sites.
97
Contractual delays: Material shortages or delays
Delays in the delivery of construction materials, shortages of critical materials, or changes in material specifications can impact construction schedules.
98
Contractual delays: Changes in project scope
Changes to the project scope, such as additional work or variations, can affect the project timeline if not properly managed.
99
How are contractual delays addressed in construction contracts?
through provisions outlining procedures for notifying parties of delays, assessing responsibility for delays, and determining any associated consequences, such as extensions of time or compensation for additional costs incurred as a result of the delay.
100
What are extensions of time?
Extensions of time adjust the completion date and relieves the contractor’s liability to pay liquidated damages for the period of the extension.
101
What are liquidated damages?
A genuine pre-estimate of the likely loss incurred by the employer should the completion date not be
met.
102
What are the benefits of being able to grant an extension of time?
* It relieves the contractor’s liability for liquidated damages for a delay that they did not cause.
* It enables another completion date to be set, which maintains the employer’s ability to deduct
liquidated damages if another delay occurs.
103
What happens when ‘time is at large’?
* There is no set completion date.
* The contractor only has the
obligation to complete the works in a ‘reasonable time’.
* Liquidated damages cannot be claimed as there is no date to take them from.
104
What are Relevant Events in a JCT form of Contract?
* They are events that entitle the contractor to an extension of time.
105
How many relevant events are set out in JCT forms?
13
106
Please give 4 of the 13 relevant clauses in the JCT forms ?
o Variations.
o Instructions.
o Execution of an approx. quantity that is not a reasonably accurate forecast.
o Deferment of possession of the site.
107
What are the main elements you would include within an interim
valuation?
* Preliminaries.
* Measured work.
* Variations.
* Materials on site.
* Materials off site.
* Loss and expense.
* Retention.
108
What needs to be in place for you to include payments for materials on site?
* The materials should be for the works.
* They should be adequately protected.
* Delivered to programme.
* In a reasonable quantity.
109
What is a retention of title clause?
A clause where the sub-contractor or supplier retains ownership of materials until they are paid for by the contractor.
109
What needs to be in place for you to include payments for materials
off site?
* Proof that ownership will transfer to the employer upon payment (vesting certificate).
* Insurance until materials arrive at site.
* Materials are clearly labelled as for the site and set apart from other materials.
* A materials off site bond has been provided if required.
110
Why are vesting certificates important in relation to a retention of title clause?
They ensure the employer does not pay for materials that are not owned by the contractor.
111
What can the legal principle of retention of title lead to in the event of insolvency?
It can lead to disputes.
112
How do you evaluate interim valuations?
* Go to site and inspect the works to form a view on the percentage of works undertaken.
* Check for materials on site and materials off site.
* Value time related and fixed preliminaries items undertaken.
* Value any agreed variations and claims.
* The valuation amount is presented as the gross valuation, less previous payment made and retention
* Finally I would send my recommendation to the Architect or Contract Administrator for them to
prepare the payment certificate.
113
How do stage payments work?
* The stages and their values are set out in the contract particulars.
* The stages are usually related to the completion of significant design items for example completion of
the substructure.
114
What is the interim certificate conclusive of?
* Interim certificates are not conclusive.
* They carry no contractual significance to state that the quality of materials or workmanship is
satisfactory.
* It is only the final certificate that is conclusive.
115
What is retention?
* It is a percentage of each interim certificate deducted and retained by the employer from each interim
payment to the contractor.
116
What is the purpose of retention?
* It provides an incentive for the contractor to rectify any defects within the contract defects liability
period.
* It provides some financial security to the employer in the event of a contractor default.
116
When is the retention released to the contractor?
* Half of the retention is released in the interim certificate after Practical Completion.
* The remaining retention is released in the final certificate after the certificate of making good defects is issued.
117
What is a typical retention percentage under JCT contracts?
Usually retention is between 3% or 5% depending on the form in use.
118
What is a retention bond?
A bond provided by the contractor in lieu of taking retention from interim payments.
119
How much should a retention bond be equal to?
It should be equal to the same value as the retention deducted.
120
Where should the requirement for a retention bond be stated?
In the contract particulars.
121
Is there a standard form for a retention bond?
Yes, a standard form is provided in the JCT contract schedules.
121
What happens if the contractor does not maintain the retention bond?
The employer can deduct retention from interim payments.
122
Why might a retention bond be used?
It may be used in difficult market conditions to aid the contractor’s cashflow.
123
What are the disadvantages of a retention bond?
* The employer would have to pay the premium for taking out the bond.
* It may reduce the contractor’s incentive to complete making good defects promptly.
* It reduces the employer’s cashflow.
124
What is acceleration?
* Acceleration is the completion of works in a shorter time frame than that anticipated at tender or the
act of programme recovery by the contractor if they are in delay.
125
What options may be considered to achieve acceleration?
* Re-sequencing the works or making sequential activities parallel.
* Increasing the working time by using working longer hours.
* Increasing the resources employed by using larger gangs.
126
Which are the most and least efficient options to achieve acceleration? ?
* Re-sequencing the works can be the most cost effective and efficient.
* The least efficient is usually increasing the working time and increasing the resources employed which usually results in lower productivity.
127
What is a fixed price contract?
* Where adjustments of the contract sum are limited to changes in statutory contributions, taxes and
levies.
128
What is a fluctuating price contract?
Where the contract sum is adjusted for changes in the costs of materials and labour as well as statutory
contributions, taxes and levies.
129
What right does the employer surrender at practical completion?
The right to apply liquidated damages.
129
What is practical completion?
When the works are substantially complete with minor defects only.
129
What does practical completion allow the employer to do?
Gain beneficial occupancy of the development.
129
What is the date for completion?
The date fixed and stated in the contract particulars.
130
What does it mean when ‘time is at large’?
* There is no fixed completion date.
* The contractor must only complete the works in a reasonable time.
131
What happens to the retention upon practical completion?
Half of the retention is released.
132
What is sectional completion?
The completion and handover of the works to the employer in agreed stages.
133
Who takes back possession of the works at practical completion and what are they responsible for?
The employer takes back possession of the works and is responsible for arranging insurances.
134
How is practical completion defined in JCT contracts?
It is not defined in JCT contracts.
134
Do the works have to be totally completed before practical or sectional completion is achieved?
No, practical completion is a vague concept and does not require total completion.
135
What determines practical completion?
It relies on the architect’s opinion that the works are complete.
136
Should practical completion be conditional?
No, it should not be conditional.
137
When is practical completion commonly granted?
When the works are substantially complete with minor defects or omissions that do not prevent the employer from taking beneficial occupancy.
137
What is partial possession?
Where the employer requests and the contractor consents to the employer taking possession of the
works or part of the works before the date for practical or sectional completion.
138
What is the difference between partial possession and sectional
completion?
Sectional completion is a contractual obligation to hand over the section at the stated date, partial possession relies on the contractor’s consent.
139
What does the architect have to do at partial possession?
What does the architect have to do at partial possession?
140
What is the rectification period?
The contractor has an obligation to make good any defects, shrinkages or other faults that arise during
this period of time.
141
What is a non-completion certificate?
This is issued by the architect to certify that the works or works section have not been completed by
the relevant completion date.
141
How long is the rectification period?
It depends on the forms of contract is place but is typically 12 months so the building can be observed
in all seasons.
142
What are the consequences of a non-completion certificate?
The employer has the right to withhold liquidated damages, as long as a withholding notice has been given.
143
What are the different certificates you are aware of under JCT forms of contract?
* Interim certificates.
* Practical completion or sectional completion certificates.
* Non completion certificates.
* Certification of Making Good.
* Final Certificate.
143
What are the three ways that benefits can be transferred under JCT contracts?
* Collateral warranties.
* Third party rights.
* Assignment.
144
What are collateral warranties?
They create contractual relationships between the main parties of a contract and an external third party, which would not exist due to privity of contract.
145
Why are collateral warranties used?
They are used to give remedies to external third parties that would not otherwise have them due to the principle of privity of contract.
146
Who might want a collateral warranty?
Any third party with a financial investment in a project but not party to the main contract, such as funding institutions, future tenants, or purchasers.
147
Why might an employer want a collateral warranty with key subcontractors or suppliers?
In case the main contractor goes into liquidation, the employer would have no contractual link with them for redress in case of defective workmanship.
148
What should the obligations in collateral warranties mirror?
They should mirror those of the main agreement, meaning a breach of the main agreement would also be a breach of the warranty.
149
What are common clauses/terms in collateral warranties?
Common terms include:
Limitation of liability.
Reasonable skill and care or fitness for purpose.
Requirements for PI insurance.
Assignment rights.
Novation rights.
150
Name some standard forms of collateral warranty that may be used
* CWa/F – JCT standard form of collateral warranty for a funder.
* CWa/P&T – JCT standard form of collateral warranty for a future purchaser or tenant.
151
What is assignment?
* Where the rights and benefits of one contractual party are transferred to a third party.
152
What is the standard commercial position regarding assignment?
* It is standard to allow assignment of rights twice without consent.
* The assignment should be notified in writing to the other party.
153
What is novation?
Novation is where a new contract transfers the rights and obligations of one contractual party to a new
third party.
154
What is the key issue after a design team has been novated?
Whether the new party has the right to take action against the novated party for breaches that occurred
before the novation.
155
How does novation affect the employer’s rights?
* They lose all contractual relations with the novated party and therefore the right to take action for a breach.
* It is therefore common for there to be a collateral warranty between the employer and novated party.
156
What is available to protect clients from sub-contractors failing?
* In the event that the subcontractor fails to carry out his obligations the employer can have a contractual remedy to sue the subcontractor for breach of contract.
* They could also use a performance bond.
156
What is a limitation clause?
These are clauses that limit a party’s liability for potential losses
157
What are some examples of limitation clauses ?
o Limitation to a fixed sum.
o Limitation to the extent of PI insurance.
o Exclusion of consequential loss.
o Limitation to loss that can be recovered from a third party.
o Limitation to responsibility or a net contribution clause.
158
What is reasonable skill and care?
The ordinary skill and care expected of an ordinary competent man carrying out the particular service.
159
What is fitness for purpose?
The provision of a service that is suitable for the employer’s intended purpose.
160
What is a bond?
A surety bond ensures the main contractor's obligations are met and provides financial compensation to the employer if the contractor fails, but it does not guarantee project completion.
161
What form must a bond be in?
It must be in writing, and it is common for it to be executed as a deed. It will contain a duration, usually until practical completion, and a financial limit.
162
What form must a bond be in?
It must be in writing, it is common for it to be executed as a deed.
163
What is a Retention Bond?
An alternative to standard contractual retention provisions where the Employer holds retention money from the Contractor, which can negatively impact the Contractor’s cash flow.
164
How does the value of a Retention Bond change throughout a project?
The bond's value increases from the start of a project to mirror the retention normally held throughout the project
165
What happens to the value of a Retention Bond upon project completion?
The value may decrease upon completion.
165
What should clients be wary of when opting for a Retention Bond?
Hidden costs to the employer, such as lost interest on retained monies and the cost of the retention bond being passed to the Employer through the tender price.
166
ow can a Retention Bond benefit the Contractor?
A bond can benefit the Contractor's cash flow.
166
When would you use a retention bond?
When the client does not wish to hold retention on the contractor, but requires some assurance or
financial cover for rectifying defects at the end of the contract in the event that the contractor fails to
return and correct them himself
166
What is a Parent Company Guarantee?
An arrangement where the contractual performance of one company in a corporate group is underwritten by other members of that corporate group.
167
What does a Parent Company Guarantee ensure?
It ensures that the company must either complete the works itself if it can or pay the financial equivalent.
168
Which is the most common type in the construction industry?
Performance bonds.
169
Who typically provides performance bonds?
Banks or insurance companies
170
What is the purpose of a performance bond?
To give the employer a guarantee of payment up to a stated amount of money if they suffer a loss due to the contractor's breach of contractual obligations.
171
What protection does a performance bond offer the employer?
It provides a financial guarantee up to a specified amount for losses resulting from the contractor's failure to fulfill their contractual obligations.
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What is the standard value of a performance bond?
10% of the contract value, the premium for taking out the bond is added to the contract sum.
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How can the employer call for payment?
They have to prove that the contractor has defaulted in their obligations under the main contract and that loss has been suffered
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What is the purpose of a tender bond?
This covers the party inviting the tender if the lowest tenderer refuses to enter into a contract with
them.
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What is a Notional Final Account?
A final account that is prepared when the Main Contractor is facing insolvency.
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What is the standard value?
1-5% of the tender sum.
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What is the purpose of a materials off site bond?
It covers the employer against loss or damage to materials already paid for through interim valuations
before the materials are delivered to site.
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What are the arguments against requesting bonds?
They shouldn’t really be needed if the tenderer selection process is operated effectively as only reliable
and capable contractors are then selected.
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Where might bonds be appropriate?
If the contractor is new or unproven.
In a difficult economic climate, when the risk of insolvency is higher
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What is an ‘on demand’ bond?
An 'on demand' bond is one which is paid straight away upon the default occurring and request for
payment.
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What is a Highway Bond?
A Developer who undertakes speculative housing developments will frequently be required to enter
into an agreement with a Local Authority for the adoption of roads and sewers.
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What provisions are available for ensuring Contractor carries out
works properly?
Performance Bond may be provided.
Parent Company Guarantee
(PCG)
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What is insurance?
A transfer of a defined risk to an insurance company in exchange of a premium.
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What are the two main types of insurance?
Liability and loss insurance
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What is liability insurance?
Financial cover for the legal liabilities that the insured party owes to others.
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What is loss insurance?
Financial cover for losses that fall directly on the insured party.
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What is subrogation?
A legal technique where the insurer steps into the shoes of the insured in order to take the benefit of
any legal rights or remedies they may have against a third party responsible for the loss.
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What does ‘joint names’ mean?
* Where the employer and contractor are insured under the same policy.
* It stops the insurer having the right of subrogation against the other party if they caused the loss.
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Is an LOI that includes a spend limit any use to a contractor?
* It is only useful to the contractor if the LOI is legally binding.
* In order for an LOI to be legally binding it must have the basis of a simple contract (offer, acceptance
& consideration) & both parties must intend to create legal relations.
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What are LOI's ?
Letters of Intent
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Are LOI's legally binding?
* There is no legal significance of letters of intent.
* The courts will look at all the correspondence between the parties to establish if a contract has been formed.
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When are LOI’s used?
* Letters of Intent are used when an early start on site is required.
* They can be used to instruct initial design or survey works to be carried out or procurement of
materials on a tight programme.
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Three Differences Between JCT and NEC
Risk Allocation: JCT places more risk on the contractor, while NEC encourages shared risk management.
Flexibility: NEC contracts are more flexible and adaptive to changes, whereas JCT contracts are more rigid.
Communication: NEC emphasizes proactive communication and collaboration, unlike the more traditional structure of JCT.
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Changes in the 2024 JCT Suite Compared to the 2016 Suite
Digital Integration: Better integration with digital tools, including BIM.
Updated Payment Provisions: Streamlined payment processes to comply with new legislation.
Sustainability Clauses: New clauses addressing sustainability requirements.
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Is Retention Fair?
Balanced Use: Retention is fair when applied appropriately to ensure project quality without harming the contractor's cash flow.
Transparency: It should be clearly defined in the contract with transparent terms.
Alternatives: Consider alternatives like performance or retention bonds to balance fairness and security.
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What are the risks of an LOI? How did you ensure the client was protected?
Risks: LOIs can lead to ambiguity, cost overruns, and disputes if not clearly defined.
Protection: Ensure the LOI specifies scope, value limits, and duration, and limit it to essential work while expediting the final contract.
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Pleas explain the payment cycle under HGCRA?
Payment Notice: Issued within five days of the due date, detailing the amount due.
Final Payment Date: Payment must be made by this date, unless a Pay Less Notice is issued.
Right to Suspend: Contractors can suspend work if payment is not made on time.
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what does HGCRA stand for ?
HGCRA stands for the Housing Grants, Construction and Regeneration Act 1996.
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How do you value materials off site?
Verification: Confirm materials are purchased and allocated to the project.
Ownership and Insurance: Ensure title passes to the client and adequate insurance is in place.
Valuation: Based on cost, including delivery, but excluding installation.
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What does HGCRA provide?
This UK legislation provides a framework for payment practices in the construction industry, including provisions for payment notices, adjudication, and the right to suspend work if payments are not made on time.
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How do you incorporate a Schedule of Amendments into a JCT contract?
Integration: Attach the Schedule of Amendments to the JCT contract and reference it clearly within the contract document.
Documentation: Accurately document all changes and ensure both parties sign off on the amendments.
Consistency: Reference the schedule consistently to avoid confusion.
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In what instance would you recommend a JCT Intermediate contract to a client?
The choice of contract type should align with the project's complexity, risk profile, and client needs, as recommended by RICS.
Project Type: Suitable for projects of moderate complexity and duration with some flexibility needed for changes.
Risk Management: Balances risk allocation between client and contractor.
Client Needs: Ideal for clients needing a structured yet adaptable contract for managing both standard and bespoke requirements.
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When would a Pay Less Notice be issued and who issues it?
The HGCRA outlines the requirement for Pay Less Notices to manage disputes over payment amounts and ensure transparency.
Timing: Issued if the payer intends to pay less than the amount stated in the Payment Notice, before the final payment date.
Issuer: The payer (client or representative) is responsible for issuing the notice.
Purpose: Ensures transparency about payment reductions and helps prevent disputes.
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Explain the process of how Liquidated Damages are deducted?
RICS advises that the process for liquidated damages should be clearly outlined in the contract and handled transparently to ensure fairness.
Contract Terms: Pre-agreed penalties for delays are specified in the contract.
Assessment: Calculated based on the rate in the contract if the contractor misses the completion date.
Deduction: Subtracted from the final payment or retention sum, with clear documentation and justification.
