Contract Practice Flashcards

Question

What is acceleration?

Answer 1

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

Answer 2

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 teams Changing the working methods e.g. using a dehumidifier to dry out the works faster Increasing incentives e.g. offering bonus payments

Answer 3

Most = resequencing can be the most effective and most cost effective Least = usually increasing working time and resources employed as this usually leads to lower productivity

Answer 4

Where adjustments of the contract sum are limited to changes in statutory contributions, taxes and levies

Answer 5

Where the contract sum is adjusted for changes in the costs of materials and labour as well as statutory contributions, taxes or levies

Answer 6

The date fixed and stated in the contract particulars

Answer 7

This is the date for completion of the works that may be adjusted to take into account agreed EoT

Answer 8

There is no fixed completion date The contractor must only complete the works in a reasonable time

Answer 9

When the works are substantially complete with minor defects only The employer is able to gain beneficial occupancy of the development Half of retention is released The employer surrenders the right to claim LDs The employer takes back possession of the works and is responsible for arranging insurances

Answer 10

The completion and handover of the works to the employer in agreed stages.

Answer 11

Practical completion is a vague concept No JCT definition It is reliant on the architect’s opinion that the works are complete It should not be conditional It is common practice for PC to be granted when the works are substantially complete however there may be minor defects or omissions with nothing to prevent the employer from taking beneficial occupancy

Answer 12

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 PC or SC

Answer 13

Sectional completion is a contractual obligation to hand over the section at the stated date, partial possession relies on the contractor’s consent.

Answer 14

Issue a written statement to the contractor showing the relevant part and stating the relevant date

Answer 15

The contractor has an obligation to make good any defects, shrinkages or other faults that arise during this period of time

Answer 16

It depends on the forms of contract in place, but usually 12 months so building can be observed in all seasons

Answer 17

This is issued by the architect/CA/EA to certify that the works or works section have not been completed by the relevant completion date

Answer 18

The employer has the right to withhold liquidated damages, as long as a withholding notice has been given.

Answer 19

Interim certificates Practical completion or sectional completion certificates Non completion certificates Certification of making good Final certificate

Answer 20

Collateral warranties Third party rights Assignment

Answer 21

They create contractual relationships between the main parties of a contract with an external third party The contractual relationship would not exist with the third party due to privity of contract

Answer 22

Due to the principle of privity of contract, the rights and obligations under a contract can only be enforced by a party to that contract Collateral warranties give remedies to external third parties that due to privity of contract would not otherwise have them

Answer 23

Any third party with a financial investment in a project but not party to the main contract Funding institutions, future tenants, or purchasers may use CWs The empower may want a CW with key subcontractors or suppliers, as if the main contractor were to go into liquidation, they would have no contractual link with them for redress in case of defective workmanship

Answer 24

The obligations of the collateral warranties should mirror that of the main agreement Therefore if a party is in breach of the main agreement they would also be in breach of the warranty Common terms include: - Limitation of liability - Reasonable skill and care or fitness for purpose - Requirements of PI insurance - Assignment rights - Novation rights

Answer 25

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

Answer 26

Where the rights and benefits of one contractual party are transferred to a third party

Answer 27

It is standard to allow assignment of rights twice without consent The assignment should be notified in writing to the other party

Answer 28

Novation is where a new contract transfers the rights and obligations of one contractual party to a new third party Assignment is the transfer of contractual rights or contractual benefits only as burdens cannot be assigned.

Answer 29

Whether the new party has the right to take action against the novated party for breaches that occurred before the novation.

Answer 30

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 the novated party

Answer 31

These are clauses that limit a party’s liability for potential losses. Examples of limitation clauses include: - Limitation to a fixed sum - Limitation to the extent of PI insurance - Exclusion of consequential loss - Limitation to loss that can be recovered from a third party - Limitation to responsibility or a net contribution clause

Answer 32

Collateral warranties can be used as a direct link between the employer and subcontractor In the event that the subcontractor fails to carry out their obligations, the employer can have a contractual remedy to sue the subcontractor for breach of contract They could also use a performance bond

Answer 33

They typically permit founders to step into another parties shoes, usually the employer They provide funders protection in the event the employer defaults on its loans The funder can then take ownership of the development and sell it off if required A key problem is that the main cause will often result from the developer not being able to sell the development resulting in them being in arrears The funder will stand less of a chance of selling the asset than an experienced developer

Answer 34

The ordinary skill and care expected of an ordinary competent man carrying out the particular service

Answer 35

The provision of a service that is suitable for the employer’s intended purpose It is clearly a more onerous obligation than reasonable skill and care

Answer 36

A surety bond is a guarantee from the surety in favour of the employer that the contractual obligations will be fulfilled by the main contractor The bond if called upon will provide financial compensation up to a stated value if the other party does not fulfill their obligations under the contract It does not guarantee the completion of the works

Answer 37

It must be in writing, it is common for it to be executed as a deed It will contain a duration, usually until practical completion and a financial limit

Answer 38

An alternative to the normal contractual retention provisions whereby the Employer holds retention money from the Contractor which does not help the Contractor’s cash flow A bond will increase in value from the start of a project to mirror retention normally held throughout the project They may reduce in value upon completion Clients need to be wary of 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 The choice of a bond may benefit the contractor’s cash flow

Answer 39

Scope: Sectional completion is planned with distinct sections in the contract, whereas PP is more flexible and often initiated due to the clients needs Timing: SC is pre-defined, while PP can occur spontaneously if the client wants early access to a portion Contractual Effect: SC divides project obligations by section, whereas PP may require additional negotiation on obligations and liabilities.

Answer 40

Typically assessed against the contract requirements and project scope. Criteria includes: - Completion of major works and functional systems - Compliance with building regs - Adequacy of safety for occupation - Resolution of critical defects, leaving only minor, non-essential issues.

Answer 41

The PC Cert formally marks the completion of the project and is usually issued by the contract administrator or PM. It signals the start of the defects liability period, the handover of responsibility from the contractor to the client, and the release of certain retention funds.

Answer 42

First, review the contract requirements to ensure clarity on what constitutes PC. Then, conduct a detailed inspection to assess compliance with these requirements. Communication with both the client and the contractor to discuss findings is key.

Answer 43

The defects liability period if a specified period after practical completion during which the contractor is responsible for rectifying any defects identified by the client. This period usually starts upon the issue of the PC certificate and varies depending on the contract.

Answer 44

Minor outstanding works or "snagging" items do not prevent PC, as long as these items do not impair the buildings usability or safety. However, significant or critical works must be complete before practical completion can be certified.

Answer 45

May include inspection reports, snagging lists, certificates of compliance with building regulations, health and safety documentation and warranties or guarantees. It is important the documentation is thorough and provides a clear record.

Answer 46

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.

Answer 47

An arrangement where the contractual performance of one company in a corporate group is underwritten by the other members of that group. This means that it must complete the works itself if it can or pay the financial equivalent.

Answer 48

Performance bonds are typically provided by banks or insurance companies. They give the employer a guarantee of payment up to a stated amount of money should they suffer a loss as a result of the contractor's breach of his contractual obligations.

Answer 49

10% of the contract value, the premium for taking out the bond is added to the contract sum

Answer 50

They have to prove that the contractor has defaulted in their obligations under the main contract and that loss has been suffered.

Answer 51

This covers the party inviting the tender if the lowest tenderer refuses to enter into a contract with them. This can be important if the inviting party is in turn tendering for work on the basis of that tender It should also prevent idle tendering as there is an incentive to submit a price.

Answer 52

A final account that is prepared when the Main Contractor is facing insolvency. This will typically be of a greater value than the original forecast final account due to costs incurred by the client to appoint a new Contractor to complete the works.

Answer 53

It covers the employer against loss or damage to materials already paid for through interim valuations before the materials are delivered to site.

Answer 54

They shouldn't really be needed if the tenderer selection process is operated effectively as only reliable and capable contractors are then selected Unnecessary premiums are added to the contract sum, which are unlikely to be called upon. If the developer is a serial developer this may add a lot of money to their project costs.

Answer 55

If the contractor is new and unproven. To protect the interests of a 'one off' developer. In a difficult economic climate, where the risk of insolvency is higher and PCGs are risky.

Answer 56

They are not as secure as Bonds because of the financial link between a parent company and subsidiary whereas a performance bond is provided by a third-party finance institution. Advantages are that they do not need to be paid for, they can be unlimited, and they can make the parent company responsible for performance as well as a financial guarantee.

Answer 57

One which is paid straight away upon the default occurring and request for payment. There is no requirement to satisfy any review or specific condition to demonstrate the default. Whereas with conditional bonds, the employer must satisfy the surety that the default has occurred and the bond must identify what this condition is. It may also require litigation or arbitration resulting in delays and costs.

Answer 58

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. If for any reason the Developer fails to complete the adoption of the roads and sewers to the required standards then the Local Authority will complete this on their behalf and call on the bond to claim back costs.

Answer 59

To provide assurance that the contractor will perform these obligations, a Parent Company Guarantee (PCG) or a Performance Bond may be required. A PCG can only be used where the contractor is a subsidiary to another company. The parent company guarantees the performance and will become liable if it does not performance. Alternatively, a performance bond can be provided by the assurers and is used to protect the client in the event the contractor does not perform in the event that specific performance requirements are not met.

Answer 60

The purpose of indemnity is to protect against legal responsibility or to compensate, it is open ended. Insurance is a fund that enables the indemnifying party to make any payments that may arise. It includes time and financial limits. The contract sets out the insurances required to cover the indemnities that the party is liable for.

Answer 61

A transfer of defined risk to an insurance company in exchange of a premium.

Answer 62

Liability and loss insurance.

Answer 63

Financial cover for the legal liabilities that the insured party owes to others.

Answer 64

Financial cover for losses that fall directly on the insured party.

Answer 65

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.

Answer 66

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.

Answer 67

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. Without either of these 4 criteria the LOI is worthless.

Answer 68

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. LOIs are issued to commence works while discussions are ongoing regarding the main contract.

Answer 69

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. If it is found that a contract exists, then it will determine obligations. If there is no contract, then letter of intent will have no contractual effect and quantum merit will be applied.

Answer 70

JCT - primarily used for building works within the UK. JCT are considered the standard for the UK construction industry. NEC - initially developed for engineering projects, NEC are used internationally and are known for their flexibility and collaborative approach.

Answer 71

JCT - written in legalistic language which can be more complex and harder to interpret for those not familiar with legal terminology. NEC - Use plain English, making them easier to understand and more accessible to a wider audience.

Answer 72

JCT - tend to allocate risk more traditionally, often placing more risk with the contractor. NEC - Promote a more balanced risk allocation, encouraging collaboration and proactive risk management.

Answer 73

JCT - typically use a fixed price lump sum approach, which can provide cost certainty but may lead to disputes over variations. NEC - Offer various options, including target cost contracts, which can provide more flexibility and encourage cost savings.

Answer 74

JCT - More traditional in their approach to dispute resolution, often leading to formal legal proceedings. NEC - Emphasise early warning and collaborative resolution of issues, aiming to prevent disputes from escalating.

Answer 75

JCT - Generally less flexible, with a more rigid structure. NEC - Designed to be highly flexible and adaptable to different types of projects and procurement routes.

Answer 76

As a deed - Underhand -