Contract Practice Flashcards
1
Q
What are the forms of JCT contract
A
Standard building contract Intermediate building contract Minor works building contract Design and build contract Management building contract Construction management contract Major Project construction contract
2
Q
What are the forms of subcontract
A
Short form of sub contract
Contractors design
Sub-sub contract
3
Q
What is a JCT minor works contract
A
is designed for smaller, basic construction where the works are simple in nature. For traditionally procured projects
4
Q
What is a JCT intermediate works contract
A
is designed for construction projects involving all of the trades and skills of the industry but without specialist or complex building services installations.
5
Q
What is a JCT construction management contract
A
is designed for construction projects where the employer appoints seperate trades to carry out the works, and a construction manager to oversee the works for a fee.
6
Q
What is a JCT management building contract
A
is for use on construction projects where the client appoints a management contractor to complete the works. construction is completed under a series of seperate works contract
7
Q
When were JCT building contracts established
A
1931
8
Q
What are the forms of NEC contract
A
NEC4 Engineering & Construction NEC4 Design Build & Operate Contract NEC4 Engineering & Construction Subcontract NEC4 Framework Contract NEC4 Professional Servies Contract NEC4 Supply Contract
9
Q
What are the options for NEC contracts
A
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 bill of quantities
Option E: Cost reimbursale contract
Option F: Management contract
10
Q
What are some differences between JCT and NEC
A
JCT offers prov sums, Nec does not,
JCT is a fixed price contract. Option B is, Options C&D are target cost,
JCT has relevant matters and relevant events, time and money are dealt seperatly. NEC contract has compensation event, time and cost are dealt with together
11
Q
What are FIDC contracts
A
International federation of Consulting Engineers
12
Q
What types of FIDC contracts are there
A
Green Book - Short form, less value that 500,000
Red Book - Conditions of contract for buiding and engineering
Yellow book - Conditions of contract for plant design and build
Silver book - Conditions for EPC / Turnkey projects
13
Q
What is a letter of intent
A
a document expressing the intention to enter into a contract at a future date but creates no contractual relationship until that future contract has been entered into.
14
Q
What is a comfort letter of intent
A
Expressing interest to act in a particular way at some point in the future or at the time of issuing the letter. Does not form a contract but may impose either or both parties to obligations in relation to payment.
15
Q
What is a Instruction to proceed with consent to spend letter of intent
A
A letter with instruction to proceed and content to spend as if in a contract. Allow contractor to proceed before the contratc has been finalized. Legally binding but superseeded after main contract begins.
16
Q
What are letters recognizing the existance of a building contract
A
also known as a letter of acceptance and is used by some forms of contract (FIDIC) to formally execute the contract.
17
Q
What is included within a letter of intent
A
The parties, The works, The price (if agreed), Statement of intention, Insurances that are to be provided, Termination procedure, Dispute resoloution procedure.
18
Q
What if time, quality or cost if missing from a letter of intent
A
Cost - the contractor will be entitled to a reasonable sum that reflects the value of the works “quantum meruit basis”
Time - reasonable time for the completion will be implied
Quality - the contractor must carry out the works with reasonable skill and care notwithsanding statuatory obligations.
19
Q
What is a retention
A
a percentage of the amount certified as due to the contractor on an interim certificate that is deducted from the amount due and retained by the client
20
Q
what percentage is a retention
A
typically between 3-5% unless stated otherwise in the JCT contract particulars
21
Q
What are the advantages of a retention
A
funds rectifying defects,
incentive for contractors to complete the project on time without defects,
incentive for contractors to return for DLP,
offers the client protection against contractor insolvency.
22
Q
What are the disadvantages of a retention
A
Contractor is not paid in full for satisfactory work,
5% can repersent a large portion or all of contractor profits,
A subcontractor who comepletes their works may not receive payment for months/ years until the project is complete
23
Q
What alternatives to a retention were recomended in the pye tait review
A
Project bank accounts, Retention bonds, Performance bonds, Escrow stakeholdedr accounts, Parent company gaurentees, Retentions held in trust funds
24
Q
What actions have been taken to improve retentions
A
2017 - pye tait review,
2018 - bill passed so retentions are held in third party scheme
2019 - persimmon homes let buys hold back a retention until snagging issues are dealt with
2019, build uk published a set of minimum standards for retentions
25
What is a bond
bonds are means of protection against the non-performance of the contractor.
26
what are the types of bond
```
Performance bond,
Advance payment bond,
Bid bond,
Retention bond,
Adjudication bond,
```
27
What is a performance bond
A performance bond is a form of insuring the client against the risk of the contractor not fufilling their contractual duties. Typically set at 10% of the contract value.
28
What is a advance payment bond
If the client decides to make an advance payment to the contractor a bond will be required to protect the client in the event of default by the contractor. This as an on demand bond.
29
What are bid bonds
Rare in the Uk, typically used on international projects submitted with a tender to secure commitment to the project. This as an on demand bond.
30
What are adjudication bonds
Emerged from PFI/PPP projects, a payable amount due upon the adjudicators decision.
31
What are retention bonds
the client agrees to pay amounts that would otherwise be held as a retention. The value of the bond decreases after PC.
32
What is a bondsman
a professional agent, agency or corporation who takes responsability for another persons obligations by signing a bond to that effect.
33
What is a surety
takes responsability for another persons obligations and may have to undertake payment to the client in the event of non-performance
34
What is an on demand and conditional bond
on-demand bond - the bondsman pays an amount of money set out in the bond immediately.
Conditional bond - requires the client to provide evidence that the contractor has not performed before the amount stated in the bond is payed
35
What is a relevant event
Where a delay that impacts the completion date that is not caused by the contractor. This is addressed in section 2.20 of a JCT contract. The contractor may be entitled to an EOT or claim a loss of expense due to direct result of the delay.
36
What are some examples of a relevant event
```
Variations or instructions,
Exceptionally adverse weather,
Civil commotion or terrorism,
Failure to provide information,
Force majeure e.g. war or epidemic,
National strikes,
Changes in statuatory requirements,
```
37
What are some specified perils under JCT
Fire, Explosion, earthquakes, flooring, aircraft crash
38
What is the test for exceptionally adverse weather
The contractor has to prove that the weather had been worse than of a specified number of years previous, typically 10.
39
What are relevant matters
Where the client is responsible for an item that materially affects the progress of the works. This is addressed in section 4.17 of a JCT contract. A relevant matter does not always result in a delay or an EOT
40
What are some relevant matters
Failure to give the contractor posession of the site,
Failure to give the contractor access to the site,
Delays in receiving instruction,
Issues relating to CDM,
Discrepencies in the contract documents,
Failure of the client to supply goods or materials,
41
What did the case Balfour beatty v chestermount properties demonstrate
Actual delay is required for a relevant event event. Hypothetical delays are not accepted in court.
42
What are the JCT insurance options
There are three insurance options. Options A and B are for new buildings and Option C is for works involving existing structures.
43
What is JCT Option A insurance
For new builds option A requires the contractor to take out and maintain joint names all risks insurance of the works.
44
What is JCT Option B insurance
For new builds option B requires the employer to take out and maintain joint names all risks for the insurance of the works.
45
What is JCT Option C insurance
Options C reqiuires the employer to take out and maintain joint names specified perils insurance in respect of the existing structures and contents and all risks insurance of the works.
The contractor is not liable for any damage to the existing structure even if they are negligent.
46
What are Collateral Warrenties
Collateral warranties are used as a supporting document to a primary contract where an agreement needs to be put in place with a third party outside of the primary contract.
47
What are some challenges with Collateral warranties
JCT does not issue a Consultant Collateral Warranties. However, they do have a range of collateral warranties for contractors/Subcontractors/Employers/Tenants/Purchasers. It has been noted that clients often claim that industry-standard warranties favor contractors and designers.
Onerous terms that designers or contractors are unable to agree to as their insurers will not provide cover. As a consequence many collateral warranties are bespoke.
On large projects with many consultants and sub-contractors and multiple occupants, there can be a great number of warranties. The Contracts (Rights of Third Parties) Act can offer a way around this difficulty by allowing the primary contracts to confer benefits upon third parties even though they are not a party to that contract.
48
What is Parkwood Leisure Limited v Laing
A collateral warranty constituted a construction contract for the purposes of the Housing Grants Construction and Regeneration Act 1996.
Not all collateral warranties will be construed as construction contracts for the purposes of the Act; that depends on the wording of the warranty
49
What is the JCT suite of Collateral Warranties?
JCT does not issue a Consultant Collateral Warranties. However, their suite of collateral warrenties include; Contractors/Subcontractos/Employers/Tenants/Purchase
50
What is a novation agreement
A novation agreement is the process whereby contractual rights and obligations (i.e both benefits and burdens) of a contract are transferred from one party to another.
In building design and construction, novation normally refers to the process by which design consultants are initially contracted to the client, but are then 'novated' to the contractor.
This is usual in design and build projects, where the design team is appointed by a client to carry out initial studies or prepare a concept or detailed design. When subsequently a contractor is appointed to carry out or complete the design and construct the works.
51
What clauses are typically included in a novation agreement
- The parties - Client, Consultant, Contractor (typically)
- Definitions - Defining key terms so they are not open for interpirtation
- Affirmention of consultants apointments
- Warrenties and indemnity in favour of the contractor
- Release from obligations and claims
- Collateral warrenties in favour of the employer
- Governing law and third party rights
52
Blyth & Blyth Ltd v Carillion Construction Ltd (2001)
It is recomended that contractors enter collateral warrenties with design teams to protect themselves from pre-novation losses
53
What are Liquidted damages
Contracts generally include a clause making provision for the contractor to pay liquidated damages (LD, sometimes referred to as liquidated and ascertained damages - LADs) to the client in the event that the contract is breached.
54
What is required to claim LADs
That there has been a breach of contract (Typically a delay to the contract and a certificate of non-completion has been issued),
That the breach caused the loss;
The amount of the loss and must have been based on a predetermined genuine calculation. Calculations might include, amongst other things:
55
What can be typically included in LAD calculation
Calculations might include, amongst other things:
- Loss of rent
- Loss of income
- Professional fees
- Storage costs.
- Rental costs.
- Fees and fines imposed by third parties.
- Finance costs.
56
How can LADs be beneficial for the client
LADs remove the clients obligation to prove actual losses in the event of delay occurring.
57
How can LADs be beneficial for the contractor
LADs can limit the contractors liability to a known amount in the event of delay.
58
What did the case Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd eastablish
The case related to LADS. specifically If the predetermind calculation is not genuine, the courts may consider it to be a penalty by the courts and will be unenforceable
59
When are LADs not applicable in the event of a delay
If the delay is not the fault of the contractor and constitute a 'relevant event' the contractor may be granted an extension of time LADs are not apllicable
60
What is a contract
A legally enforceable agreement that gives rise to rights and duties between those who agree to it's terms.
61
What is a bilateral contract
contains a set of promises that each party has made to another
62
What is a unilateral contract
only one party makes a promis to do something if the other party does something stipulated by the former
63
What is required ro create a contract
```
Offer,
Acceptance,
Consideration,
Intention to create legal relations,
Certainty of terms.
```
64
What is an offer
An offer is a promis from one party to enter a contract on certain terms.
Offers must be specific, complete, capable of acceptance and made with the intent of it being accepted.
65
What is the difference between an offer and an invitation to treat
an invitation to negotiate e.g. adverts or shop displays
66
What is acceptance
Must be certain and unambiguous. This can be written or oral.
A counteroffer can be made and does not qualify as an acceptance. If the offer does not match it is up to the offerer to accept or not.
67
What is consideration
Consideration in a contract is the exchange of anything of value by each party. Most often, services or goods are exchanged or promised in a contract. The items do not have to be of equivalent value.
68
What is intention to create legal relations
mutuality of the contract is required. If there is no intention this needs to be stated clearly in the documentation.
69
What is Mutuality of contract
That the parties are calable of making a contract e.g. of required age, not illeagal, of sound mind e.c.t
70
What is certainty of terms
There must be no ambequity of the terms. Any terms open to interpritation must be defined within the contract. Examples of ambigous terms are; lots, large many and ish.
71
How can a contract be terminated
```
There are numerous ways to terminate a contract including;
Notice under section 8,
Default by the Contractor,
Insolvency of Contractor,
Corruption,
Frustration,
Convenience,
Recission
```
72
What is Default by the Contractor,
If the one of the parties to a contract fails to perform as required by the contract, this may constitute a breach of contract. If the breach of contract is serious (a material breach), then the innocent party may also consider that it is discharged from any further obligations under the contract.
73
What are some examples of a Default by the Contractor,
```
Refusal to carry out work.
Abandoning the site.
Removing plant from the site.
Failure to make payments.
Employing others to carry out the work.
Failure to allow access to the site.
Failure to proceed regularly and diligently.
Failure to remove or rectify defective works.
```
74
What is Frustration
Frustration occurs when circumstances that are not the fault of either party to a contract mean it is impossible to continue with the contract. This does not constitute a breach of contract.
75
What are some relevent events that could lead to a contract to be terminated due to frustration
The government imposing unforeseen restrictions on building.
Laws being passed that make it illegal to undertake what was promised under the contract.
The building where works were to be carried out being destroyed.
An event that was crucial for the contractual obligations being cancelled.
76
What is the difference betweena force majure and a frustration event
Force majeure provisions might provide for circumstances that could otherwise be considered frustration events, and so result in termination of the contract. However, most stipulated force majeure qualify as a relevant event which will lead to an extension of time rather than the termination of the contract.
77
What is convinence termination
Contracts may allow termination for ‘convenience’. This can be useful for example if the client fails to secure sufficient funding for the project to proceed.
However termination for convenience can leave the terminating party open to significant claims by the other party. Termination for convenience is only provided for in some forms of contract, and is often only available to the client.
78
What is rescission
Rescission is the process of returning both parties to a contract to the position they would have been in had they not entered into a contract. If a contract is rescinded, it is treated as if it did not exist. This might be appropriate for example if there is a serious error in the contract
79
Why is rescission difficult
circumstances often make it impossible to rescind a contract, for example where works have already been commenced, in which case damages may be awarded.
80
What is Insolvency of Contractor,
A company becomes insolvent when;
it enters administration,
it appoints an administrative receiver,
the making of a winding-up order,
81
What section of JCT contract defines Insolvency
JCT IC 16 Sectioin 8.1 "meaning of insolvency"
82
What notice is required for default by the contractor
the CA may give notice, specifying defaults. if the contractor continues the specified default for 14 days. The employer may provide notice of termination within 21 days of the end of the specified default period.
83
When may the contractor terminate the contract
Default by the employer,
| Insolvency of the employer,
84
What are some examples of Default by the employer,
Does not pay by the final date for the amount due,
Interfears with the issuing of any certificate,
If the employer is in breach of clause 3.18 (CDM),
Assign duties to the contractor without their knowlage.
85
What is the process of terminating a contract by contractor default
The employer must issue a warning notice specifying the default and the relating clause. If the warranty is ignored for 14 days and no attempt is made to rectify the default the CA or employer can submit a notice of termination within 21 days of the end of the 14 day warning period.
86
What if there are multiple contractor defaults
If there are multiple breaches multiple warning notices will need to be issued. If a warning notice has already been issued and another default occours the employer does not need to issue another warning notice and can issue a termination notice straight away.
87
How do you analysis an EOT
I would follow SOCIETY OF CONSTRUCTION LAW's DELAY AND DISRUPTION PROTOCOL
Overview of the Facts - The facts will be evidenced by letters, emails, meeting minutes, progress records, photographs, instructions, drawings and other contemporaneous documents. Suitable for straightforward claims.
Critical Path Analysis - The primary purpose of critical path analysis is to show which activities on a programme of works are critical to completion and which are non-critical.
Comparing actual and planned progress - Quite simply, the duration of the work activities, as actually carried out on site, are plotted on the planned program, thereby illustrating discrepancies.
88
What notice is required when there is a delay
Clause 2.27 of the JCT contract requires the contractor to give notice if and whenever it becomes reasonably apparent that the progress of the works is being or is likely to be delayed.
89
What is required in a notice of delay
The notice must set out ‘the material circumstances’, including the cause or causes of the delay, and must specifically identify any event that is considered to be a Relevant Event.
90
What does certifying Practical completion have an affect on
- Releasing half of the retention
- End the contractor's liability for liquidated damages
- Signifying the beginning of the defects liability period
- The client takes possession and control of the site
- A milestone that triggers a payment to the contractor
- Bonds guaranteeing performance expire
- Clients insurances commence
91
What is Practical Completion
Under the JCT Standard Building Contract (SBC) and the Design and Build Contract (DB) practical completion is not defined.
PC is often described as 'Beneficial occupation' which is a term that can be used to describe a building that is capable of being used for its intended purpose, even though it may have some minor defects. JCT IBC Contract Section 2·21 sets out Practical completion and certificates.
92
What does the CA need to do if the works have not been completed by the completion date
If the CA believes that the works are not practically complete they must do one of two things issue a Certificate of non-completion or issue an Extention of Time.
93
What is a handover meeting
A formal handover meeting when the contractor takes possession of the site is an opportunity to:
- Handover keys
- Discuss security.
- Verify insurance provisions
- Read meters
- Provide contact details for key personnel
94
What is Contractors Posession
Contracts generally grant the contractor exclusive possession of the site until practical completion when a handover meeting takes place and possession reverts to the client.
JCT Section 2·4 sets out the Date of Possession
95
What is Deferment of possession
Set out in JCT Clause 2·5 This clause will entitle the client to defer giving the contractor possession of the site for a period of up to six weeks, unless a shorter period stated within the contract.
96
What is a potential consequence of Deferment of possession
Deferment of possession can be considered a relevant matter, giving rise to the possibility of the contractor claiming an extension of time or loss and expense.
97
What is partial possession
As construction nears completion, there can be considerable pressure to allow the client or tenants to take possession of part of a building or site, even if the works are ongoing or there are defects that have not been rectified.This can be programmed as part of the works through a requirement for sectional completion
98
What is the effect of partial possession
The effect of partial possession is that:
- Any part for which partial possession is given is deemed to have achieved practical completion.
- Half of the retention for that part must be released.
- The defects liability period (or rectification period) begins for that part.
- Liquidated damages reduce proportionally.
- The client is responsible for that part and should insure it.
99
Can the contractor delicate partial possession
The contractor is not obliged to allow partial possession but cannot be unreasonably withheld, reasons for no allowing partial possession include, disruption to works or extra costs.
100
What is Partial possession known as under NEC
New Engineering Contract (NEC) offers a different description of partial possession as 'taking over' the works.
101
What is a pay less notice
The purpose of a pay less notice is to provide the employer with a method of notifying the contractor that he or she intends to pay less than the sum stated on a payment notice
102
When must a payless notice be issued
A pay less notice must be issued by the employer not more than 5 days (JCT) or 7 days (NEC) after the interim payment certificate was issued.
Failure to issue a pay less notice within the given times the value stated on the interim certificate will stand.
103
Can a contractor apply for a pay less notice
Yes, The contractor must specify both the sum that they consider to be due to the employer at the date the pay less notice is given and the basis on which that sum has been calculated.
104
When is a payless notice required
A defect is found after the payment notice was issued
If the payer has made a fundamental error in their previous payment notice.
When the payer or specified third person has failed to serve a payment notice in time, or at all.
105
What are the types of payment described in the Construction act 1996
Installments - pre-agreed payment dates not subject to payment after the completion date
Stage payments - payments made at pre-agreed milestones
Periodic payments - payments assessed monthly by a valuation
106
How are payments made If a payment provision in incomplete, missing or noncompliant with the Construction Act
Payments will be made in conjunction with the scheme for construction contracts 1998
107
Why is can creating a bespoke definition of Practical completion be an issue
It adds complexity if a dispute were to arise.
| It can conflict with other contractual provisions such as payment.
108
What types of events are covered by indemnity insurance under JCT
- Accidents
- Injury to property
- Injury to a person
109
When is a contractor not liable for an insurance claim
- Employer negligence
- Damage caused outside of its control
- Damage to existing structures under option C even if they are negligent
110
What do all insurance options have in common
- They are all in joint names
- Extinguished by practical completion or termination
- Must be for the full value of the works
111
What are some insurance exclusions
- Nuclear damage
- Wear and tear
- Obsolescence
- War
- Pressure waves
112
What action is required to make an option A insurance claim
The contractor must notify the employer as soon as the damage occurs.
The contractor must inform their insurers. Not required under JCT but under the insurance policy.
The contractor should make good of any damage.
The contractor must authorise payment to the employer.
113
How are insurance payments made
Option A - An insurance payment is made separately to a normal payment notice. It is not included within an interim valuation or the final account and is therefore not subject to retention.
Option B & C - An insurance payment is dealt with as a variation.
114
How would you select an appropriate contract?
Typically I would use the “Guide to selecting the appropriate JCT main contract 2016” which is produced by the Joint Contract Tribunal. It consists of a flow chart that takes into consideration procurement route, design responsibility, size of the project, if BoQ are required, subcontractors and various other factors that have a bearing on the type of contract.
115
What were some recent changes to NEC4
Amendments to the NEC4 suites were published in October 2020. Some of which include;
Delay damages - amended to clarify that any delay damages cease at termination.
Plant and materials - amended to confirm that the Contractor is liable for loss of or damage to any equipment provided by the Client to the Contractor.
Banking - updated to reflect user feedback, electronic banking methods and best practice.
Gender-neutral wording.
These updates do not apply to users of NEC3 contracts.
116
What were some issues caused by Covid-19
- Labour shortages
- Material / plant shortages
- Instruction to cease works by employers
- Government restrictions (COVID ACT) no site closure
- ACOP (CLC site operating procedures 5thed)
- Payment delays
117
How did you treat a delay caused by COVID-19
As the government did not enforce a shutdown typically a delay would be treated as a non-completion. However, all factors will have been considered; are there any relevant events? can a reasoned agreement be reached? are damages required? Force majeure neutral event?
I believe that Force Majeure constitutes and EOT due to the following caselaw;
1920 Lebeaupin v Richard Crispin & Co
2010 Tanderin Aero
118
How would you negate COVID-19 contractural issues?
Agree prior to entering the contract what ACOP is to be followed, define the term pandemic, agree a cap on any damages that arise from a pandemic.
119
What is a loss and expense
Money that the contractor is out of pocket due to a breach of contract by the client.
120
What is the purpose of a loss and expense claim
To put the contractor's cash position back to where it was before the breach took place.
121
How is loss and expense calculated
The contractor claims for loss and expense as soon as it becomes apparent.
Qs undertakes a calculation based upon actual proven loss and requests information from the contractor.
The contractor provides additional information and QS issues their calculation.
122
What is included in a contractor's L&E notice
Applicable relevant matter
The cause and effect of the matters
Reference to documents and records
Supporting information
123
What are some typical loss and expense claims
```
Prelims prolongation
Prelims thickening
head office overheads
increase costs
disruption costs
finance changes
subcontractor claims
```
124
What is prelim prolongations
This amounts to the largest portion of L&E claims. Essentially an extension of the current site prelims.
125
What is prelim thickening
Additional prelims that are required on-site as a result of a relevant matter i.e. additional site manager
126
What is included within an L&E cause and affect the schedule
```
Item number,
Reference - drawing Nr/CAI e.c.t
Cause - Variation description
Effect - impact e.g. additional labour
Delay - delay time in days or weeks
L&E - Actual loss
```
127
What is joint names insurance
The contractor and employer are both named on insurance and cannot claim against one another.
128
When does the works insurance end
At practical completion or termination. At this point, the employers building insurance commences.
129
What is the joint fire code
An option provision that refers to a code of practice designed to reduce the incidence of fire on construction sites.
130
What is the difference between an undefined and defined provisional sum.
Defined provisional sums are those which have been described in sufficient detail that the contractor is expected to have made allowance for them in their programming, planning and pricing preliminaries.
Undefined provisional sums are less well described as they refer to work which is not completely designed, therefore the contractor is unable to make allowance for them.
