Contract Practice Flashcards
(21 cards)
What are some of the problems that can arise through LOIs?
LOIs can vary wildly from a simple expression of hope that a contract will be entered into to contracts in all but name.
The biggest problem with a letter of intent is that it is unlikely to provide the full advantages of a detailed contract being in place.
Those advantages include certainty as to terms, the ability to assess and manage risk, and a methodology for handling the problems that may arise during construction.
What are the risks of using Letters of Intent, and how can these be controlled?
LOIs risk scope creep or informal commitments without binding terms.
Control via clear expiry, defined scope , financial caps, and progression to a full contract ASAP.
How would you use contingency allowances to mitigate financial risk in utility procurement?
Define known risks, quantify potential costs, and agree upfront values with clients/contractors.
Include in budget and validate against risk triggers. This avoids change order delays.
Can you name any significant legal cases relevant to the dangers of LOIs?
Ampleforth Abbey Trust v Turner & Townsend Project Management (2012)
(8LOIs, no construction contract. T&T were then pursued for damages as lack of contract forced client to settle in regard to liquidated damages)
What are the private and public sectors?
Private - the part of the national economy that is not under direct state control.
Public - Companies and corporations that are government run
What is retention, why is it used?
Security that the contractor/sub-contractor will return to correct any defects.
Can you tell me a normal rate used for retention?
Normally 3% or 5% in my experience.
Can you please tell me about bonds?
Bonds are a means of protection against the non-performance of the contractor.
They can be ‘on demand’ or ‘conditional’.
Conditional bonds require that the client provides evidence that the contractor has not performed their obligations under the contract and that they have suffered a loss as a consequence.
Can you describe some different types of bond?
Performance bond - insures the client against failure of contractor to fulfil their contractual requirements. Typically 10% Contract Value.
Advance payment bond - used when significant upfront payments are required, normally on demand. 5-10% of value of works/purchase
Off-site materials bond - Similar to advance payment but specifically tied to purchase of offsite materials purchase, e.g. reserving long lead plant or materials.
What is the difference between on demand and default bonds?
The essential difference between an ‘on-demand’ bond and a ‘default’ bond is that,under an ‘on-demand’ bond, the employer does not have to prove default. Provided that they can show that they have complied with the conditions for ‘demanding’ the bond, the employer can call on it
In an on default bond the employer has to provide evidence of the contractor defaulting on their contractual obligations
Can you tell me about Parent company guarantees?
A parent company guarantee (PCG) is a guarantee given by one contracting party’s ultimate or intermediate holding company in favour of the other contracting party to secure the performance of that party’s obligations under the contract. This provides the client with a route of recourse should the subsidiary company contracting go bust or default.
How would you certify sectional / practical completion ?
Arrange onsite handover meeting for works to be reviewed by design team.
Sectional Completion form to each member of the design team (I am not qualified to certify completion).
They confirm that the works are complete in accordance with the contract
What happens at Practical Completion?
Defects liability period starts
Half retention is released
Client needs to take site and insure it
Explain how you would assess an extension of time claim.
The contractor gives written notice identifying the relevant event that has caused the delay.
These are for time delays but can run alongside a loss and expense (L&E) claim for a relevant matter.
L&E is Direct losses are those that ‘flow naturally’ from the breach of contract.
Claims should be judged against the actual progress of the works, not the programme, and must demonstrate the link between the breach (cause) and the delay.
How would you advise a client on insurances?
I do not advise on insurance’s as such as I am not qualified to do so.
What does a contract do?
A legally binding agreement that recognises and governs the rights and duties of the parties to the agreement.
A contract is legally enforceable because it meets the requirements and approval of the law.
An agreement typically involves the exchange of goods, services, money, or promises of any of those.
Can you name some different types of LOI?
Comfort letters
Instruction to proceed with consent to spend
Letter recognising the existence of a binding contract
What are the elements of a contract?
Offer
Acceptance
Awareness
Consideration
Capacity
Legality
What are the distinct aspects of NEC contracts?
NEC (New Engineering Contract)
- Written in plain English
- Focused on Project Management with defined roles (Project Manager) and mechanisms such as Early Warning Notices and Risk Registers.
- Aims to share risk evenly.
- Uses Compensation Events to cover time and cost implications for changes.
- Requires regular programme reporting and live programme document.
- Offers flexible payment options beyond lump sum.
- Encourages early dispute resolution and often includes reference to dispute resolution board.
- Designed to be flexible for use on different projects
What are the distinct aspects of JCT contracts?
JCT (Joint Contracts Tribunal)
- Written in legal/contractual language
- Relies on Contract Admin (normally Architect) in supervisory role.
- Les focus on risk management, and places more risk with contractor.
- Deals with changes separately as Variations, Extensions of Time and Loss and Expense.
- Relies on initial Master Programme, updated for EoTs.
- Normally traditional fixed-price or lump sum payment structure.
- Provides for Mediation, Adjudication and Arbitration.
- Variety of standard forms for different projects but less flexible to customisation.
What can you tell me about the Latham Report?
Published in 1994, aimed to improve UK construction industry’s performance and reduce costs.
Highlighted need for more collaboration and partnering, and addressing disputes.
Recommended use of NEC contract and influenced the 2nd edition of NEC.
Influenced Housing Grants, Construction and Regeneration Act 1996.
