Contract Practice

Question 1

What is the Construction Act?

Answer 1

Housing Grants Regeneration and Construction Act 1996

Question 2

What did the Construction Act (1996) introduce?

Answer 2

Introduced regular payment terms for projects more than 45 days long, right to suspend the works, right to adjudicate, and disallowed paid when paid clauses.

Question 3

When was the Construction Act revised?

Answer 3

The Local Democracy, Economic Development and Construction Act 2009

Question 4

What were the main changes under the revised Construction Act (2009)?

Answer 4

Amended to:
* Disallow conditional payment clauses such as ‘paid when certified’
* Disallow tolent clauses around adjudication
* Contracts no longer had to be written

Question 5

What are the different families of contract that you are aware of?

Answer 5

JCT, NEC, FIDIC, ICE

Question 6

What are some of the differences between NEC and JCT?

Answer 6

NEC:
* Used for building & civil engineering projects
* NEC has different contract strategies that can make it bespoke to the project
* Construction programme forms part of the contractual documentation
* Has additional mechanisms such as early warning notices, risk mitigation meetings and compensation events.

JCT:
* JCT used for building projects only
* JCT has a standard set of clauses
* Construction programme is not a contractual document

Question 7

What do you consider when you advise the selection of a contract?

Answer 7

• Type of work
• Sector of work
• Procurement route in line with the Client’s key objectives
• Provisions possible under the contract.

Question 8

What are liquidated damages?

Answer 8

A genuine pre-estimate of the likely loss incurred to the client should the contractor cause the completion date to be missed.

Question 9

What is an extension of time?

Answer 9

A mechanism that extends the completion date and alleviates the levying of liquidated damages to the contractor when there is a relevant event.

Question 10

What is a relevant event?

Answer 10

A situation that entitles the contractor to an extension of time.

Question 11

Can you give some examples of relevant events?

Answer 11

• Variations
• Instructions
• Deferment of possession of site
• Force majeure
• Suspension by the contractor for non-payment

Question 12

What’s the difference between a relevant event and a relevant matter?

Answer 12

A relevant event entitles the contractor to more time, but not money, while a relevant matter entitles the contractor to additional time and money.

Question 13

What is a loss & expense claim?

Answer 13

The contractor is entitled to reimbursement for the actual loss and/or expense incurred as a result of the progress of the works being materially affected by a relevant matter.

Question 14

What did you learn from reading the RICS guidance note on deciding the appropriate JCT contract?

Answer 14

Comparison of contract provisions – how the suitability of a contract changes in line with its provisions.

For example, Minor Works do not have the provision for sections / sectional completion.

Question 15

Can you name 3 differences between the D&B 2016 and SBC 2016?

Answer 15

• Design responsibility sits with the contractor in D&B but retained by the Employer in SBC
• Terminology differences such as EA vs. CA
• Changes vs. variations.
• The QS and their role are named within the SBC, but not the D&B
• Valuations differ regarding the IVD

In D&B, the due date is pushed out until the Contractor sends a valuatio

Question 16

What is the QS’ role named within the SBC?

Answer 16

• Valuations
• Variations
• Assess L&E claims

Question 17

Talk me through how you compiled the contract documents for Acrisure? What did you include?

Used the tender documents to form the basis of the contractual documents

Answer 17

Legal and pricing information:
* JCT contract including the particulars
* Schedule of amendments
* CSA
* General conditions and preliminaries
Employer’s Requirements:
* Design information for each consultant
* Including reports, drawings and specifications
Contractor’s Proposals:
* Contractor’s completed design
* CSA
* Programme
* Clarifications and Exclusions
Landlord / Basebuild Information:
* Tenant Fit Out Guide for the building
* Other LL info such as subdivision plans

Question 18

What would you typically find included in the Employer’s Requirements?

Answer 18

Design information comprising drawings and specifications.

Question 19

Can you tell me the time frames for undertaking a valuation?

Answer 19

• Interim valuation date (as stated in the contract particulars)
• My payment recommendation is to be issued +7 days to the due date
• Payment notice is issued +5 days from the due date
• Final date for payment is +14 days from the due date (unamended)
• Pay less notice to be issued -5 days before the final date for payment

Question 20

What are some typical amendments you would make to the contract?

Answer 20

• Payment terms – final date for payment changes from the default 14 days from the due date to 28 or 30 days.
• Addition of Article 10 which notes that the incorporation of the schedule of amendments prevails over the articles and conditions stated in the JCT.

Question 21

What are the advantages of having a schedule of amendments?

Answer 21

Can tailor it to the client’s needs and requirements e.g. payment terms to suit their business and their processing team.

Question 22

What are the disadvantages of including a schedule of amendments?

Answer 22

• Not backed up by case law.
• Could be seen as unfair or favouring one party.

Question 23

What is Practical Completion? What happens when it is achieved?

Answer 23

• The works are substantially complete subject to minor snags.
• Triggers the release of the first moiety of retention to the contractor.
• Ownership is transferred to the Employer, and the Contractor no longer insures the works.
• Employer insures the works.
• The rectification period commences.

Question 24

What factors did you consider when advising the client on the most appropriate contract?

Answer 24

• Procurement route
• Nature of the project
• The scope of works
• Measure of control by the client
• My client’s key objectives

Question 25

What was the client's previous experience with contracts?

Answer 25

The client had used an ICD 2016 contract on a previous job and assumed it would be suitable for their next project.

Question 26

Why was the ICD 2016 contract not suitable for the client's next project?

Answer 26

It was not suitable if they wanted to transfer design responsibility in its entirety, which would not occur under JCT ICD.

Question 27

Why did you select D&B 2016 over ICD 2016?

Answer 27

The contract provisions were better suited, as D&B allows for the transfer of design in its entirety.

Question 28

What is a key difference between D&B 2016 and ICD 2016 regarding design risk?

Answer 28

D&B allows for the transfer of design in its entirety, whereas ICD allows the design risk to be transferred only for the elements that the contractor is designing.

Question 29

What are some of the other differences in the contract provisions between D&B and ICD?

Answer 29

**Client control:** * CA & QS are named in the ICD, not in the D&B. * D&B has an EA instead of CA. * Clerk of works provided for in ICD, not D&B. **Design responsibility:** * D&B – Contractor responsible for complet8ing all design. * ICD – Contractor responsible for part of design. * Commencement / Completion = the same. * Selection of subcontractors = the same. **Variations:** * Quotation provision for change applies in D&B, not ICD. **Payment:** * ICD does not allow Stage payments. D&B does. * Retention bonds apply in D&B but not ICD. **Warranties:** * Third party rights not included in ICD, but included in D&B.

Question 30

Why were the D&B contract provisions better suited to the Acrisure project?

Answer 30

D&B allows for the following the transfer of design in its entirety, whereas ICD allows the design risk to be transferred only for the elements that the contractor is designing.

Question 31

How did you advise on the level of liquidated damages on OMERS?

Answer 31

* I explained what the term meant. * That the mechanism is not to penalise the contractor and should be a genuine estimate of the cost incurred if completion was missed. * Commercially agreeable position needs to be reached.

Question 32

Why can’t you advise the level of LDs?

Answer 32

* Not covered by PI insurance for this. * It sits outside my scope of service. * I can provide anonymous benchmarking for my client so they can see what is typical of the market at the same time.

Question 33

What are collateral warranties and how do they protect the client?

Answer 33

They create a contractual relationship between the main parties of a contract and an external third party. ## Footnote E.g., subcontract warranties create a contractual relationship between the client and the subby, so that in the event that the main contractor goes insolvent, there is a link between the client and the subcontractor.

Question 34

What is a performance bond and how do they protect the client?

Answer 34

A method of protection to the client should a contractor fail to fulfil their obligations under a contract. ## Footnote Example – Should the main contractor go insolvent, the client contact the surety to get the 10% held in the bond. The Client can use the money to fund the retender of the works.

Question 35

What are the different types of performance bonds available?

Answer 35

On-demand and Conditional.

Question 36

Are you aware of another mechanism that could be used instead?

Answer 36

Parent company guarantee.

Question 37

How do parent company guarantees work?

Answer 37

The contractual performance of a subsidiary company is underwritten by their parent company. Therefore, if a company were to go insolvent, then the parent company would step in to complete the works under the same contract.