Contract Practice

Question 1

What are the key differences between JCT Design and Build contracts and Traditional JCT contracts, and when would you recommend each?

Answer 1

Traditional Contracts are when the project is fully designer before being tendered.

This generally places greater risk on the client as if errors are found in the design it is theirs to bare.

In design and build, the project can be tendered at an earlier stage, such as stage 3 and will give the contractor design elements, such as connection details for structural or mechanical elements.

Contractors will include a risk allowance as they take hold of the Employers requirements and if errors are found in these then it is the contractors to bare.

Question 2

Can you explain the main differences between JCT and NEC contracts in terms of their approach to risk allocation?

Answer 2

JCT’s generally assigned clear roles and responsibilities at the beginning of a project which are arrange by the client.

This can potentially make project adversarial compared to NEC which looks to take a more collaborative approach to risk in the form of risk management during the construction.

Question 3

What are the essential components that should be included in the Employer’s Requirements for a JCT Design and Build contract?

Answer 3

The EA’s themselves,
Drawings
Structural information
Mechanical information
Surveys
Planning documents
Health & Safety information.

Question 4

How would you explain the purpose and function of a Contract Sum Analysis in a Design and Build contract?

Answer 4

It provides a clear and transparent breakdown of the contractors costs and forms the basis for the interim valuations.

Question 5

What are the key considerations when drafting and issuing a Letter of Intent, and what are the risks associated with using them?

Answer 5

The clarity of the intent and the scope of works to be conducted during the period.

The payment terms must also be clearly set out and agreed by all parties.

If not clearly set out the risk is that this could lead to disagreements with the contractor.

Question 6

What happens when a client side consultant is novated to the contractor?

Answer 6

There is a contractual transfer with the consultant from the client to the contractor.

This in turn creates a liability shift as the contractor assumes responsibility for the entirety of the design produced by that consultant.

Question 7

What is the benefit of novation?

Answer 7

It creates a continuity of the design specification and transfers the risk from the client to the contractor.

It may also improve communication as the contractor manages both design and construction.

Question 8

What is the difference between novation and assignment?

Answer 8

Novation transfers rights and obligations, whereas assignment only transfers rights.

Novation creates a new contractual link, whereas assignment retains the original.

Question 9

What is a loss and expense claim?

Answer 9

This is when a contractor faces direct loss due to a client driven event,

The contractor must provide written notice to the client as soon as it is apparent loss and expense will be incurred due to the event.

The costs incurred can be direct loses, prolongation costs and disruption costs.

Direct loses are elements such as labour, materials, prolongation costs are costs associated with the extended programme, such as site management.

Question 10

What is meant by the term Quantum Meruit?

Answer 10

Where services have been provided and payment due where no contractual agreement is in place or when work has occurred beyond the scope.

Question 11

What is a Relevant Event and Relevant Matter and how do they impact the project?

Answer 11

A Relevant Event causes a delay to the completion date and entitles the contractor to an extension of time,

Examples of a Relevant Event are,

Adverse weather
Force Majeure
Delay in giving the contractor possession
Terrorism

A Relevant Matter is when the client causes a delay which materially effects the progress of the works and entitles the contractor to cost.

Examples are,

Variations caused by the client
Delays in receiving instructions from the client
Delay in giving the contractor possession
Discrepancies in contract documents

Question 12

What is the difference between a Relevant Event and a Relevant Matter in a JCT form of Contract?

Answer 12

They are events that entitle the contractor to an extension of time, a relevant matter entitles them to cost.

Question 13

What is the difference between sectional completion and partial possession?

Answer 13

Sectional completion is planned from the outset and specified in the contract.

Partial posession occurs when a client wants to take posession of part of the works before practical completion.

Question 14

What are some types of JCT Contracts?

Answer 14

Design and Build
Standard Building Contract
Intermediate
Minor Works
Major Projects

Question 15

What is the difference between a Minor Works contract and Intermediate Contract?

Answer 15

A Minor Works Contract
- Simpler in it’s structure
- Suitable for straightforward contracts
- Generally used for projects up to £500k
- Payments are generally based on stage or monthly payments unless agreed otherwise
- Doesn’t allow for phased works
- Doesn’t allow for CDP’s

An intermediate contract is for projects which are more complex, but not appropriate for SBC, it allows for phased works and CDP’s.
- Suited for more complex projects
- Generally used for projects from £500k to £2m
- Payments are generally based on interim valuations
- Allows for phased works
- Allows for CDP’s

Question 16

What is the value of a minor works contract typically?

Answer 16

Generally, less than £500k.

Question 17

What is the value of a intermediate works contract typically?

Answer 17

Generally above £500k.

Question 18

What are the fluctuation options under a JCT?

Answer 18

Option A - taxes, levies, statutory contributions

Option B - materials, labour

Option C - formula based adjustment

Question 19

What is retention?

Answer 19

It is a percentage of each interim certificate deducted and retained by the employer from each interim payment to the contractor

Question 20

What is the purpose of retention?

Answer 20

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.

Question 21

What is a retention bond?

Answer 21

This is a bond provided by the contractor in lieu of taking retention from interim payments.

It should be equal to the same value as the retention deducted.

The requirement for the bond should be stated in the contract particulars.

A standard form is provided in the JCT contract schedules.

Question 22

What is a specified Peril?

Answer 22

Specified perils tend to be significant events that would cause very significant damage, such as fire, explosions, earthquakes, flooding and so on. All-risks insurance will tend to cover a broader range of risks, albeit it may not cover every possible risk.

Question 23

What is subrogation?

Answer 23

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.

Question 24

What does ‘joint names’ mean?

Answer 24

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.

Question 25

Scenario: If an Architect used in the design stage of a project is novated to the contractor during the construction phase, what happens if errors are then found in the ER's.

Answer 25

If errors are found in the design produced by a novated consultant, the liability typically sits with the contractor as they have taking responsibility for the design.

Question 26

Can a main contractor novate a consultant?

Answer 26

Yes, in a JCT Design & Build, it is common for the main contractor to novate a consultant.

Question 27

What are the benefits of novation?

Answer 27

Continuity of the design. The consultant already knows the ER's. Risk transfer as the contractor takes on the full responsibility for the design.

Question 28

Can you novate a consultant in a traditional procurement route?

Answer 28

It's uncommon, but can occur if all parties agree to it.

Question 29

Can a contractor refuse the novation of a consultant?

Answer 29

Yes, novation requires agreement of all three parties involved (client, consultant, contractor). Contractors may refuse novation due to, Liability concerns - may not want to assume responsibility for the consultants previous work. Performance issues - consultant has a history of errors.

Question 30

What types of LOI are there?

Answer 30

Pure Letter of Intent - These express an intention to enter into a formal contract but do not create any legally binding obligations. Interim Contract - These allow works to commence whilst whilst the full contract is being finalised. Conditional Contracts - These remain in place unless replaced by a main contract.

Question 31

What is the difference between a LOI and a PCSA?

Answer 31

Letter of Intent (LOI): - Expresses an intention to enter into a formal contract later. - Allows a contractor to begin work before the main contract is signed. - May or may not be legally binding, depending on its wording. Pre-Construction Services Agreement (PCSA): - A formal contract used in two-stage tendering to engage a contractor before the main contract. - Covers design input, buildability advice, and cost planning. - Provides a structured scope of services separate from the main contract.

Question 32

What are Alternative 1 and Alternative 2 in the JCT?

Answer 32

Alternative 1 - The tenderer is informed of the errors and given the choice to either confirm or withdraw their tender. This method aligns with contract law principles, allowing the contractor to decide whether to proceed despite the errors. Alternative 2 - The tenderer is informed of the errors and given the option to correct genuine errors (such as arithmetic mistakes). If the corrected tender sum exceeds the next lowest bid, the tender is set aside, and the next lowest bid is considered instead.

Question 33

What would you do if you found errors in a Contractors tender submission?

Answer 33

Due to the nature of the projects I work on, I generally advise the client we follow Alternative 2 and allow the Contractor the opportunity to amend the errors.

Question 34

What are the insurance options under a JCT?

Answer 34

Option A - The Contractor takes out joint names all risk policy covering the works Option B - The Employer takes out joint names all risk policy covering the works Option C - The Employer takes out joint names all risk policy covering the works and the existing structure

Question 35

When is retention released?

Answer 35

It is released in two stages, 50% at practical completion, 50% at the end of the specified rectification period.

Question 36

What occurs at PC?

Answer 36

Posession transfer to the Employer. Release of 50% of the retention. Defects liability period begins. End of liquidated damages. Insurance responsibility shifts to the employer. The final account process begins. No further variations can be issued.

Question 37

Which JCT contracts do notices and certificates apply to?

Answer 37

Notices occur in a Design & Build. Certificates occur in a SBC, intermediate and minor works.

Question 38

What takes precedent over the ER's and CP's in a Design and Build?

Answer 38

In a standard Design and Build the CP's would take precedent, however this may be amended out for the ER's to take over.

Question 39

What are some types of bonds in a JCT?

Answer 39

Performance bond - A guarantee that the contractor will perform their obligations under the contract Advance payment bond - Used when the employer makes an advance payment to the contractor (for mobilisation or off-site materials) Retention bond - Replaces the need for the employer to retain part of the payment as security

Question 40

What do you do if there are discrepancies between the ER's and CP's?

Answer 40

Follow the contract and it's amendments. Ensure that the CP's are followed forward and have an open discussion with the client and contractor to see if variations need to be raised.

Question 41

What are Collateral Warranties used for and how do they work?

Answer 41

They create a direct contractual link between a party involved in the project and a third party beneficiary. It allows the beneficiary to bring a contractual claim directly against the warrantor. I.e, if a sub-contractors work has defects after the defects rectification period, the client can bring a claim against the sub-contractor.