Contract Practice Flashcards
(117 cards)
1
Q
What is a contract?
A
A legally binding agreement between two or more parties.
2
Q
What are Defined Terms?
A
Typically written in italics, and are explained through definitions under the contract.
3
Q
What are Express Terms?
A
Are those terms which have been explicitly agreed between the parties.
4
Q
What are Implied Terms?
A
Those terms which are implied through tort law.
5
Q
What are the condition for a contract to be in place?
A
- Offer
- Consideration
- Acceptance
- Intent to form a contract
- Legality to form a contract
- Capacity to make an agreement
6
Q
What is tort law?
A
It is part of civil law, where a claim in tort relates to loss incurred and the remedy is compensation.
7
Q
Are oral contracts acceptable?
A
Oral agreements are legally binding, however difficult to enforce. Therefore, it is best to have a contract in place with the terms and conditions clearly agreed upon.
8
Q
What are the principles surrounding the Construction Act 2009?
A
- Payless notice must be issued if certifying below the applied amount
- Payment notice must be issued describing how the amount due has been determined.
- The Contractor has the right to suspend works if payment has not been received by the due date and a payless and/or payment notice has not been received.
9
Q
What is a Letter of Intent (LOI)?
A
A method of commencing works prior to a contract agreement being finalised. It is issued by the employer.
10
Q
What are the key aspects of a LOI?
A
- A letter outlining client’s intentions to enter contract
- Enables the contractor to commence works while the contract agreement is being finalised.
It should include:
- Scope of works to be completed
- Value of works
- Form of contract to be entered into
- Date of possession
- Date of completion
- Expiry date
11
Q
What are the disadvantages with LOI?
A
It is less robust than a contract agreement, once it is in place there may be complacency in getting the contract agreement signed off.
12
Q
In which circumstances are LOI used?
A
When there are programme pressures and works need to commence by a certain date.
13
Q
What is your firm’s policy in regards to LOI?
A
I am not permitted to advise on Letter of Intents, but encourage the finalisation of contract agreements. Furthermore, I am not permitted to draft Letters of Intent.
14
Q
What is a Parent Company Guarantee (PCG)?
A
A form of security to the client in the event the subsidiary company defaults and the main organisation steps in to fulfil the agreement.
15
Q
What are antiquities?
A
The discovery of historical artefacts, archaeological items or fossils
16
Q
Who owns these antiquities once they are discovered?
A
The Employer/ Client
17
Q
What should happen when an antiquities discovery is made?
A
Works should cease, the contractor must not disturb it and preserve it and notify the Employer or relevant authorities. The time and cost impact of such events are typically borne by the Employer, for these eventualities.
18
Q
What is a bond?
A
A form of financial security that the contractor takes out with a third party in the name of another for any eventualities.
19
Q
What is typically included under a bond?
A
It is made in writing, to be under a deed, contains the value, expiry and terms of coverage.
20
Q
Name some of the types of bonds you are aware of?
A
- Advance Payment Bond
- Retention Bond
- Performance Bond
- Materials held off-site bond
- Tender Bond
21
Q
When are bonds appropriate to have in place?
A
When risks to losses are present and security is needed to clients.
22
Q
When can the Employer can call upon a Performance Bond?
A
When the contract has been breached, and not as and when.
23
Q
What is a Performance Bond?
A
A financial bond for the Employer to call upon when there has been poor performance, breach of contract or default on the part of the Contractor. Typically the coverage of the bond is 10% of the value of the contract.
24
Q
What is a Tender Bond?
A
Provides security to clients as part of the tendering process to avoid having anyone withdrawing and submitting unrealistic bids.
25
What is an Advance Payment Bond?
An advance payment bond provides assurance to the client that if the contractor defaults or breaches the contract after receiving an advance payment, the bond can be invoked to recover any outstanding funds not yet repaid.
26
What is a Material Off-site Bond?
Provides security to clients when they pay for materials held off site in the eventuality of materials are not delivered, lost, seized or supplier defaults.
27
What is a Retention Bond?
Where the retention money is held by the bank/ bondsman rather than the Employer through making withholdings. It supports the Contractor's cashflow.
28
What is a defect?
A defect is work delivered not in accordance with the contract, design or specification.
29
What is a Patent Defect?
A defect which can be identified via reasonable inspection.
30
What are Latent Defects?
Defects which cannot be identified through reasonable inspections and are found after a period of time.
31
What is Defects Rectification Period?
A period of 52 weeks after completion/ take-over for the Contractor to rectify all known defects present.
32
In the forms of contract you have used what documents confirm the correction of defects?
- NEC (Cl. 43) - Defects Certificate issued by the Supervisor
- ICE (Cl. 61) - Defects Correction Certificate issued by the Engineer
- FIDIC (Cl. 11.1) - Taking Over Certificate issued by the Engineer/ Employer
33
When achieving completion, what documents are issued to confirm this under the forms of contract you have used?
- NEC: Certificate of Completion which is issued by the PM
- ICE: Certificate of Substantial Completion issued issued by the Engineer
- FIDIC - Taking Over Certificate issued by the Engineer/ Employer
34
What is novation?
Transferring the the rights and obligations from one party to another, i.e. a subcontractor who was originally in contract with the employer is novated to the main contractor.
35
What are the key aspects of novations?
The novated party loses at the contractual link to the former entity where there was a contractual relationship, and the contractual link with the new entity remains in place.
i.e. design team novated to the main contractor, or piling contractor novated to the main contractor.
Benefits of novation include continuity of design staff. expedience and better coordination of subcontractors with the main contractor.
36
What is retention?
A form of financial security where a small percentage between 5-10% is withheld by the employer on each payment certificate for eventualities such as breach of contract or default.
37
What is Contractor's Design Portion (CDP)?
Items of work that is designed by the Contractor and assumes responsibility for it.
38
When would Contractor's Design Portion (CDP) be suitable?
Suitable on complex technical elements of the building such as steelwork connections, cladding, roofing, temporary works and particular MEP services. It is not suited on the structural design (concrete/ structural steel).
39
Under what forms of contract would you expect CDP present?
Under traditional "build only" form of contract. Under D&B, the Contractor assumes design responsibility for the entirety of the works.
40
What is a domestic subcontractor?
Suppliers selected by the Contractor through competition under their approved supplier's list
41
What is a Works Package Subcontractor?
A subcontractor who will deliver a package of works under a management form of contract.
42
What are named subcontractors?
Suppliers vetted/ pre-qualified by the client for the contractor to use as part of tendering process.
43
What are nominated subcontractors?
Suppliers appointed by the contractor on request from the Employer to carry out certain elements of work.
44
What are the advantages of nominated subcontractors?
- Likely to have a pre-existing good relationship with the client
- Their performance and quality of delivery is known and acceptable to the client.
45
What are the disadvantages of nominated subcontractors?
- It may be the fault of the client for the nominated subcontractor's lack of performance
- The Main Contractor may be entitled to EOT claims if the cause of the events leading to delay is the fault of the nominated subcontractor
46
What is a collateral warranty?
An agreement which creates a contractual link between two parties where it would not exist. i.e. Product warranty or design warranty
47
Why is a collateral warranty needed?
Employers would like a collateral warranty in the event of the main contractor defaulting.
48
How should the collateral warranty be worded?
It should mirror the terms of the main agreement
49
What is the difference between a bond and a warranty?
A bond is a financial form of security that can be called upon in an eventuality. A warranty forms a contractual link between 2 parties where it did not exist originally.
50
What is partial possession?
Where the client decides to take over an area of the construction site under their control.
51
What are some of the implications associated to partial possession?
- Half of the retention may need to be released for the area that has partial possession
- Contractor's responsibility to insure that area and be accountable for it ends.
- Completion for that area is assumed and defects liability period commences.
52
What is sectional completion?
Predetermined areas of the works that need to be handed over to the Employer at the specified dates.
53
What are some of the implications associated to Sectional Completion?
- LAD's are applicable
- The release of retention applicable to the particular sectional completion dates must be predetermined.
54
What is the difference between partial possession and sectional completion?
Employer can take partial possession of a site at any point in time. Whereas, this cannot be performed for sectional completion dates as the areas of handover are pre-determined, have a value associated to it and a predetermined date for completion.
55
What provisions for partial possession and sectional completion dates are there under the forms of contract you have worked on?
Partial Possession: -
- FIDIC: - Cl. 10.2 Taking Over parts of the work
- ICE: - Cl. 48 (3) Premature use by Employer
- NEC: - Cl. 35.2 Take Over
Sectional Completion: -
- FIDIC: - Cl. 10.1 Taking Over Sections
- ICE: - Cl. 48 (2) Certificate of Substantial Completion
- NEC: - Cl. 35 Take Over
56
What is insolvency?
When a firm does not have enough money to pay for their liabilities.
57
What are some of the signs that a firm may be facing financial difficulty?
- Industry rumours
- Slow rate of progress
- Less labour on site
- Over valued payment applications
58
What checks can be performed at the time of tender in relation to a firm's financial health?
- Bank references
- Front loading of payment schedule
- Credit/ financial health agencies (i.e. Dun Bradstreet, Companies House, SAMA, CMA, etc.)
- Previous References
- Ensuring PCG's are in place if applicable.
59
What would you do if you are informed that your supplier is going through financial difficulty?
- Value the works thoroughly, as usual
- Ensure on account certifications are not present
- Check the statuses of insurances and bonds
- Check vesting certificates for materials paid off-site
- Arrange a meeting with the client and contractor to discuss the situation
60
In the event of a contractor's insolvency and has gone into administration, what should you do?
- Secure the site and materials from the contractor and others
- Check and have ready insurances, bonds, vesting certificates and PCG's.
- Stop processing payments
- Inform the client and advise them on the contractual position and the next steps
61
What is termination?
The lawful stopping of a contract agreement
62
What provisions are there in connection to termination under the forms of contract you have used?
- ICE: - Clause 65 (1) - Default of the Contractor
- FIDIC: - Clause 15 - Termination by the Employer
- NEC: - Clause 90 - Termination
63
Under what circumstances can the Contractor suspend or terminate the contract?
- Failure to pay on time
- Client substantially fails to perform their obligations
- Client becomes insolvent
- Force Majeure
- Illegal activity
64
What are delay damages?
A genuine pre-determined estimate of the losses in the form of a rate that is included under a contract that is applied in the eventuality of late sectional completion or completion.
65
Where are delay damages rates recorded under the forms of contract you have used?
FIDIC:- Appendix to Tender
ICE:- Appendix to Tender
NEC:- Contract Data Part 1
66
What is the typical cap of delay damages which can be applied under a contract?
Under typical forms of contract delay damages can be applied up to 10% of the contract value
67
How can delay damages be recovered?
Through interim payment certificates
68
Can client's make deductions for liquidated damages even when no loss has been sustained?
According to the contract yes, in the UK yes. However, according to KSA law (Shariah) that not may be the case. As unjust enrichment is not allowed.
69
What precautions should be taken when determining the rate of delay damages?
That is must be a genuine pre-determined estimate of the losses that would be sustained in the event of late completion. If it is too low, the client would not have the ability to sufficiently recover cost to cater for the actual cost sustained. If it is too high, the contractor would increase their price to cater for this high risk.
70
If in the contract agreement you are working on the rate of delay damages appear as "0" or "nil", or left blank, what are the repercussions of this?
If stated under the Appendix to Tender/ Contract Data Part 1 it is "0" or "nil", then no recovery can be made. If left blank, the damages are unlimited.
71
If there was an extension of time awarded to the contractor, how are delay damages levied?
The delay damages should be levied on late completion based on the revised completion date, and not the original.
72
What is a Pre-Construction Services Agreement (PCSA)?
A contract between a client and contractor to receive pre-construction services. This would typically be Early Contractor Involvement (ECI) in helping to define the design/ scope of works to help get it to approved for construction status and examine buildability and construction methodologies.
73
What do you need to consider when drafting a PCSA?
- It does not capture scope to deliver construction works
- Only includes services and deliverables required to support the definition of scope.
- It does not bound the employer in appointing the PCSA contractor to delivers the build stage of the project.
74
What are the main suites of contracts you have worked on?
- NEC
- ICE
- FIDIC
75
What are some of the key considerations which need to be made when selecting a form of contract?
- Procurement Route
- Risk allocation
- Contract Sum arrangements
- Client's requirements - Time, Cost and Quality
- Type of work
76
What is a bespoke form of contract?
A unique form of contract that is developed with contract conditions specific to the project.
77
When are bespoke forms of contract typically used?
When a standard form of contract does not offer the conditions of contract which the client requires. It is used mainly on major/ complex projects.
78
What are some of the advantages of using a standard form of contract over a bespoke one?
- Familiarity across all industry professionals
- It has been tried and tested as it has been developed throughout the years
- It is written by legal experts
- Obligations are clearly set out
- Less ambiguity than a bespoke contract
79
What are some of the disadvantages of using a bespoke contract?
- Lack of familiarity among industry professionals
- Expensive to draft and time consuming
- Not tested in courts
- Unappealing to contractors
- Ambiguity in clauses
80
What does NEC ECC stand for?
New Engineering Contract (NEC) Engineering Construction Contract (ECC)
81
Provide me with an overview of the NEC?
- A form of contract which is predominantly used under the infrastructure sector
- It is collaborative in nature, with simple and easy language used for risks and the project to be managed between the Project Manager, Supervisor and Contractor.
82
What is included within the NEC suite of contracts?
The suite consists of the following:
- Option A:- Fixed Price Lump Sum with Activity Schedule
- Option B:- Fixed Price Lump Sum with BOQ
- Option C:- Target Cost with Activity Schedule
- Option D:- Target Cost with BOQ
- Option E:- Cost Reimburseable
- Option F:- Management Contracting
83
Explain the roles of the individuals involved in administering an NEC form of contract?
- The Project Manager acts independently on behalf of the Employer in administering the contract.
- The Supervisor ensures the Contractor delivers the works in line with the Works Information/ Scope.
- The Contractor delivers the works as per the Works Information and as per the contract.
84
How risks and variations managed under an NEC contract?
A risk reduction meeting (Early Warning meeting) is held, the Project Manager and Contractor notify each other of time, cost or quality related issues which gets discussed and mitigated collaboratively.
Variations are managed through the Compensation Event procedure. The Contractor or Project Manager can issue notified compensation events. The Contractor submits an assessment of the Compensation Event which is reviewed and agreed through an Implemented Compensation Event by the Project Manager.
85
What are some of the advantages of NEC?
- Easy and simple language is used
- Encourages collaborative working
- Encourages the resolution of time and cost issues up front rather than waiting at final account
86
What is Taking Over under NEC?
The process of the Employer taking possession of the site, either before or after completion. - Clause 10
87
How can you make an NEC contract Design & Build (D&B)?
Through capturing the requirement for the contractor to design the works and construct them under the Works Information.
88
How does an NEC Option A form of contract operate?
- This is a Fixed Price Lump Sum form of contract with an activity schedule
- It is suitable when the scope of works is fully defined.
- The activity schedule relates to activities under the programme, and when completed interim payments are performed based on the completion of them.
- It has lowest risk to the client as there is cost certainty. However, it has the highest risk to the Contractor as they must ensure the works are delivered at the agreed prices.
89
How does an NEC Option B form of contract operate?
- It is a fixed price lump sum form of contract with a BOQ (it is also considered as a re-measurement contract)
- A traditional BOQ has been measured using a standard method of measurement and included under the contract as the pricing document.
- Any changes in quantities throughout the works are considered the Employer's risk
- It is suitable when the Works Information is well defined, but the quantities are subject to change
90
How does an NEC Option C form of contract operate?
- It is a Target Cost with Activity Schedule form of contract
- There is a target cost which is agreed between the parties and the contractor is paid for defined cost in delivering the works. The contractor is incentivised in coming below the target, or is penalised in going over the target.
- The target cost and completion date is revised as per implemented CE's
- Schedule of Cost Components (SoCC) is used to determine Defined Cost.
91
How does an NEC Option D form of contract operate?
- It is target cost with BoQ
- Pain and gain mechanism
- Defined Cost is paid through SoCC
92
How does an NEC Option E form of contract operate?
- The contractor is paid the defined cost as per the SoCC as per the works required to be delivered under the contract.
- This form of contract is typically used on emergency/ critical works when delivering the works ASAP takes priority over cost certainty.
93
How does an NEC option F form of contract operate?
- The prices of the contract is based on a forecast of the entirety of the works.
- Works Packages are tendered and awarded based on a lump sum fixed price subcontract.
- The Management Contractor recovers Defined Cost plus fee
- Cost certainty is not achieved until of the works packages are let.
94
What is the Structure of the NEC?
It has core clauses and sub clauses
1 - General
2 - The Contractor's Main Responsibilities
3 - Time
4 - Quality Management
5 - Payment
6 - Compensation Events
7 - Title
8 - Liabilities and Insurance
9 - Termination
- Option W (W1-W3) Whether Adjudication is applicable or not
- Option X (X1-29) Inflation, Performance Bond, Retention, Advance Payment
- Option Y (Y1-Y3) PBA, HGRCA 1996 and Contracts Rights of Third Parties
- Option Z - Any Additional Clauses
- Schedule of Cost Components
- Contract Data Part 1 and 2
- Works Information and Scope
- Site Information
95
How is time managed under NEC contracts?
The programme and implemented compensation events manage the process of time throughout the course of a project.
96
What are the different types of float under an NEC contract?
- Time Risk Allowances
- Terminal Float
- Total Float
97
What are Time Risk Allowances?
- Inclusion of additional time to an activity to cater for time risk for that activity
98
What is terminal float?
The time between planned completion and completion
99
What is total float?
The time between the latest possible finish time and earliest possible finish time
100
What are some of the methods to changing the completion date?
- Acceleration, bringing in completion earlier
- Extension of time, prolonging completion
101
Who are the key individuals under an NEC contract?
- PM
- Supervisor
- Contractor
- Employer
- Adjudicator
102
What are their roles?
- PM - acts independently to administer the contract, manage risk and ensure project delivery.
- Supervisor - ensures works are delivered as per the works information
- Contractor - delivers the works on time, to cost and as per the conditions of contract.
- Employer - gives access to the site, makes payments and takes out any necessary insurances
- Adjudicator - resolves disputes through adjudication
103
In what form can Works Information/ Scope can come in?
- Drawings/ Designs
- Specifications
- Employer's Requirements
- Specifications/ Standards
104
How are variations administered?
Through Compensation Events
105
How are compensation events processed?
- Notified CE
- Quotation - as per forecast defined cost
- Assessment of CE
- Implemented CE
* PM Assessment
106
Name some examples of compensation events?
Clause 60.1 events such as:
- Change the Works Information
- PM issuing an instructing to stop or not to start
- Employer not doing or giving something by a date
- Object of value or historical interest
107
What are the time barring aspects of a compensation event?
If the contractor fails to issue an NCE within 8 weeks of becoming aware of a compensation event, they lose entitlement to time and cost.
108
What are Early Warning Notices?
Notices which are issued by either party (PM or Contractor) in advance of a potential event realising which can increase cost, time, or impair the quality for the purpose of implementing mitigation measures.
109
What are the payment timelines under NEC?
- If Option Y.2 (HGRCA 1996) applies then 7 days for assessment of amount due and 14 days to process final payment.
- If Option Y.2 does not (HGRCA 1996) apply then 1 week for assessment and 3 weeks to process final invoice.
110
What are some of the key changes from NEC3 to NEC4?
- Change of the term Employer to Client
- Risk Reduction is called Early Warning
- Works Information is now called Scope
- Gender neutral language is used
- One fee percentage is now used, no more "Direct" and "Subcontractor" fee percentages
111
What is FIDIC?
FIDIC stands for the Fédération Internationale Des Ingénieurs-Conseils. It is an internationally recognised form of contract that originated in Switzerland.
112
What are some of the FIDIC forms of contract?
FIDIC has a rainbow colour suite of contracts:
- Red Book - Building and Engineering Works - Used under Traditional Procurement Route and only relates to construction works only.
- Yellow Book - Plant, Design and Build - D&B Construction Works
- Silver Book - Engineering, Procurement and Construction - EPC contract/ provides a turnkey solution
- Green Book - Short Form contract - Used for low complexity projects
- White Book - Used for Consultant Agreements
113
What are some of the advantages of using a FIDIC form of contract?
- Risk and responsibilities are fairly balanced between employer and Contractor
- Can be used Internationally and be adopted for different legal systems.
- As it is used Internationally, it is familiar among construction professionals.
- Consistent structure throughout the suite of contract, therefore it is easy to use.
114
What is the structure of a FIDIC Red Book form of Contract?
- Contract Agreement
- Letter of acceptance
- Appendix to Tender
- Conditions of Contract
- Drawings and Specifications
- Employer's Requirements
115
Can you give me an overview of the ICE form of contract which you have used?
I have used an ICE Target Cost 2006 form of contract which was published by the ICE. It is mainly used on Civil Engineering and Infrastructure projects. It encourages collaboration and efficiency through the target cost pain and gain mechanism.
116
Can you please give me an overview of the ICE target cost contract?
A target cost is set jointly between the parties. Total Cost is paid with Fee for works delivered in line with the contract. If the Total Cost is below the target cost the savings (gainshare) is split as per the pre-determined amounts between Employer and Contractor. Similarly, if the Total Cost goes above the target cost, the overspend is split between the Employer and Contractor.
117
What is the structure of the ICE Target Cost?
- Contract Agreement
- Form of Tender + Appendices
- Conditions of contract
- Technical Information (Drawings, Specifications, Standards, Employer's Requirements, etc.)
