Contract practice Flashcards
(38 cards)
1
Q
What is a contract
A
Agreement enforceable by law, which establishes the rights and obligations of 2 parties
Within construction context it is the mechanism allowing the transfer of risk
2
Q
What is required for a valid contract?
A
Offer
Acceptance
consideration - usually money exchanged for services. This aspect is the benefit which the parties bargaining for and the key for the parties entering into agreement
Intention to form legal agreement
- capacity (18+, mentally sound, not drunk etc.)
- authority - on behalf of the client
3
Q
types of contract?
A
construction contract
consultant contract
s106
lease
4
Q
what are some examples of standard forms of construction contract?
A
- JCT - SBC, small works, D&B
- NEC - 6 options (A-F)
- FIDIC
5
Q
Why use standard forms?
A
- drafted by industry professionals, therefore all parties are represented fairly equally within the drafting
- well-known throughout the industry, more familiar for contractors therefore more likely to bid for the work & less dispute
- cheaper, no legal costs for drafting alternative clauses & less legal dispute in general
6
Q
why amendments are made & any issues with this?
A
- amendments are made to contracts to include bespoke items which alter the risk balance or include a provision for a specific aspect of the project
- eg. of amendments - changes to the standard payment terms or within JCT contract forcing the programme to be submitted monthly
- amendments can be problematic as the contract is finely balanced and amending one clause can have a knock on effect
- for example, Grove vs Balfour Beatty (2016) was due to the fact the payment terms were struck out of the JCT D&B contract ‘to be agreed at a later date’. This never happened and they went to court
7
Q
JCT contracts
A
- various forms: standard building contract (SBC), Design & Build (D&B), Minor Works Contract
- use a different form depending on the size of project & procurement route
- traditional form of contract, client / contractor relationship is traditional and often adverarial
- 9 main clauses (conditions) followed by the agreement (inc. project specifics) and then the schedules (TPRs etc)
- document for a D&B contract; Employers requirements (drawings & specs)
- architect / contract administrator (A/CA) appointed to administer the contract, certify payment & completion, judge EoTs etc
- D&B contract has an employer’s agent who does the same role
- a QS will be on board, who assesses valuations
8
Q
NEC ECC contract (Engineering & construction contract)
A
- 6 forms of contract (options A-F) inc. lump sum, target price, cost plus, management contract
- focus upon collaboration throughout this contract through use of risk register, early warning system / meetings and punishment for not notifying of compensation events within 8 weeks.
- partnering option in secondary clauses
- project manager and supervisor administer the contract
- programme is a contract document, submitted and accepted by the PM every month
- documentation: works information (inc. technical drawings, spec, CDP, programme)
- suited to large infrastructure projects
9
Q
what would you expect to see in a construction contract?
A
- articles (contract sum, client / contract named, arbitration / adjudication clause)
- contract particulars (LAD’s, programme, insurance cover)
- conditions (clauses re: carrying out works, EOTs etc)
- schedules (TPRs, arbitration)
- Design information (ERs or similar)
10
Q
What are the key differences between NEC & JCT?
A
- price
- administration
- programme
- extension of time
11
Q
what are the price differences between NEC and JCT?
A
- JCT are lump sum contracts, NEC has various payment mechanisms
- both deal with payments in broadly same way; applications to CA who certifies them
12
Q
what are the administration differences between NEC / JCT?
A
JCT SBC has a contract administrator that issues instructions assesses claims and ensuring obligations are upheld and a QS that values the works
- NEC ECC has a project manager and supervisor. The supervisor issues instructions and makes decisions.
- D&B contracts have an employers agent which act as the contract administrator
13
Q
what are the programme differences between JCT and NEC?
A
- JCT has no regular updates to the programme, just a programme required
- NEC the programme is a contract document and is issued to the PM monthly for their acceptables. Programme include float (unlike JCT) and key dates
14
Q
What are the extension of time differences between JCT and NEC?
A
- JCT has 2 mechanisms which split time and money:
- relevant events - change the contract end date
- eg. variations, delayed VP, adverse weather, force majeure
- relevant matters - will also give the contractor claim for loss & expense
eg. work disruptions due to the client, delayed instruction from client, variations - NEC has compensation events which grant an extension of time and change in the price
- eg. NEC contract is only contract whereby bad weather will grant the contractor time and money
- compensation events need to be known within 8 weeks of occurrence or any claim for loss/expense can be rejected. JCT much less process driven in this respect
- CE’s must be defined within the contract to be valid
15
Q
What are typical CEs?
A
- instructions
- force majeure
- weather
- client delays with information or access
16
Q
what are the time periods for dealing with EOT claims under construction contracts?
A
JCT - Contractor should inform of a relevant event when a delay becomes reasonably apparent. The administrator must provide notice of the decision within 12 weeks of evidence receipt.
NEC - Contractor must give notice within 8 weeks of the event that a delay has been caused, the project manager then has 1 week to make a decision
17
Q
what is a loss and expense claim? what is typically included?
A
- a claim by the contractor for costs incurred due to a relevant matter under the contract eg. failure to give possession
- will set out the ‘heads of claim’ with different losses eg. overhead, lost profits
- typically includes evidence eg. day work sheet
18
Q
why is it important to select the most appropriate form of contract?
A
- may not be suitable to the procurement route
- parties not protected by correct obligations
- disputes will be more common
- poor risk allocation
- payment mechanism incorrect causing issues
19
Q
what is a typical change control process?
A
- log proposed change in a register including:
- reason for change
- impact in time / cost / quality terms
- accept / reject change
- follow contractual process
- implement change and update drawings
20
Q
what factors influence the selection of the most appropriate form?
A
- size and nature of works (complexity, value, type) eg. NEC more appropriate for infrastructure. JCT minor works vs SBC
- Procurement route - trad, D&B, CM
- Experience of client - eg. JCT minor works appropriate for inexperienced client
- familiarity - in the UK, JCT very popular and well known
- Country of use - FIDIC very popular in Middle East or for international works
- risk allocation and design responsibility (CDP / Novation)
- aspiration for working relationship - JCT more adversarial, NEC more collaborate
- level of tender information - JCT Employer’s requirements vs. NEC Works information
21
Q
What are LADs?
A
- liquid and ascertained damages - costs payable by the contractor if the project runs past the agreed completion date
- these calculated prior to the contract being signed and usually a weekly rate
- note, LADs are a calculation not a penalty
- can include cost of temporary accommodation etc
22
Q
construction all risks insurance?
A
- covers the client and contractor, policy jointly taken out by them
- all encompassing form of insurance which covers 3 aspects:
- works insurance - building falls down, plant stolen etc.
- 3rd party (public liability) - 3rd party causes damage
- employee liability - sometimes**
23
Q
what is professional indemnity insurance (PI) and how it differs to all risks insurance?
A
- PI covers claims of negligence against professional services providers eg. PM, QS, Architect, Structural Engineer
- Different to public liability insurance, which covers 3rd parties
24
Q
what types of insurance should a consultant appointment include?
A
- professional indemnity insurance
- 3rd party liability insurance
- employer’s liability insurance
25
what is a parent company guarantee?
protects against insolvency, parent company would step in to pay or complete the works if required
26
what are bonds?
- protection against the contractor not performing their obligations
- contractor will pay for the bond, which is held by a bondsman, and paid to the client in the event that the contractor fails
27
what is a performance bond?
- typically 10% of contract value, paid in the event the contractor fails to perform
- helps pay for the client to find a new contractor
28
what is an advance payment bond?
- where the client has paid an advance payment for materials etc, a bond is paid by the contractor to secure against their default
- if the contractor goes bust the bond is paid to the client to cover the costs
- a certificate for materials purchased may be required, so the client can recoup the materials cost in the event of a default
29
what is a relation bond?
- alternative to retention payment (where 5% of the contract value held back until the end of defects)
- retention bond is where a bond is held, rather than a retention amount
- the value reduces after PC, with full payment on completion of defects period
30
what is a defects liability period?
- alternative to the above, essentially covers post-PC period through the end of defects period (typically 12 months post PC)
31
What is defects liability bond?
- an alternative to the above, essentially covers post-PC period through the end of defects period (typically 12 months post PC)
32
What are conditional vs. on-demand bonds?
conditional bonds require the client to provide evidence that the contractor has not performed their obligations, which on-demand are paid immediately
33
what are third party rights?
- allows a party not named in the contract (eg. purchaser, funder) to enforce the terms of the contract and grants them the benefits of the contract
- in a practical sense, this would allow a funder to sue an architect for poor design work etc
- TPR Act 1999 changed this, previously no 3rd party could have rights under a contract
- 3rd parties are named in the contract or grouped eg. 'funder' if name not known
- TPRs can be excluded from the contract
34
what are collateral warranties
- standalone document gives rights written within to a 3rd party
- the parties are named in the CW, as in the original contract
- liability limits can be different to those written within the contract
- Form of CQ will be agreed and appended to the original contract
35
what is the difference between TPR's and CW's?
- TPR's are written within the contract and can just include the group of party eg. funder?
- CW's standalone document which names the specific parties
- Perception that CW's provide more control, although this is hardly true
36
What is some legislation to contracts?
- local democracy, economic development and construction act 2009
- EU GDPR directive and data protection Act 2018
- CDM regulations 2015
37
What is the local democracy, economic development and construction Act 2009?
- pay when paid clauses made illegal
- allows contractor to suspend work if not paid
- binding dispute resolution process (adjudication)
- rights to interim payments
38
What is a collateral warranty?
- standalone document gives the rights written within to a 3rd party?
- the parties are named in the CQ, as in the original contract
- liability limits can be different to those written within the contract
- form of CW will be agreed and appended to the original contract
