Contract Practice Flashcards
1
Q
What is a contract?
A
An agreement between 2 or more parties which is intended to be legally enforceable.
2
Q
What types of Contract are there?
A
Lump sum / target / reimbursement / remeasurement
3
Q
Why are they required / relevant for the construction industry?
A
- Requirement for effective risk management / allocation.
- Long term nature of projects.
- Complexity of projects.
- Define roles, responsibilities and how parties interact.
4
Q
What is a Letter of Intent?
A
A document from an employer to a contractor (or from a main contractor to a subcontractor) indicating the employer’s intention to enter into a formal written contract for works described in the letter, and asking the contractor to begin those works before the formal contract is executed.
5
Q
What elements must be in place in order for a legally binding contract to be created.
A
certainty as to key terms;
consideration (the ‘price’ paid under the contract in return for performance by the other party of its obligations; and
a mutual intention to enter into a binding legal contract.
6
Q
What is Quantum Meruit?
A
Quantum meruit is a judicial policy that allows a party to recover losses in the absence of an agreement or binding contract.
- By allowing the recovery of the value of labour and materials, quantum meruit prevents the Unjust Enrichment of the other party.
- In the absence of an agreement or formal contract, a party that has provided a good / service may be unable to recover losses in court if the transaction goes wrong.
7
Q
What are the different ways in which a contract can be made?
A
- Oral – Construction Act applies to oral as well as written.
- Under hand – Contracts that are simply signed, although not always, by each party to the contract.
- Under deed – A more formal document than a contract under hand. In most cases it is optional to execute document as a deed.
8
Q
How is a contract converted from under hand to under deed?
A
The contract should state somewhere (e.g. in the first line) that it is a deed;
The appropriate signature blocks for deeds should be used.
9
Q
What is the main legal difference between under hand and under deed?
A
There is no need for ‘consideration’ in a contract made as a deed (signed by both parties).
The limitation period (the time limit for commencing legal proceedings) is 6 years from the breach of contract in the case of contracts under hand, and 12 years from the breach of contract in the case of deeds.
10
Q
What are the key elements of a contract executed under hand?
A
- Only an expression of approval/agreement is required.
- Assent does not have to be in written form. If written a signature is not necessary. If written and signed (no witness required), delivery is not required.
- For the validity of an informal contract, written is necessary only when at least one of the parties has expressed an intention not to be bound without one. In such a case, the agreement must be put in writing, and that writing must be presented to this party for an expression of assent.
- Limitation period is 6 years from when the cause of action occurred (breach of contract).
- Effective on execution.
11
Q
What are the key elements of a contract executed under deed?
A
- Can be executed in three ways:
1. by the signature of a single director in the presence of a witness;
2. affixing its common seal in the presence of two directors or a director and secretary;
3. by the signature of two directors, or a director and secretary. - Limitation period is 12 years from when the cause of action occurred (breach of contract).
- Must be clear on contract that is to be a deed.
- Effective once signed copy of agreement is physically delivered to representative of other party.
12
Q
What are the key requirements for a contract to be made binding?
A
- Offer by one party
- Acceptance by the other party
- Consideration of the offer
- Intent to form a contract
- Legality of contract
- Capacity to make an agreement
13
Q
What are common contract documents?
A
a) Conditions of contract and any amendments to standard forms
b) Preliminaries
c) Contract sum analysis
d) Drawings
e) Specifications
f) Existing building information
g) Any contractor’s proposals for CDP work
14
Q
Who needs to understand the contract?
A
- All parties mentioned in the contract including the Employer, design team, consultants, Contractor and those involved who are not mentioned.
15
Q
What project elements to consider when deciding on the most appropriate a form of contract?
A
- Time / Cost / Quality objectives.
- Experience of client.
- Level of client design input.
- Level of risk the client is willing to take.
- Level of administration.
16
Q
What forms of contract are there?
A
1) JCT (Joint Contracts Tribunal)
2) NEC3 (New Engineering Contract)
3) ICE 7 (Institute of Civil Engineers)
4) GC Works (PACE – Property Advisors to the Civil Estate)
5) FIDIC (International Engineers Federation)
17
Q
Name the main types of JCT contract
A
a) Minor works
b) Intermediate
c) Standard building contract
d) Major Projects
e) Design and Build
f) Prime cost contract
g) Measured Term contract
h) Construction Management Agreement
i) Management Contract
j) Framework Agreement
18
Q
What standard forms of JCT contracts are you aware of?
A
- JCT SBC 11 With Quantities
- JCT SBC 11 Without Quantities
- JCT SBC 11 With Approximate Quantities i.e. Remeasurement
- JCT Prime Cost Building Contract i.e. Cost Plus
19
Q
When would you use JCT Minor Works?
A
- Projects that are short in duration, small and simple
- Guidance is for a value up to £150,000
- It is a short, easy to follow contract
- It is a lump sum form; design should be completed prior to execution
- Not as comprehensive as others – limited claims provisions, no fluctuations
20
Q
When would you use JCT Intermediate Contract?
A
- Recommended for project that do not exceed one year’s duration or up to £750,000
- For projects that are simple in content, require only basic skills and trades and where services are not complex and where the works are already designed
21
Q
When would you use JCT Standard with quantities?
A
- Work has been designed prior to contract;
- Employer provides drawings and bills of quantities to specify quantity and quality of work;
- It is a lump sum form of contract;
- The contractor’s risk is limited to price only;
- The employer takes the risk of errors in the bill.
22
Q
When would you use JCT Standard without quantities?
A
- Work has been designed prior to contract;
- Quality of work and degree of complexity is not such to require bills of quantities;
- Contract documents to include drawings (description of work) and with specification or activity schedule;
- It is a lump sum form of contract;
- The contractor’s risk includes both price and quantity.
23
Q
When would you use JCT Standard with approximate quantities?
A
- Work has not been fully designed prior to contract;
- Employer provides drawings and approximate bills of quantities;
- This is a re-measurement form of contract – Contract price is based on a tender figure which is converted to a final sum on re-measurement and valuation of all work;
- There is no contract sum;
- Construction is wished to commence prior to the design being completed
24
Q
When would you use JCT Major Works?
A
- Projects that are significant in both size and quantity
- Generally for clients that have their own in house contractual procedures
25
When would you use JCT DB?
- Contractor is responsible for design and construction;
- Similar in complexity to the standard building contracts;
- Employer provides detailed documents to outline their requirements;
- It is a lump sum form of contract;
- The Contactor’s proposals form the basis of the contract;
- There is no mention of an architect or QS – mentions EA.
26
When would you use the prime cost contract?
- Broadly based on the provisions of standard building contract;
- The contractor is paid the cost of carrying out the work plus a fee to cover OH&P;
- Might be used for emergency work or if another contractor is appointed to complete the works after an insolvency;
- The employer bears the majority of the financial risk;
- The total cost is not known until completion.
27
When would you use a JCT Measured Term Contract?
- Where the employer requires maintenance / minor works to be undertaken on a regular basis over a defined period of time on a defined list of properties;
- Contract agreed on a schedule of rates for carrying out certain types of work;
- Can be let on a fixed or fluctuating price basis;
- Contains a break provision for terminating the contract early.
28
When would you use JCT Construction Management Agreement?
- When the construction management procurement route is chosen;
- When the employer wants an early start on site;
- Construction Management Trade Contract also used as the standard form for the agreements between employer and trade contractors.
29
What are some typical Contract amendments?
- Payment terms / durations;
| - ER’s take precedent when CP’s conflict with ER’s;
30
What are CDP’s?
Contractor’s Design Portion – This is an optional extra for complex items requiring contractor design, for which proposals should be submitted at tender – more common in large projects. Used in SBC.
31
What are Contractor’s Proposals?
Contractor’s design proposals produced in response to Employer’s Requirements (ER’s). Used in D&B.
32
What is the role of a Contract Administrator?
A person appointed by the employer to administer the terms of the Contract on the employer’s behalf. The CA is required to act independently without reference to the requirements of the employer.
33
What is the role of an Employer’s Agent?
A person that undertakes all duties on the employer’s behalf. An error in the delivery of the EA’s service could lead to employer being responsible. The EA has no duty to act fairly between the parties and has no duties to anyone but the employer.
34
Can you tell me some more about NEC3 contracts?
- PM appointed to administer contract – to act in “spirit of mutual trust and cooperation”.
- Recommended by Latham and OGC.
- Plain English, deliberately “non legal”.
- High level of project management required – contract admin process is on a flow chart.
- Early warning system that delay could occur.
- PM accepts/rejects contractors programme.
35
What are the forms of contract under NEC3?
1. Engineering & Construction Contract (ECC) – between an Employer and a Contractor.
2. Professional Services Contract (PSC) – engaging consultants.
3. Adjudicator’s Contract.
4. Engineering & Construction Short Contract (ECSC) – for “simple” work (not necessarily low value).
5. Term Services Contract (TSC) – for the provision of a service.
6. Framework Contract.
7. Supply Contract – procurement of goods (including design thereof).
36
What are the option clauses under NEC3?
1. Option A - Priced Contract with Activity Schedule.
2. Option B - Priced Contract with Bill of Quantities.
3. Option C - Target Contract with Activity Schedule.
4. Option D - Target Contract with Bill of Quantities.
5. Option E - Cost Reimbursable Contract
6. Option F - Management Contract.
37
When to use an Option A: Priced contract with activity schedule?
- Contractor provides the works described in contract for sum of money.
- The contract provides for certain risks to be carried by the Employer which will result in the lump sum being adjusted if the compensation events occur.
- The activity schedule is normally written by the Contractor since he is the one who knows what activities will be carried out. Each activity is priced as a lump sum by the Contractor which is the amount paid when task is completed.
- In pricing an activity, the Contractor takes responsibility / risk for estimating quantities and resources.
38
When to use an Option B: Priced Contract with Bill of Quantities?
- Employer provides bill of quantities which is priced by Contractor.
- Contract price is the sum of prices for all items in the bill which may include lump sums for certain items.
- Upon completion if it is found by re-measurement that the estimated quantity is not correct, it is corrected and payment is made to the Contractor to reflect the actual work carried out.
- Under this option, unlike Option A, the Employer takes the risk of the correctness of the quantities.
- Normally used where the risk of change in quantities is relatively high. It is not appropriate for design and build contracts since the Contractor is responsible who designs and prepares the detailed design and plans.
39
When to use an Option C: Target Contract with Activity Schedule?
- Contractor tenders a target price using an activity schedule.
- Each activity is priced as a lump sum and a Fee is also tendered as a percentage for subcontract work and for the Contractor’s own direct work.
- Initial target price is the sum of the activity prices and the fee.
- During the course of the contract, the target price is adjusted to cater for compensation events that are set out in the contract.
- Payment is made on the basis of actual costs with an incentive mechanism for the Contractor to minimise costs. Savings and over-runs are shared between the parties.
- Sharing of risk in the target cost approach is likely to reduce the occurrence of disputes.
40
When to use an Option D: Target Contract with Bill of Quantities
- Similar to Option C except that the target price is established by means of a bill of quantities rather than an activity schedule.
- During the course of the contract, the target price is adjusted to allow for changes of quantities as well as for compensation events.
- Employer carries a rather greater risk than is the case with Option C.
41
When to use an Option E: Cost Reimbursable Contract
- Contractor takes a very small risk since he is paid his actual cost plus the Fee with only a small number of constraints to protect the Employer from inefficient working or incompetence by the Contractor.
- Used when the work to be carried out cannot be defined at the outset and the risks are high.
- It may also be used for emergency work.
42
When to use an Option F: Management Contract
- Suitable for management contracts in which all or most of the work is done by subcontractors, and the Contractor manages the procurement and the work undertaken by the sub contractors.
- Payment is made to Contractor for cost of the sub-contracts plus a management fee.
- The Employer carries most of the risk.
43
General Advantages of NEC
- Contract is well-supported with additional materials, including detailed flow-charts and guidance notes;
- Clear, simple and easy to use, and is written in the present tense in plain English;
- Focuses on 'real time' management of project rather than looking back on what parties should have done;
- Flexibility due to NEC contract options available:
- 9 sections of core clauses;
- 6 main options;
- 2 dispute resolution options;
- 17 secondary options;
- This flexible approach is intended to avoid the need for lots of bespoke amendments, reduce the need for lengthy negotiation and also reduce the potential for disputes.
44
General Disadvantages of NEC
- Conciseness can create ambiguity and much of its terminology is untested in the courts;
- Heavy on administration, and requires good understanding of its procedures
- Requires sufficient resources from both employer and contractor to make a success.
45
NEC vs JCT Comparison:
- Simpler / less clauses than JCT
- Greater flexibility, less types but use of secondary choices
- Proactive solutions not reactive (but more resources to run)
- Design responsibility – better control
- Insurance arrangements – NEC end of defects/ JCT at PC
- Dispute Resolution – NEC other forms than adjudication
- NEC programmes must be updated
- Time limits set for changes
- Defects correction period (normally 2-3 weeks) contractor must “make good” in these time periods. Better at dealing with defects than JCT
46
What are the secondary optional clauses under NEC3?
- W1. Dispute resolution procedure.
- W2. Dispute resolution procedure (if HGCAR Act 1996 applies).
- X1. Price adjustment for inflation (used only with Options A, B, C & D).
- X2. Changes in the law.
- X3. Multiple currencies (used only with Options A & B).
- X4. Parent Company Guarantee.
- X5. Sectional Completion.
- X6. Bonus for Early Completion.
- X7. Delay Damages.
- X12. Partnering.
- X13. Performance bond.
- X14. Advanced payment to the Contractor.
- X15. Limitation of the Contractor’s liability for his design to reasonable skill and care.
- X16. Retention (not used with Option F).
- X17. Low performance damages.
- X18. Limitation of liability.
- X20. Key Performance Indicators (not used with Option X12).
- Y(UK)2. The Housing Grants, Construction and Regeneration Act 1996.
- Y (UK)3. The Contracts (Rights of Third Parties) Act 1999
47
What are the parties named under NEC3?
1. The Employer.
2. The Contractor.
59
3. The Project Manager – administers the contract.
4. The Supervisor – administers testing, inspection & defects.
5. The Adjudicator.
6. Others - people or organisations (e.g. design team and cost manager) who are not the above, or any employee, Subcontractor or supplier of the Contractor.
48
How is an NEC3 contract formed?
The contract is formed by combining:
- Contract Data part one (Information provided by the Employer) – including Risk Register.
- Contract Data part two (Information provided by the Contractor) – including Programme.
It also includes:
- Agreement.
- Contract Prices (Activity Schedule or Bill of Quantities).
- Works Information – future.
- Site Information – past and present.
49
What is included in the Contract data from the Employer & the Contractor?
Contract Data Part I (Provided by the Employer):
- Identifies the Main Option.
- Lists the chosen Secondary Options.
- Sets out project specific data, contract data and related information.
- Contract formation.
Contract Data Part 2 (Provided by the Contractor):
- Sets out the price and Fee percentage.
- Sets out other project specific information, including Programme, Contractor’s design information (where appropriate) and Key People.
- Completed Activity Schedule (where appropriate).
- Data for the Schedule of Cost Components.
- Returned as part of the tender.
50
What is the successful delivery of an NEC3 project reliant on?
Successful implementation depends on:
- Achieving desired cultural transition.
o proactivity, non-reactive.
o collaborative relationships.
o collective approach to problem solving.
- Flexibility – requires consideration / preparation before jumping in.
- Contract documentation – importance of the Works Information.
- Communication Protocol (included in Works Information).
- Programme - key management tool.
- Risk management – early warnings and risk register.
- Competence and training.
51
What are the advantages & disadvantages for standard & bespoke contracts?
Standard:
- Advantages:
o Written by legal experts
o Rights and obligations of each party are clearly set out to the required level of detail
o Risks should have been allocated equitably between the parties
o In principle, parties should be familiar with the provisions in the form – greater consistently in application and fewer unforeseen anomalies
o The time and expense of preparing a fresh document for each occasion is avoided
o Case law is built up over time – provides good source of knowledge and clarity of terms
- Disadvantages
o Familiarity is decreased as they are rarely used as printed (amendments)
o May not be appropriate to the needs of a particular project or client
o Using an inappropriate standard contract for a project will cancel out the benefits
Bespoke:
- Advantages:
1. Beneficial for major projects with novel obligations
2. Risk can be transferred in a way that completely suits the Client.
- Disadvantages:
1. Parties unfamiliar with terms
2. Can be ambiguous
3. Liable to unfairly allocate risk
52
What happens if there is a delay to the completion date?
- Where the Contractor is responsible, a Non-Completion Notice should be issued. If the contract provides for liquidated damages then provided the employer has notified the contractor that it intends to levy LDs it can claim them from the contractor if he so wishes. Often the employer deducts the LDs from sums otherwise due to the contractor. That is ok, provided a pay less notice has been served in time.
- Where the Employer is responsible and one of the Relevant Events listed in the contract has occurred, an extension of time should be granted and a later date for the Completion Date should be fixed meaning the employer is not entitled to claim LADs. However it does not automatically mean the contractor is entitled to loss and expense. To claim loss and expense the contractor must show that a Relevant Matter has occurred. Not all Relevant Events are Relevant Matters. The contractor also has to prove the loss and expense that he has suffered.
53
Extensions of Time
- Grounds for an extension of time is referred to as – a ‘Relevant Event’ under JCT terminology or a ‘Compensation Event’ under the NEC contracts.
54
Loss and Expense
- Grounds for an entitlement to additional payment follow disruption is referred to as – a ‘Relevant Matter’ in JCT terminology or (again) a ‘compensation event’ under NEC.
55
What can you tell me about Relevant Events?
- Relevant Events are causes of delay described in cl. 2.26 and are divided into those attributable to the Employer and those attributable to neither the Employer nor the Contractor and number 14 in total
- Relevant events that give rise to an Extension of Time do not always induce a claim for Loss & Expense.
56
Can you name me some examples of Relevant Events and Relevant Matters?
- Relevant Events & Matters (cl. 2.26 & cl. 4.21):
1. Change (as a result of an instruction) - RM
2. Instruction e.g. Postponement of works / opening up of the works - RM
3. Deferment of possession
4. Discovery of Antiquities / Fossils - RM
5. Suspension by the Contractor due to non payment
6. Impediment, prevention or default by Employer - RM
7. Failure of, or delay in, statutory authority executing its works
8. Exceptionally adverse weather
9. Loss or damage by specified perils
10. Civil commotion
11. Strike / lockout
12. Government exercise of statutory power after base date that affects the works (3 day week)
13. Delay in receipt of necessary statutory permission / approval – RM
14. Force Majeure
57
What does ‘Exceptionally Adverse Weather’ mean and how would you go about assessing an EoT for this?
- It is not defined in the Contract but when assessing an EoT for this, the key word is ‘exceptionally’.
- The weather must be exceptionally adverse in light of the kind of weather usually encountered at that time of year in that location.
61
- Whilst any weather conditions can cause a delay, only exceptionally adverse weather gives rise to an Extension of Time.
- Meteorological reports are helpful when determining exceptional adverse weather; it is suggested that reports for the previous 10 years would be necessary to establish that the adversity was exceptional.
58
What effect does an Extension of Time have?
1. Relieves Contractor from liability for LDs.
2. Benefit to the Employer in establishing a new contract completion date and prevents time for completing the works becoming “at large”.
3. EoT based upon a contractual entitlement to more time not just because the Contract needs it.
59
What if a Contractor was ahead of schedule through its own proficiency and innovation but was subject to a relevant event that delayed him. Would you offer an Extension of Time?
Only if this event was likely to delay completion as advised in case law (Hounslow LBC v Twickenham Garden Developments Ltd 1971).
60
What is ‘Time at Large’?
- Time at Large exists when the Date for Completion was not achieved and neither a Non-Completion Notice nor an Extension of Time were issued.
- The Contractor is then under no contractual obligation to complete by a specified date, only complete the works within a ‘reasonable time’.
- This can have significant financial consequences for the Client.
61
Do you know of any case law that addresses Time at Large?
Multiplex vs Honeywell
- Multiplex issued three programmes to sub-contractor that updated the PC date each time.
- The date passed without completion being achieved.
- Honeywell claimed time was at large due Multiplex’s non-compliance with notices and thus claimed prolongation costs and other financial relief.
- Judge ruled in Honeywell’s favour.
62
What are Liquidated Damages?
- These are liquidated (and ascertained) damages.
- This is a sum which a contractor agrees to pay to an employer in the event that, due to the contractor’s fault, the works are delayed beyond the agreed date for completion.
- The agreed amount of LDs is usually inserted into the contract as an express amount payable for a particular period of time (such as a week or part of that period), for which the contractor is in delay.
- The amount must be a genuine pre-estimate of loss on the employer’s part (and evidence explaining the calculation helps here).
- In very rare cases, they may be deemed a penalty and therefore void and unenforceable.
63
What is the process that Contractor must follow in order to apply for an Extension of Time?
- The Contractor is required to notify the Contract Administrator upon it becoming apparent that a delay will occur.
- The Contractor must submit a notice when it becomes reasonably apparent that a delay has, or is likely, to occur.
- The purpose of the notice requirement is to allow the CA to attempt to mitigate the problem either by stopping the delay from recurring or even omitting work, in addition to making a judgment on the Contractor’s entitlement to additional time.
- The notice will normally identify:
1. The cause of the delay – details of how and why the delay is occurring or likely to occur.
2. The estimated effect on completion – the Contractor should also give an estimate of delay in his notice so that the contract administrator can form his own opinion.
3. The clauses on which the Contractor relies in requesting an extension of time.
64
As EA, how long do you have to assess an Extension of Time claim?
- Within 12 weeks of receipt of the Contractor’s notice.
- If less than 12 weeks remain between the notice and the completion date, the EA should endeavour to reach a decision before the completion date.
65
What categories of delay are there?
1. Excusable events – caused by Employer/Employer’s team – relevant matter.
2. Neutral events – no one’s fault – relevant event.
3. Culpable events – fault of contractor/sub-contractors – possible LDs.
66
What if, as EA, you can’t make a judgement prior to Practical Completion?
- It won’t deprive the Contractor of an Extension of Time and the EA has a mandatory 12 week period after PC to review the situation.
67
What is Loss & Expense and how would you approach the assessment of a claim?
- It is a reimbursement of the contractor for direct loss and/or expense incurred in carrying out additional works or from an Employer’s breach of contract.
- Contractor has a duty to mitigate its loss.
- The idea is to put the Contractor in the position it would have been if the Employer delay event had not occurred.
- As soon as the regular progress of the work is affected, or is likely to be affected, or the Contractor becomes aware of any other matter that would cause them to incur loss and expense, they should notify the CA/EA in writing.
- They should submit any further information as requested by the EA/QS to enable the amount of loss and expense to be ascertained.
- I would not personally review a claim for Loss & Expense but rely on the QS’ assessment of the claim according to the EoT given before issuing an instruction that adds the agreed total to the Contract Sum to be paid in the next interim valuation (but not subject to retention).
68
What would a Loss & Expense claim usually comprise of?
1. Prolongation (extra site overheads i.e. preliminaries)
2. Thickening of preliminaries (e.g. extra supervision required due to variations)
3. Disruption (causing plant / labour to be underemployed – hard to prove)
4. Increases in labour / material costs during the period of delay
5. Head office overheads
6. Loss of profit (commonly combined with head office overheads)
7. Finance charges (i.e. interest)
8. Acceleration costs
9. Claim preparation costs
69
What is the difference between a Collateral Warranty & Third Party Rights?
- Third Party Rights provide a person who is not a party to a contract to enforce the benefits of terms of that contract.
- Collateral Warranties create a contractual relationship between parties where there would otherwise not have been any.
- In one sense, there is no difference in practice between collateral warranties and third party rights on a construction project; either give effective construction security to third parties.
- However, collateral warranties remain popular, in part because:
o They are familiar - Historically, construction lawyers are more familiar with collateral warranties. Once a collateral warranty is formally entered into, it is a contract like any other. Even though they have been available for ten years, third party rights are a more recent creation of statute.
o It may be easier to grant step-in rights - If a borrower (such as a developer) becomes insolvent, a funder would want to be able to step in to its shoes to complete and sell the project for the best price. Some argue it is easier to effect that in a collateral warranty.
o However, those who prefer third party rights feel it is just as straightforward to grant step-in rights using third party rights.
- Third party rights may be used if a lot of warranties are required; CWs involves a lot of administration and cost.
- Assignment, Third Party Right & Collateral Warranties are included under JCT Section 7.
- Third Party Rights & Collateral Warranties – listed under Part 2 of the Contractor’s Particulars.
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Why are Collateral Warranties and Third Party Rights needed?
- Because of the Privity of Contract – Only those party to a contract can enforce the terms.
- They provide construction security – If something goes wrong on a project, a funder does not want to be out of pocket; it wants to be able to claim its losses directly from the person who caused the loss, such as an architect or a contractor.
- Without a collateral warranty or third party rights, a funder may be unable to make an effective claim.
- An employer typically asks its professional consultants and the contractor to agree to provide collateral warranties or third party rights to:
o Any funder.
o Any buyer (often referred to as a purchaser).
o Any tenant (or a given number or class of tenants).
71
What are bonds?
A promise / guarantee that one party will pay another a specified amount in the event that it fails to meet an obligation.
72
Can you give me some examples of the types of guarantees & bonds used on construction projects?
- Parent Company Guarantees enable the contractual performance of a company is underwritten by other members in the corporate group.
- Tender Bonds are submitted with a bid or tender to ensure that the contractor will actually enter into a contract if their bid is accepted. A Tender Bond also guarantees that a Performance Bond will be supplied.
- On Demand Bonds allows the beneficiary to call upon surety of payment whether or not there has been a default under the main contract as long as the call is not fraudulent.
- Conditional / On Default Bonds is a surety that only pays out if specific conditions are met such as default under the main contract.
- Performance Bonds support the contractor's obligations during a contract period providing security against default or non-performance.
- Advance Payment Bonds serve to secure the Employer's position where funds are advanced to the Contractor for the purposes of the pre-purchase of items.
- Retention Bonds provide security to the Employer where retention is not deducted from valuations.
- Maintenance Bonds secure the Contractor’s post-completion obligations during the warranty or latent defects period, usually 12 months post-completion.
- Off-Site Material Bonds cover the Employer in respect of goods or materials produced and held off site and paid for by them. The Off-Site Materials Bond responds where the goods or materials are not available when required for incorporation into the contract.
73
What is the difference between on-demand & a conditional bond?
On-demand bonds mean the beneficiary doesn’t need to give proof of a default whilst Conditional bonds do.
74
What bonds are available under your contract?
Under JCT D&B 2011 – Schedule 6 there are three bonds:
1. Part 1: Advanced Payment Bond
o Used when there are high mobilisation costs.
2. Part 2: Bonds in respect of Payment for offsite materials/goods
o Guarantees that the Employer will pay for good being stored off site before they are required on the project.
3. Part 3: Retention Bond – secures the payment of retention.
o Protects the customer after a job or project is finished.
o It guarantees that the contractor will make good all defects discovered immediately after completion of the contract, even if full payment has been made to the contractor.
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How would you go about obtaining a bond from a Contractor?
- All bonds are optional and the requirement for one should be made clear at the tender stage.
- Forms are available in Schedule Six.
- If any other terms or if another bond is required (e.g. performance bond) then this should also be communicated at the tender stage.
76
How are bonds affected when dealing with a Local Authority?
Only a bond for offsite materials/goods can be used.
77
What’s the difference between a warranty and a guarantee?
Guarantee:
- Is usually free
- It's a legally binding contract, even if you didn't pay for it.
- It must explain how to go about making a claim in a way that is easy to understand.
- It works whether or not you have a warranty.
Warranty:
- Like an insurance policy that you must pay a premium for.
- Sometimes it's called an 'extended guarantee'
- It might cover a longer period than a guarantee, and it might cover a wider range of problems.
- A warranty is a legal contract, so you can take the company to court if they don't honour it.
- The terms of the contract should be clear and fair.
- A warranty can run alongside a guarantee.
78
What is the difference between CA & EA roles?
- A CA administers the conditions of the contract only i.e. instructions, EoT etc.
- An EA is someone employed as a representative to exercise the powers and functions of the Employer under the contract including its conditions.
- An EA is more closely aligned with the Employer by adhering to instructions than a CA would be.
- Decisions made by the EA treated in law as being by the Employer although should remain impartial for statements etc.
- Whilst the CA is regularly mentioned in SBC conditions, the EA is rarely referred to in a D&B contract.
- The EA is under no expressed duty to act impartially but there is an implied duty of good faith.
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What are the key things to remember when acting as EA?
- That the EA is acting on behalf of the Employer so any error or omission in the EA’s delivery will make the Employer responsible.
- That you are careful not to comprise the Contractor’s responsibility for design when issuing instructions and information.
- As EA, I need to issue a Statement of Completion agreeing that the works have been completed in accordance with the Contract; I’m not technically qualified to judge that so I’d need to seek statements from the CMT/CoW.
80
What are the positive contributions an EA can give to a project outside of administering the contract?
Providing effective management that
maintains discipline on the employer’s side,
retaining risk transfer and cost certainty.
81
What supplementary services does an EA provide aside from those referred to in the building contract?
- Drafting the project execution plan.
- Managing the briefing and scope definition process.
- Appointing design consultants, on a basis that facilitates the effective transfer of design responsibility.
- Managing clients and third-party liaison.
- Preparing employer’s requirements and other tender documentation.
- Implementing change control.
- Supporting use of warranties to meet the requirements of third parties.
82
What are the main mechanisms in a JCT Design and Build 2011 contract?
1. Payment processes
2. Practical Completion / Section Completion / Partial Possession
3. Adjustment of the Completion Date
4. Loss & Expense claims.
83
Can you name me some of the conditions sections of JCT contract?
1. Definitions & interpretations
2. Carrying out the works
3. Controlling the works
4. Payments
5. Change
6. Injuries, damages & insurances
7. Assignment & 3rd Party Rights
8. Termination
9. Dispute Resolution
84
What are the schedules in a JCT D&B contract?
1. Contractor’s Design Submissions
2. Supplemental Provisions
3. Insurance Options
4. Code of Practice
5. Third Party Rights
6. Forms of Bonds
7. Fluctuation Options.
85
Can you describe the structure of a JCT Design and Build 2011 contract?
1. Recitals
- Factual info re. the project e.g:
o Summary of works to be completed (1) ,
o Statement that the Employer is satisfied (3)
o Provisions for Sectional Completion (5),
o Framework provisions (5)
2. Articles
- Outlines Contactor’s obligations – carry out the works (1)
- Employer’s obligations – to pay the contractor the Contract Sum (2)
- Other parties involved in the Contract e.g. EA, CDM-C, Principal Contractor (3, 5, 6)
- Details of the project e.g. Dispute resolutions (Article 6-8)
- Contract Sum/
3. Contract Particulars
- Split into 2 sections:
o 1 – General
o 2 – Collateral Warranties & 3rd Parties
- Outline project specific items relating to Contract Articles/Recitals/clauses e.g:
o Sectional completions – Completion dates of each section
o Contract Sum
o Selection of Insurance options
o Retention amount
o % to cover professional fees
o PII
o Applicable / N/A clauses/sections
o Dispute resolution methods
o Time scales e.g. CDM Planning periods
o Date of Possession
o Contractor’s limit of liability
o LADs
o Rectification Period timeframe
4. Attestation
- Parties sign up to contract
- States whether contract is:
o under hand (6yrs) – authorised person
o as deed (12 yrs) – witness & company director
5. Conditions
a. Definitions & Interpretations
b. Carry out the Works
i. Contractor’s obligations - General obligations & Materials, goods & Workmanship
ii. Possession of site
iii. Supply of Documents, Setting out
iv. Discrepancies & Divulgences – between ERs / CPs / Statutory Requirements / Drawings & Documents / Instructions
v. Design Works – liabilities & limitations
vi. Adjustment of Completion Date
- provisions which give entitlement to an EoT
- Notice procedures – identify Cause of delay i.e. which Relevant Event & impact on programme
- Practical Completion, Liquidated Damages
- Partial Possession
- Defects
- Contractor’s Design Docs – As builts & Copyright
c. Control the Works
- Access (by EA) & Representation (Competent Person must be in charge)
- Sub contracting – consent must be sought for subcontracted works
- Instructions – compliance
- CDM Regs
d. Payments
- Contract Sum & Adjustments
- Payments & notices
- VAT
- CIS
- Interim Payments
- Suspension Rights
- Final Statement
- Gross Valuations
o Alternative A – Stage payments
o Alternative B – Monthly payments
- Retention
- L+E
e. Change
f. Injuries, damages & insurances
- Public Liability
- Employer’s Liability
- Professional Indemnity Insurance
- Joint Fire Code
g. Assignment & 3rd party rights
h. Termination
i. Dispute Resolution
- Adjudication – available
- Arbitration – not available
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- Legal Proceedings
6. Schedules
a. Contractor’s Design Submissions
- Drawing Approval Status – A/B/C
b. Supplemental Provisions
- Split onto 2 sections:
o Part 1 - provisions only apply is stated in Contract Particulars
o Part 2 – Provisions apply unless otherwise stated
- Loss & Expense
- Acceleration Quotation
- Collaborative Working
- Performance Indicators
c. Insurance options
- A – New building (Contractor takes out JNP)
- B – New building (Employers takes out JNP) / C (existing buildings)
- C – Existing building (Employers takes out JNP)
d. Code of Practice
e. Third Party Rights
f. Forms of bonds
g. Fluctuation options
7. Contract Amendments
- Summarises all terms and conditions that have been amended in the contract to be tailored/suited to a particular project.
o Contract Sum Analysis
o ERs
o CPs
8. Preliminaries
- Summarises the terms of the contract.
- Outlines general services to be provided by the Contractor.
- Includes items to be included in the Contractor’s costs, provisional sums & other items subject to later instruction.
86
What documents need to be updated throughout the lifecycle of the project?
- Construction Phase Plan
| - Site Waste Management Plan
87
What insurances are available under JCT?
1. Outlined in Section 6 & Schedule 3.
2. Insurance options:
a. New Builds – All Risk Insurance taken out by Contractor
b. New Builds - All Risk Insurance taken out by Employer
c. Existing Builds - All Risk Insurance + Joint Names Policy for full reinstatement costs for damage to existing building - taken out by Employer
3. Professional Indemnity.
4. Employer’s Liability - cl. 6.4
5. Public Liability – cl. 6.1 & 6.2
6. Terrorism Cover – cl. 6.11: extension to all risk cover or separate policy if none available.
7. Joint Fire Code – cl. 6.14
88
What optional insurances are there?
- Defects liability insurance (could be used in lieu of a collateral warranty).
- Employer’s loss of liquidated damages – is a relevant event but unfair to Employer if caused by a specified peril.
- Non negligence insurance e.g. piling – vibration or instability of spoil when trenching.
89
What is All Risks Insurance?
- It is cover for physical damage to works, site materials & cost for removal & disposal of debris.
- It excludes: defective works (wear & tear; obsolescence; deterioration from mildew/rust); war / invasion / foreign enemy / civil war; untraceable disappearance / shortage of materials; Excepted Risks.
90
What is an Excepted Risk?
- Outlined in cl. 6.6.
- Ionising radiation.
- Contamination by radio activity from nuclear fuel / waste.
- Pressure waves from aircrafts / aerial devices.
91
Talk me through the insurance options for the JCT forms of contract.
There are three insurance options for the Works:
1. Option A – New Buildings – Risk insurance with Contractor: Client may not want to arrange insurance, policy for reinstatement value of works including materials, maintained to earlier of termination/PC
2. Option B – New Buildings – Risk insurance with the Employer: Employer may be able to obtain better terms, if default, added to Contract Sum.
3. Option C – Insurance of existing structures by the Employer for works in or extensions to them: Requires the employer to take out and maintain a) insurance in respect of the existing structure and its contents and b) all risk insurance of the work.
The options are in Joint Names to ensure that protection is provided to the Contractor & Employer against subrogation (need to prove this to other party). They are also All Risk policies to cover all physical loss or damage to property, as well as third party liability related to work conducted on the contract site except for some specified perils which include fire, lightening, explosion, storm, flood, earthquake, sonic boom, riot and civil commotion.
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Describe Insurance Option A
- For new works
- The contractor takes out the insurance policy
- It is in joint names
- It should be maintained until PC
- The contractor will only receive the value paid out by the insurers for reinstatement, if the cost is greater than that, they bear the loss
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Describe Insurance Option B
- For new works
- The employer takes out the policy in joint names
- It may be used by frequent developers who may have a lower premium than the contractor
- Any reinstatement works are treated as a variation, and the employer has to pay the actual value, if that is more than the insurance policy they bear the loss
94
Describe Insurance Option C
- For works to existing structures
- Taken out by the employer in joint names
- The new works have to be insured for all risks and specified perils
- The existing structure only has to be insured for specified perils
95
What are the Specified Perils?
- These are defined in clause 6.8
| - They include fire, lightning, explosion, storm, flood, earthquake, riot and civil commotion
96
What is the procedure if loss or damage occurs as a result of an insured risk?
- The contractor must notify the architect in writing stating the nature, location and extent of damage
- Valuations of the work take no account of the damage – as if nothing had happened
- Once the insurers have made their inspection the contractor should repair, restore and replace anything damaged before proceedings with the works
- The contractor should be paid for the reinstatement works in instalments through interim certificates, like normal
- Under Option A the contractor must enable the insurers to pay out any monies due to the employer
- The reinstatement value depends on the Option used
- Under Option A the contractor receives the insurance payout, under Option B and C they receive the value of carrying out the work valued as a variation
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What is Latent Defects Insurance?
- Covers actual physical damage to a building caused by inherent defects that originate in the structural parts of the building (internal and external services).
- Indemnifies the person having an interest in the premises / provides cover for latent defects that existed prior to PC but remained undiscovered at that time and became apparent during the period of policy (usually 10-12 years).
- These policies include defects in design, materials and/ or workmanship.
- Cost is generally 0.65% - 2%.
- Developer takes out the policy at the start of the project to vet the design but benefits can be assignable to future purchasers / tenants.
98
What is terrorism cover?
- Insurance provided in joint names for physical loss or damage to work executed, site materials, existing structures and their contents caused by terrorism
99
Where is it defined in JCT contracts?
- Clause 6.8
100
What is the procedure if terrorism cover ceases to become available?
- If one party receives notice from the insurers that the cover will no longer be available they must immediately notify the other party
- Before the cessation date the employer must notify the contractor in writing that they either want the works to still be carried out or that they are terminating the contractor’s employment
101
If the contract is not terminated and the works suffer loss or damage due to terrorism what happens?
- The contractor shall with due diligence repair, restore and replace any damage to work / materials, remove and dispose of debris and proceed with the works
- The reinstatement is to be treated as a variation
- The cost is not to be reduced due to any act of negligence on the part of the contractor
- In the case of existing buildings, the work must be reinstated but any damage to existing structures is not obliged to be reinstated
102
What do you understand by collateral warranties?
Collateral warranties create a contractual relationship between parties where there would otherwise not have been any - e.g. for third parties with an interest in the project such as funders or tenants.
103
Who would you expect to provide collateral warranties?
- Design team
- Main contractor
- Key sub-contractors
- Key suppliers
104
What are the main changes in the JCT 2011 for of contract compared to the previous version?
Changes were made mainly to conform to the changes to the payment provisions in the Housing Grants, Construction & Regeneration Act 1996 introduced by the Local Democracy, Economic Development & Construction Act 2009. Contracts must now provide for the following payment structure:
- Payment notice submissions
1. Employer must submit a Payment Notice with 5 days after the payment due date.
2. The final date for payment is 14 days after receipt of the Contractor’s Interim Application.
3. It is optional for Sub Contractors to issue a Payment Application.
4. Payment notice must specify the sum the payer considers to be due.
- Default notice
1. If the Employer fails to serve a Payment Notice, the amount stated in the Interim Application becomes due.
2. As the Interim Application is optional for SBSC, one may not have been submitted. If this is the case, the Sub Con must submit a “default” Payment Application setting out the sum to be paid.
3. Payment is postponed by the number of days between when the Contractor Payment Notice should have been issued & the submission of the Sub Con “default” Payment Application.
- Pay less notice
1. Must be issued no later than 5 days before the final date for payment.
- Service of Notice
1. Even if the amount is 0, a Payment Notice / Pay Less Notice must still be issued.
2. Contractor must be notified of authorized persons e.g. the EA who can issue payment in the Employer’s behalf.
3. Under SBSC, all payments must be made by the Employer.
4. Interest is payable on late payments at 5 per cent above the base rate of the Bank of England.
- Suspension
1. Contractor is entitled to suspend part/all of the works for non payment.
2. Cost can be recovered under a Suspension Clause.
- Adjudication
1. Genuine errors can now be corrected & the decision can be changed
2. No pre-agreement of party costs – the adjudicator determines who pays the costs.
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- Retention
1. Applies to SBSC
2. Half the retention still released at PC
3. The remainder is now released after all defects are made good / at the agreed “Retention Release Date” rather than at the end of the Rectification Period.
- Final Payment
1. Applies to SBSC
2. Final payment to Sub Con no longer linked to Main Contract Final Certificate.
3. Now due 2 months after the later of:
The date the final balance of retention is released to the Sub Con
The date the Contractor issues its statement of calculation of the Final Sub-Contract Sum.
Other JCT changes include:
- Site Waste Management Plan regulations are now referred to (SWMP to be conducted for construction work that exceeds £300k
- Separate sub limits of cover for asbestos and fungal mould have been deleted (limited providers)
- Addresses scope gap in EoT for fossils, antiquities and other objects of interest or value (steps to preserve etc)
- Definition of ‘insolvent’ has been amended.
- Certificates are to be issued to Contractor and employer at the same time
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What is Practical Completion?
- Contractually required to achieve PC on or before date for completion: as defined in the contract.
- Requires a PC Certificate to be issued by the CA/EA.
- Requires statement from CoW / Architect that works are complete.
- Minor snagging items to be rectified within specified time period.
- It triggers:
• Start of rectification period
• 50% retention released
• Responsibility for insurances changes
• Employer responsible for securing the site
• LD’s can no longer be claimed past the date of PC
• Bonds expire
106
Who agrees the rate of LDs?
The Client only, who is to provide a genuine pre-estimate of the likely loss.
107
What if no LDs are noted in the Contract particulars?
If the section was struck out, then actual loss incurred is to be paid.
- If it has ‘nil’ in the LDs, then no recompense is to be paid.
108
How can an Employer claim LDs i.e. what must be in place?
- Employer must have issued a ‘Non-Completion Notice’ under cl. 2.28.
- Employer must issue a written notice to the contractor no later than 5 days before the due date of the final payment, informing that they may require payment of, or may withhold or deduct, the LDs
- Employer must issue a written notice stating the period between the date for completion and date of practical completion requiring payment or notifying deduction (Pay Less Notice).
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What are the differences between the Date of Completion, Completion Date and the Date of Practical Completion?
- The Date for Completion is stipulated in the contract.
- The Completion Date is an agreed new completion date that can be repeatedly adjusted and is later than the Date for Completion.
- The Date of Practical Completion may be earlier or later than the Date of Completion/Completion Date and is the date that the project is handed over to the Employer. If later than the Completion Date, LDs must be paid.
110
How would you formally issue an Extension to the PC date?
- Stated under Cl. 2.25 – Fixing Completion Date.
- A notice of Extension of Time (or Reduction on Time if it’s due to a Relevant Omission).
- States the revised Completion Date.
- Given in response to a notice from the Contractor (Cl. 2.24) stating that a delay to the progress has become apparent.
o Cause: Describes cause of delay & references the Relevant Event
o Effect: Estimated expected delay
- Employer must response with reasonable time / within 12 weeks.
111
What if no ‘Non-Completion Notice’ or Extension of Time was issued and the project was not complete by the Date for Completion?
Then time is said to become ‘at large’ and the contractor is obliged to complete the works within a reasonable time and the employer would not be able to levy liquidated damages as there is no fixed dated from which they can be calculated.
112
What is a defect?
- Any aspect relating to design, construction or building material that does not perform under the contract and for the purpose for which it was procured.
- Patent – identified during the rectification period as a result of reasonable inspection.
- Latent – Exists before its discovery. Cannot be identified from reasonable inspections; hidden or concealed flaw (becomes patent once established).
113
What happens if a latent defect becomes apparent after the rectification period?
The contractor has an obligation to make good any latent defects in accordance with the length of the contract i.e. 6 / 12 years depending if under hard / as deed.
114
What’s the difference between a snag & a defect?
- A snag is something that is identified before PC. It could be an aesthetic property e.g. redecoration works or items to be made good due to damage/incorrect installation as well as an item not performing as per the reason it was procured for.
- A defect is something that is innately wrong with the design, construction or building material which does not perform as per the reason it was procured; it does not include items which have been damaged due to use. PC should not be granted if defects are present.
115
Is it valid to not award PC due to outstanding snags?
- PC can be awarded with outstanding snags which would be recorded on a snag list for the Contractor to make good and appended to the PC certificate.
- However the presence of an inordinate number of outstanding snags would be a valid reason to withhold PC if the CMT had advised me that the quality is not as per the requirements of the Contract.
116
Why would PII be important for this kind of scenario?
If I had issued PC against the advice of the CoW / Architect / CMT and it turned out to be the wrong decision, PII would not cover me for that error.
117
What would you do if a contractor found something that he thought had archaeological significance in the ground?
1. Procedure stated in Cl. 3.15 of JCT D&B contract.
2. All fossils, antiquities & other objects of interest become the Employer’s property
3. Contractor must use best endeavours to not disrupt the objects.
4. Cease Works.
5. Take steps necessary to preserve objects.
6. Inform Employer of its discovery & the precise location.
7. Employer to issue an instruction stating action to be taken – may require Contractor to permit the examination, excavation & removal by a third party.
8. Discovery of antiquities is a Relevant Event & Matter.
118
What is subrogation?
A right often reserved by insurers to bring proceedings in the name of the insured.
119
What are ‘Step-In’ rights?
Rights for a party to step in and take over a development in order to complete it (normally following insolvency of a developer). Those with an interest in the development such as a funder will require that Step-In rights are included in the Collateral Warranties. Therefore if the Employer becomes insolvent part way through the construction process, the other party can step into the Employer’s role to complete the development and protect its investment.
120
What are the ways in which benefits can be transferred in a JCT contract?
1. Collateral warranties
2. Third party rights
3. Assignment
121
What is assignment?
- This involves the rights of the contract being transferred to a third party;
- Right to receive benefits only: collateral warranties are assigned to subsequent owners/lease holders.
122
What is the difference between assignment & novation?
- Novation: When a contract is transferred from being between the Employer & the Design Team to the Contractor & the Design Team i.e. the rights, benefits & obligations of one contractual party transfer to a new third party
- Assignment: Where the rights of one contractual party are transferred to a third party.
- Novation transfers rights, benefits & obligations; Assignment only transfers rights & benefits.
123
Give a common example of assignment and novation
- Assignment of the rights under a collateral warranty to a different tenant / purchaser.
- Novation of the design team under a design and build contract.
124
Can benefits be assigned under JCT contracts?
- The standard position (clause 7.1) is that assignment of rights under the contract is totally excluded.
- BUT optional clause 7.2 enables assignment to be permitted.
125
What is the standard commercial position regarding assignment?
- It is standard to allow assignment of rights twice without consent
- The assignment should be notified in writing to the other party
126
What are the common clauses / terms in collateral warranties?
- The obligations of the collateral warranties should mirror that of the main agreement.
- Therefore if a party is in breach of the main agreement they would also be in breach of the warranty.
1. Limitation of liability
2. Reasonable skill and care v fitness for purpose
3. Requirements for PI insurance
4. Assignment rights
5. Novation rights
127
Name some standard forms of collateral warranty that may be used
- CWa/F – JCT standard form of collateral warranty for a funder
- CWa/P&T – JCT standard form of collateral warranty for a future purchaser or tenant
128
How has the contract (rights of third parties) act changed the situations regarding rights under contracts?
It has significantly changed the traditional principle of privity of contract, whereby obligations can only be enforced by the parties to a contract.
129
What has been the impact of the Rights of Third Parties Act?
- Initially the response was suspicion – new – not much case law – not tried and tested etc.
- JCT now includes provisions to allow third party rights to be granted.
- Evidence that they are starting to be used in the industry.
130
How can third party rights be included under JCT contracts?
- Fill in Part 2 of the contract particulars – sections 7A and 7B.
- The individual / group that has a right to enforce has to be ‘expressly’ named or described.
- The terms that they can enforce should also be listed.
- The third party identified can use any defence or set off that the contracting party could.
131
Why might third party rights be used instead of collateral warranties?
If a lot of warranties are required it involves a lot of administration and cost – easier for third party rights.
132
How does novation affect the Employer’s rights?
- They lose all contractual relations with the novated party and therefore the right to take action for a breach.
- It is therefore common for there to be a collateral warranty between the employer and novated party.
133
- They lose all contractual relations with the novated party and therefore the right to take action for a breach.
- It is therefore common for there to be a collateral warranty between the employer and novated party.
```
EA/CA:
- Instruction
- Notification of Extension of Time
- Non-Completion Notice
- Practical Completion Statement
- Section Completion Statement
- Notice of Completion of Making Good
- Notice of Partial Possession by Employer (SBC)
Contractor:
- Interim Application
- Statement of Reimbursement
- Notice of Partial Possession by Employer (D&B)
- Final Statement
```
134
Why is Change Control important on a project?
Change is inevitable on a project and thus it is important to closely manage it to prevent change overwhelming a project or taking the project unnecessarily off-track. Change is often a positive thing in strengthening the achievement of Client objectives and it can affect:
- Cost
- Quality
- Programme
- Health & Safety
- Construction
- Scope
- Resource allocation
135
How did you manage change on one of your projects?
- Identify need for change by project team
- EA raises CRF with assistance from team
- Sign off received by Client
- PM issues instruction
- Sign off by Project Director – issued to client.
- All changes tracked in a change control register
o Description
o Date raised
o Implications – time, cost, risk, H&S
o Originator
o Priority
o Tracks cumulative cost of all changes.
136
What was included in an instruction?
1. Description of change
2. Cost impact
3. Programme impact
4. Ref to any drawings / docs – also appended.
5. Total cost of change
6. Value of previous changes made
7. Revised Contract Sum.
8. Signed by EA / Director
137
Does a change / instruction have an impact on the PC date?
If it is a Relevant Event then yes
138
What is a scope of services and why are they important?
1. Defines services to be provided by a consultant, often per work stage
2. Issued at tender stage for consultants to base fee on
3. Defines roles & responsibilities
4. Allows task matrix between project parties to be established – ensure there’s no duplication of effort / works missed out.
5. Standard scope of services available e.g. RICS Cost Consultant SoS – can be tailored for the project requirements
139
What is Novation?
- Used in D&B projects when the contract between the Employer and the Design Team is transferred to be between the Contractor and the Design Team.
- Transfers rights and obligations – all 3 parties must be in agreement, still requires consideration.
140
When the design team has been novated, who looks after the Client’s interest in terms of design? Who is qualified to comment on design matters?
JG - A Compliance Monitoring team employed by the client to review design / drawings produced by the Contractor and sign off.
141
What would allow the Contract Sum to be adjusted?
Clause 4.2:
- Adjusted:
o Change (as a result of Instruction)
o Receipt of Acceleration Quotation
o Pool Re cover premium to be paid
- Deducted:
o Provisional Sums included in ERs
o Omitted items (as a result of Instruction)
o As a result of Divergence between ERs & Site boundary
- Added:
o As a result of Divergence between ERs & Site boundary
o Opening up for inspections / testing
o Any amount paid by the Contractor of Insurance Option B/C – should be paid by Employer.
o Any Liquidated Damages
142
What would a consultant’s appointment typically contain?
What would a consultant’s appointment typically contain?
- Form of Agreement.
- Terms and conditions.
- Schedule of Services.
- Statement of Fee.
- Ancillary Documents.
143
What would the typical components of a Consultant’s appointment contain?
1. Duty to use reasonable skill and care.
2. Duty to act impartially – Sometimes!
3. Obligation to comply with instructions.
4. Duty to comply with Client’s brief.
5. Duty to comply with Programme.
6. Co-ordination with other consultants.
7. Duty to provide warranties to third parties.
8. Client obligation to provide information.
9. Payment clauses.
10. Additional Services with an adjustment to the Fee.
11. Insurances to be provided by the Consultant.
12. Intellectual Property/Copyright.
13. Assignment.
14. Suspension of the Services.
15. Termination.
16. Notice provisions.
17. Dispute Resolution.
18. Limitation of Liability.
19. Definitions.
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What is the structure of a consultant appointment at DL?
1. Services
2. Client’s Undertakings
3. Fees
4. Licence
5. Confidentiality
6. Assignment/Sub-Letting/Third Party Rights
7. Liability/Insurance/Indemnity
8. Suspension/Termination
9. Complaints
10. Dispute Resolution
11. Agreement
12. Jurisdiction
13. Appendices:
a. Services
b. Fees
c. Definitions
d. Collateral Warranties
145
What are the differences between a Consultant appointment and a building Contract?
1. Intention: Advice v Physical Asset.
2. Duty: Reasonable Skill and Care v Fitness for Purpose (D&B Contractor: design & construction)
3. Ownership: Title v Copyright.
4. Insurances: PI v CAR.
146
Can you name some providers of standard forms of appointment?
- RICS
- NEC3
- CIC
- RIBA (architects)
- ICE (engineers)
- JCT consultancy agreement
147
What would a Contractor’s Preliminaries contain?
1. Site accommodation.
2. Management & staff.
3. Site establishment.
4. Temporary services.
5. Security.
6. Safety & Environmental protection.
7. Control & protection.
8. Mechanical plant.
9. Cleaning.
10. Insurances, bonds & guarantees.
148
What is a Notice of Completion of Making Good?
- Issued by the EA/CA to certify that all defects have been addressed.
- Triggers the release of the remaining retention.
149
Why may a higher retention value to specified in a Contract?
- As the programme was challenging with an immovable PC date, a higher retention may be used to encourage the contractor to finish on time.
- Retention may be set higher because LDs are low due to it being a project with low realistic LDs (i.e. public park) and increasing the LDs could be construed as being a penalty.
- In addition, the Contractor may not want to procure a Performance Bond and it was not a subsidiary and thus could not provide a PCG.
150
Does a higher retention reduce Client risk?
- In one respect, opening the project with a immovable date does offer some incentive to the Contractor, but would invariably have affected the cashflow of the Contractor and so increase the chances of it folding.
- However, financial checks at the PQQ stage can ensure the Client team are confident of the Contractor being able to fulfil the Contract; credit checks, submission of company accounts for the last three years, signed permission to contact bank for a reference.
151
How can you analyse the risk of increasing the level of retention and putting the contractor under more pressure?
- Thorough financial checks of the shortlisted contractors can be conducted at the PQQ and tender stages to ensure the companies are financially strong and able to fulfil the Contract.
- This retention setup undoubtedly places pressure on the Contractor but the retention structure must be communicated to Contractors in the original PQQ documentation.
- Therefore, there is ample time for any restrained contractors to withdraw from the process should they not be agreeable to the level of retention.
152
Does increased retention incentivise the Contractor to finish a project earlier?
This is likely to happen although an alternative option may be to recommend a retention bond to promote greater collaboration. A retention bond would:
1. Provide equal incentive to the Contractor
2. Offer equal surety to the Client
3. Improve the Principal Contractor’s and the Sub-Contractor’s cash flows
153
What is the difference between Sectional & Practical Completion?
There is no difference contractually only Practical Completion occurs at the end of the project when all the Sectional Completions have occurred.
154
What is the difference between Practical Completion/Sectional Completion & Partial Possession?
PC & SC are dates stated in the contract and certificates are issued by the CA/EA.
- PP cert issued by CA/EA in SBC and Contractor on D&B.
- PP is not stated in the contract and permission is required from the Contractor for PP to take place – this cannot be unreasonably withheld / delayed.
- PP allows the Employer to take possession of any part of the works.
