Contract Practice Flashcards
1
Q
When should works be valued up until under a JCT 2016 contract?
A
Valued to the IVD, under the JCT 2011 contract it was the due date.
2
Q
When would you recommend the client obtains a collateral warranty?
A
- For longwearing items/packages
- Plant
- Items integral to the building and its functionality
3
Q
What is are Third Party Rights?
A
- Allow a 3rd party to enforce specified terms of a contract in the same way as a collateral warranty without the need for a separate contract
4
Q
Partial possession vs sectional completion
A
- Section competition is pre-planned and defined in the contract documents, partial possession is not and is a more open ended option
5
Q
What are the risks associated with a LOI? (Letter of Intent)
A
- No warranties
- As not a formal contract cannot be found in breach
- No obligation of the contractor to complete the works
- No right to adjudication as HGCRA does not apply
6
Q
What is Prime cost?
A
The actual cost of a variation / project plus % of OHP
7
Q
What is a Provisional sum?
A
A financial allowance, included within the contract sum for work that is not sufficiently defined to allow the contractor to offer a fixed price
8
Q
What are some Relevant Events?
A
Variations
Exceptionally adverse weather
Force Majeure
Deferment of possession of site by the employer
The carrying out of work by the statutory authorities
Loss or damages by the specified perils
Strike or lock out
Civil commotion or terrorism
The exercise of any statutory power after the base date by the UK government
9
Q
What are some performance bonds?
A
Parent company guarantees – similar to performance bond backed by holding company
Performance bond – typically 10% of contract sum and used to ensure the contractor completes their obligations to a client
Retention bond – in lieu of taking retention
Advance payment bond – secures payments if the client agrees to pay start-up costs
10
Q
What is time at large?
A
Contract completion date passed but no EOT granted
11
Q
What is the process for an extension of time?
A
Contractor must issue a notice of delay as soon as it becomes apparent along with all substantiation and back up as soon as is practically possible
Employer must response within 12 weeks from receipt of all information
12
Q
What does the HGCRA mean?
A
Right to be paid interim periodically or stage
Right to be informed of the amount due
Right to suspend performance for non-payment
Right to adjudication
Banning pay when paid clauses
13
Q
What are the differences between an NEC and a JCT contract
A
NEC uses 6 main options (A-F) whereas the JCT is a suite of contracts
NEC is written in simple (laymans) terms whereas the JCT uses legal wording
NEC does not mention a QS, only a PM
NEC uses compensation events, JCT uses variations
Programme forms part of the NEC contract document
Bill rates are binding within a JCT contract for variations
Variation vs Compensation event – money and time dealt with separately under JCT
A – similar to traditional
F – Similar to management contracting
14
Q
What should be included in a LOI to ensure it is enforceable?
A
The Parties The works The price (if agreed) Statement of the intention of the parties to enter into and be bound by a formal contract Date for possession and completion Procedure for calculating payments Insurances provided Maximum expenditure limit Confirmation that the contract created by the LOI will end upon execution of the main contract
15
Q
Does a performance bond remain the same throughout the project?
A
Usually reduces to 50% of the sum at Completion
16
Q
What are the negatives of a LOI?
A
Can put the client in a weak position during contract negotiation
May lead to complacency
Less robust than a contract
17
Q
What is a collateral warranty?
A
Collateral warranties are used as a supporting document to a primary contract where an agreement needs to be put in place with a third party outside of the primary contract.
Sometimes an architect, contractor, or sub-contractor will need to warrant to a funder, tenant or purchaser that it has fulfilled its duties under a building contract.
It can also provide the third-party contractual rights enabling it to claim for losses which would not otherwise be recoverable.
Creates a direct contractual link between parties not linked within the building contract i.e. tenant or funder.
18
Q
What are the 2 options for valuing variations?
A
Use the valuation rules
Schedule 2 quotation
19
Q
What are the difference between the JCT 2011 and 2016 contracts?
A
Introduced updated CDM regs – CDM Co-Ordinator changed to principle designer
Government Payment Charter - First payment date is now specified in the contract
Monthly Payment cycle continues to operate until the final account is agreed and certified
L&E – EA must respond to initial claims with 28 days and 14 days of subsequent updates
Update in payment terms – IVD 7 days before due date / due date is 7 days after IV recieved
20
Q
What is novation?
A
The transfer of benefits and burden in a contract (design team)
The designer is engaged under the same terms by the contractor as they were by the client
Contractor becomes liable for all design carried out by the designers even pre-novation. They have no liability to the client unless collateral warranties are used
21
Q
What is the difference between a JCT Minor works and D&B contract?
A
Minor works
Contract Administrator
Does not refer to sections or sectional completion
D&B –
Employers Agent
Sections and sectional completion, stage payment allowed for
Retention 3% in DB and 5% in MW
22
Q
What section of the JCT D&B contract enables the EA to request a quotation for works prior to instruction?
A
A Schedule 2 (of the conditions) quotation however contractor not obliged to provide it.
23
Q
What’s the danger with Free issuing risk material?
A
Could be damaged by the contractor
Risk is carried by the employer if cause a delay
24
Q
How long should be allowed for a tender period?
A
JCT Practice note 2017 –
minimum of 28 days for simple jobs w/ no design
3 – 4 months for more complex design projects
25
What are the types of contract breach?
Material Breach – an event that allows the other party to terminate the contract citing the specified contract obligations
Non-Material Breach – allows for the correction of the breach under the terms of the contract
26
Who serves the payment notice for a valuation?
Project Manager, QS serves a payment recommendation
27
What are some amendments in the Soho Place contract?
Employers Requirements take priority over Contractors Proposals
That the risk of LUL / TFL lies with contractor
Removal of arbitration
Supply chain charter compulsory
Applies a duty of care and requirement to make good any damage to highways, paths, pipes and other properties during construction
Offers a bonus for achieving Practical Completion early (daily rate)
28
What is the difference between a defined and an undefined Provisional sum?
Defined – an allowance accounting for programming, planning and prelims
Undefined – entitles the contractor to be paid additional prelims and an EOT if the PS work causes a delay to completion
29
What must happen at practical completion?
Insurance passes to the client
Security passes to the client
Half of the retention released
30
What is the time frame for a JCT D&B Valuation?
Application for payment / Interim Valuation Date – stated in contract
Due Date – 7 days after IVD
Payment certificate – 5 days from the due date
Payless notice – issued 5 days before date of payment if needed
Payment date – 14 days from the due date
31
What does the LDEDCA mean?
Applies to written and oral contracts
Adjudication – not allowed to define who bears the cost of adjudication
Adjudication – adjudicators have the right to correct decisions within 5 days
Payment dates must be defined in the contract
Client required to issue a pay less notice – previously only had to withhold notice
Suspension of work for non-payment
32
Why would you use a DoV instead of simply instructing the change as a variation?
Significant degree of change included
| Could reset the PC date and any Liquidated damages
33
What is a Deed of Variation?
A method of amending or varying an existing contract to reflect renegotiated terms or a change in circumstances (large design changes)
34
What are the fluctuation provisions within a JCT contract?
Option A – Adjustments for changes in statutory contributions, taxes & levees
Option B – Adjustment for changes in labour, materials and statutory costs
Option C – Same adjustments of Option B but determined by a formula
35
What are the insurances allowed for in a JCT contract?
Public Liability insurance – injury to 3rd parties or damage caused to 3rd parties by the works
Employers Liability insurance – covers injuries to employees while at work
Insurance of the Works –
Option A – New build all risk joint name policy maintained by the contractor
Option B – New build and existing all risk joint name policy maintained by the employer
Option C – Existing building and refurbishment all risk joint name policy maintained by the employer
All Risk insurance – physical loss or damage to work executed or site materials
Professional Indemnity Insurance – covers any legal fees and compensation for any mistakes made whilst providing professional services
Terrorism Insurance
Performance Bond – protects client should the contractor fail to fulfil contractual duties
36
How do clients ensure that future tenants / owners are protected against defective work?
Collateral Warranties
| Third Party Rights
37
What is the ‘But For’ test?
How to trace the effects of heads of claim through the contractors L&E claim
‘But for’ this occurrence represented by this head of claim, would this cost still have been incurred
38
What are the Relevant Matters listed under a JCT contract
Variations
Instructions
Antiquities discovered
Delays in approval / permission for the development control requirement necessary for the works to be carried out
Any impediment, prevention or default by the employer
39
What is an advance payment bond?
Used when the employer has agreed to provide an advance payment to the contractor
If the employer is not able to recover advance payment from the contractor, the surety becomes liable to reimburse the employer
40
What 3 formulas could be used when calculating L&E?
Hudson
Emden
Eichleay
41
What is a Relevant Matter?
An event which entitles the contractor to make an application for Loss and Expense
42
What happens if time is unspecified in the LOI?
A reasonable time should be implied in relation to the circumstances that existed at the time the contract was formed
43
What is a comfort letter?
Expressed a party’s intention to act in a particular way at the time of issuing the letter
Does not oblige the party to act as described
Author would only be liable if the expressed intent was not held at the date of issue
Does not create a contract but can impose obligations related to payment for works undertaken
44
What are the Positives of Bespoke contracts
Contracts can be made simpler
Contracts can be made easier to administer
Risk can be allocated equitably
Contract can include incentives for the contractor to complete under programme or cost
45
How are the LD fees tested for fairness?
1. Is any legitimate business interest served and protected
| 2. If an interest can be identified is the provision made for it extravagant, exorbitant or unconscionable
46
When would you advise using Fluctuation Options B or C?
If the contract is very long
May benefit employer by stopping the contractor pricing risk
Should be used if there is an expectation of the market changing or prices falling
47
What is a global claim?
When the contractor cant allocate costs individually to each head of claim but the combined effects have have caused the loss. Danger is all or nothing…
48
What are the Heads of Claim for Loss and Expense?
Prolongation – site running costs / management
Insufficient use of Labour, Plant and Materials – idle plant / men
Increased cost of Labour, Plant and Materials
Loss of Profit
Head office overheads (disruption may lead to an inadequate return on OH like additional management or stopping resources taking on additional work)
Finance charges / interest (may have had to borrow money to fund issue)
49
What are some common construction laws?
Housing Grants and Construction Regeneration Act 1996
| Local Democracy, Economic Development and Construction Act 2009 (updated in 2011)
50
What is the difference between the JCT D&B and SBC?
D&B - Employers Agent, no QS listed in contract, final statement
SBT – Contract Administrator, QS stated in the contract, final certificate
51
Why are Letter of Intents used?
If an immediate start on site is required / long lead items are required but contract details are still being negotiated
52
How did I ensure the contractor and sub-contracts cashflow stayed updated?
Couldn’t ensure that the contractor payed sub-contractor on time
There is a mechanism in place in the contract to ensure payment is timely (payment cycle)
If my payment recommendation is delayed then it may delay the cycle
If I was late then the EA may try to carry it out instead and make errors
So I fulfilled my side of the obligation by paying them on time
53
What are the different ways contracts can be signed?
Under Hand – 6 years – non owner
| By Deed – 12 years – director or partner
54
What are the Variation Rules in a JCT contract?
Application of factors known as re-rating / star rating
Character – how similar it may be to similar items within the specification already costed. (Change of material, fixing method, background to other work)
Conditions – Stage at which the works are programmed (ground conditions in winter, cladding once scaffolding has been taken down, working in completed areas - protection)
Quantity – taking into account economies of scale / installation and supervision ratios
Preliminaries – ensuring they are updated to reflect project position (fixed / time related costs. Access equipment, waste removal supervision etc)
55
What is the Hudson formula?
Method for calculating the Head Office Overhead and Profit Claim
(OH&P/ 100) X (Contract Sum X Period of Delay / Contract Period) = Value of Recovery of OH per week
Head office % is the % for head office costs based on the CSA / BOQ
56
What are specified Perils?
Occurrences specifically listed required to be included within an insurance policy… fire, flood etc.
Obliged to check that this is the case in the All-Risk Insurance
57
How would you agree a Post Contract variation then?
Variations are modifications to the design, quantity or quality of the work.
1. Use a contract rate if there is a bill item of a similar nature
2. Use a star rate based on experience of what is fair and reasonable
3. Use dayworks – Prime Cost + Labour + Plant + % Additions
58
What are the positives of a LOI?
Allows work to commence quickly
Programme benefits
Avoids rushed agreement of terms
Provides safeguards vs a contractor just starting
59
What is an instruction to proceed to with consent to spend letter?
Sometimes referred to as an ‘IF’ contract
Allows works to proceed up to a certain value while contract is being finalised
Creates a legally binding contract between the parties and is superseded when the contract is executed
60
What are some suites of contracts?
Joint Contract Tribunal – JCT
New Engineering Contract - NEC
Institution of Civil Engineering – ICE
International Federation of Consulting Engineers - FIDIC
61
What is the JCT Minor Works Contract?
Traditional Procurement
Smaller, lower value, simple / basic projects
Not suitable if the building is complex enough to require BoQ
Uses a CA (contract administrator)
62
What makes a contract?
Offer – Contractors tender, amendments and agreement to terms
Acceptance – Employers acceptance of offer
Consideration – both parties must offer something of value
Intent
Legality
Capacity
63
What are Liquidated damages
It used to be a genuine pre-estimate of loss
Must have a non-completion certificate and a withholding notice
1. Is any legitimate business interest served and protected
2. If an interest can be identified is the provision made for it extravagant, exorbitant or unconscionable
64
What is the default level of retention on a JCT D&B contract?
3%
65
What is excluded from fluctuations?
Current day costs – dayworks, Schedule 2 quotations, Loss and Expense
66
What are the 3 types of LOI?
Comfort Letters
Instruction to proceed with consent to spending
Letter recognising the existence of a binding contract
67
What is included within a DoV and how is it executed?
Variation of the agreement and the reasons for this
68
What is the need for collateral warranties or third party rights?
Privity of contract – only parties of a contract can enforce its terms
Construction Security – allows a lender to claim losses directly from the party who caused them i.e architect or contractor
A Claim in tort is unlikely to succeed
69
What does an employer need to levy Liquidated Damages?
Notice of non-completion
Notice of what they intend to levy
Pay less notice
70
What is included within the Contract documents?
```
Contract booklet (agreement and conditions)
Schedule of Amendments
Employers Requirements
Contractors Proposals
Contract Sums Analysis
```
71
How does a JCT Minor Works contract differ from other JCT contracts?
No sectional completion
Simple / less complex
Suits strip-out works
72
What is the Emden formula?
Same as the Hudson but the Head Office % is the % based upon the Contractors accounts rather than CSA
73
What happens if cost is unspecified in the LOI?
Payment based upon quantum meruit – roughly means as much as deserved….
Actual cost reasonably incurred plus an addition of profit (cost plus)
74
What is a Common Land Laws?
Town and Country Planning Act
Same as Section 106
Ensuring any land to be developed must have local government permission
75
What is the supply chain charter?
Voluntary
Main contractors commit to paying their sub-contractors within set periods of time
Clients view this favourably – PQQ
Ensures the cashflow is maintained for all parties
76
In a JCT contract what’s required to value materials on-site?
Must be present / secure
| Must be in-line with the programme
77
What is partial possession?
When an area achieves practical completion, it can be occupied by the client
Half the retention must be released
Defect liability period begins
Insurance passes to the client
Contractor is not obliged to allow partial possession but cannot reasonably withhold permission
78
What is the difference between a relevant event and a relevant matter?
A relevant event relates to an EOT while a relevant matter relates to loss and expense
79
What happens if quality is unspecified in the LOI?
requisite standard will be that the contractor must carry out the work with proper skill and care using materials that are reasonably fit for purpose and of merchantable quality
80
Are there any parts of a contract you can’t amend?
Parts protected by law such as the right to adjudication
81
What is Loss and Expense?
A method of allowing the contractor to claim direct loss and expense.
Works must be directly affected by the relevant matters for which the client is responsible
Claims are for direct loss, consequential loss is generally excluded. It is designed to put the contract back into the position it would have been had the relevant matter not occurred
82
What are step in rights?
Should the developer go insolvent then the collateral warranty will allow the funder to step in and assume the role of the developer.
In doing so the third party can honour the payments due to the contractors / consultants and take the project through to completion.
83
What are the Drawbacks of bespoke contracts?
Costly
Time consuming to produce
Untested in court
84
What are Day Works?
Means by which a contractor is paid for specifically instructed works. Based upon cost of labour, materials and plant plus a mark-up for OH&P. Defined in NRM 2.
85
What forms of JCT contract are there?
Standard building contract – traditional, optional contractors design portion (CDP)
Minor Works building contract – traditional
Design and Build – D&B, more familiar
Major Project – D&B
86
What is sectional competition?
Refers to sections pre-stated in the contract
Allows the client to take possession of completed areas
End of Liquidated damages
Discharges contractor’s obligations to complete the works
Commencement of rectification period
87
What is assignment?
The transfer of rights and benefits from a contractual party to a 3rd party
Used to transfer the rights of a contract to from the employer to a party purchasing the building
88
What is the structure of a JCT D&B Contract?
Agreement
Articles
Conditions
Schedules
89
In a JCT contract what’s required to value materials off-site?
In accordance with the contract
the Listed Items are vested so that after payment the items become the property of the Employer
such Listed Items are appropriately insured against loss or damage to their full value during the period commencing with the transfer of property to the Contractor until they are deliver to or adjacent to the Works
At the location, there is clear and visible identification of:
the Employer for whom them are held
the location for which they are destined (the Works).
90
How is a Loss and Expense Claim paid for?
Added to the contract sum and paid in the next interim payment notice
Not subject to retention
91
What are some methods of delay analysis?
Comparison of actual vs planned progress
Critical path analysis – planned impacted method
Dominant delay
92
What is a Relevant Event?
An event which would entitle the contractor to apply for an EoT (Liquidated Damages are therefore not applied)
93
What is contract preferendum
if there is an ambiguous clause it will be interpreted against who wrote it
94
What options are there if a contractor won't complete their works?
Abatement
Performance Bond
Adjudication
Retention
95
How do you terminate a contract?
Send notice
| If for insolvency or corruption then can terminate immediately
96
What do you need to apply Liquidated Damages?
Notice of non-completion
Notice of intent to deduct LD
Payless Notice
97
Why might you use third party rights instead of collateral warranties?
if a high number of warranties are required it involves a lot of admin and cost - easier to use third party rights
98
What is novation
a contract that transfers the rights and obligations of one contractual party to a new third party (assignment is only rights)
99
What is assignment?
where the rights and benefits of a contractual party are transferred to a third party
100
What would you advise a client regarding JCT and NEC?
NEC - greater admin time
programme included in contract
more collaborative etc
Could research it further and write a short procurement report for the client for a full analysis
101
What is the disadvantage of an advance payment?
bad for employers cashflow
concerns over why the contractor can't fund the cost
Clause 4.8
102
What are the All-Risk Insurance options under JCT?
Option A – New build all risk joint name policy maintained by the contractor
Option B – New build all risk joint name policy maintained by the employer
Option C – Existing building all risk joint name policy maintained by the employer
103
What is the default retention for a JCT Minor works contract
5%
104
What is the Construction Supply Chain Charter?
Government backed charter to ensure main contractors pay their s/c on time
waste of time as all amended
105
What is the difference between a nominated and a named sub-contractor?
A nominated s/c is no longer a contractual term, was removed under JCT 2016
Named s/c allows the client to influence the contractors selection but performance remains with the M/C
106
What are Excepted Risks?
Items excluded from an insurance policy and costs often borne by the employer
radiation, pressure waves
107
How does a JCT contract refer to off site materials?
Listed Items
108
What is a Vesting Certificate?
A vesting certificate or agreement for construction goods, plant or materials, in letter form, used to confirm that ownership of the goods, plant or materials will transfer from one party to another on payment and confirming that they will be will be properly identified, separately stored, insured
109
Why would a client want to use a FIDIC contract?
International Federation of Consulting Engineers, used internationally as can be tailored for local laws
110
What is a contract mechanism and what are some JCT mechanism?
```
contract processes referred to
Instructions
Payment mechanism
Final Account process
L and E process
```
111
What is final account process?
Contractor issues Final Statement within 3 months of PC
If they dont submit the EA gives notice to submit and allows 2 months to supply it
If still nothing then the EA carries out own assessment
