Contract Practice - Level 1 Flashcards
(167 cards)
1
Q
What key function does a contract perform on a construction project?
A
Defines the parties rights and obligations in the project
2
Q
What is a contract?
A
A legally binding promise between two or more parties to fulfill an obligation in return for consideration
A basic binding contract should comprise four key elements: offer, acceptance, consideration and intention to create legal relations
3
Q
Define express terms?
A
Express terms are terms of agreement which are expressly agreed between parties, ideally they will be written down in a contract between the parties but where the contract is agreed verbally they will the terms discussed and agreed between the parties.
4
Q
Define implied terms?
A
A contractual term that has not been expressly agreed between the parties but has been implied into the contract either by common law or by statute
5
Q
What six conditions need to be met for a contract to be in place?
A
1) offer
2) Acceptance
3) consideration
4) intent to create legal relations
5)
6)
6
Q
What is tort?
A
a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act.
7
Q
What are the influences which will affect contract selection?
A
Cost / time / quality
Risk
Contract value
8
Q
Can you name three standard forms of contracts that can be used on a construction project?
A
JCT
NEC
FIDIC
9
Q
What do you understand about the following forms of contract;
FIDIC
JCT
NEC
A
FIDIC - largely used internationally
JCT - most commonly used in UK
NEC - more widely used in government contracts, promotes collaborative working
10
Q
What does JCT stand for?
A
Joint Contract Tribunal
11
Q
Name the key components of the JCT contract suite.
A
Domestic contract
Minor works
Intermediate
Standard
D&B
Major projects
12
Q
When was the JCT contract suite last updated?
A
2024
13
Q
Tell me about some of the key changes that were made.
A
Added
- sustainability
- collaborative working
- notification and negotiation of disputes
- extension of time and unforeseen conditions
- focus on building safety
- modernised and streamlined
Added JCT Target Cost Contract
14
Q
How does JCT facilitate electronic working?
A
JCT electronic version - download and amend
15
Q
How does the JCT work alongside the Construction Playbook?
A
JCT have produced a pdf flowchart to show how JCT contracts delivers Construction Playbook policies and activities.
Construction Playbook sets 14 key policy areas and key activities within procurement stages.
JCT
16
Q
How has the JCT contract suite incorporated diversity and inclusion?
A
The 2024 suits adopts gender-neutral language
17
Q
What is the JCT Fluctuations Hub used for?
A
JCT contracts have fluctuations provisions to allow price increase and decrease through construction programme. Aim is to transfer risk from contractor to employer.
Mechanism for dealing with inflation.
The JCT Fluctuations Hub seems to be information resource - collection of articles and learning resources.
18
Q
Explain the JCT Target Cost Contract to me.
A
Introduces option for parties who want to use target cost and difference sharing arrangements. Instead of lump sum the method of renumeration is payment of Allowable Cost of works plus a Contract Fee and if applicable a difference share calculated in accordance with contract.
19
Q
What form of NEC contract might the Target Cost Contract be a good alternative for?
A
NEC Target Cost contract
20
Q
What are the main parts of the JCT contracts?
A
Agreement:
Recitals
Contract particulars
Attestation
Condtions:
1 - Definitions & Interpretation
2 - Carrying out Works
3 - Control of Works
4 - Payment
5 - Changes
6 - Injury, Damage, Insurance
7 - Assignment, performance bonds etc
8 - Termination
Schedules
21
Q
What are the JCT schedules?
A
1 - 6 Supplemental provisions
Schedule 1 - Design Submission
Schedule 2 - Supplemental
Schedule 3 - Insurance options
Schedule 4 - Code of Practice
Schedule 5 - Third party rights
Schedule 6 - Form of Bonds
22
Q
How are relevant events and relevant matters dealt with under NEC?
A
They are referred to as compensation events and dealt with differently as they are dealt with as soon as possible together rather than being left to the end of the contract.
23
Q
How does NEC deal with loss and expense?
A
Dealt with as whole with the compensation event - the issue is reviewed by engineer and parties work collaboratively to resolve.
24
Q
What types of insurance are required under JCT?
A
Option A - contractor takes out and maintains joint names all risk insurance
Option B - Employer takes out and maintains joint names all risk insurance for new building
Option C - Refurbishment/alterations to existing structures - Employer takes out and maintains joint name all risk for works
What is all risk insurance? - protection against physical loss or damage to the works
What are specified perils? - fire, explosions, earthquakes, flooding etc
25
How is fitness for purpose dealt with under JCT DB / CDP?
In 2024 DB contract clause 2.17.1.2 contractor has no greater duty, obligation or liability in respect of design than to exercise reasonable skill and care and under no circs will contractor be subject to any duty, obligation or liability which requires that any design shall be fit for purpose.
26
What is the contractor’s design liability under JCT contracts (for CDP elements)?
Contractor is responsible for design, in 2016 contract:
1. responsible for completing design and contractors proposals and contractors design docs
2. not responsible for contents of ERs or verifying the adequacy of design contained in them.
Often position reversed by amendment. Clarified in 2024 DB contract.
1. Contractor has not greater duty, obligation or liability in respect of design than to exercise reasonable skill and care
2. no fitness for purpose obligation is imposed on contractor.
27
What are the differences in procurement between:
JCT Standard Form and
JCT with Contractor's Design?
28
When would you use a JCT IC contract?
The contract is designed for projects involving all recognised trades and skills of the industry, where fairly detailed contract provisions are needed, but without complex building services installations or other specialists work.
Suitable for projects procured on traditional method
29
Can benefits be assigned under JCT contracts?
Dealt with in Section 7 - rights can only be assigned with agreement under clause 7.1 or if Employer transfers property subject to works can assign right to bring proceedings against contractor.
30
Explain the role of main; sub; and package contracts from the standard suites you are aware of.
JCT main contract
JCT Sub contract
JCT package contract
31
When would you use a JCT MW contract?
Designed for smaller, basic construction projects where work is simple nature.
Suitable for projects procured on traditional basis.
32
In a contract you have used explain the following; roles and responsibilities of the parties
Employers role: provide property, pay interim valuations and final account, give instructions for variations
Contractors role: carry out works as set out in contract, in set timeframe and using appropriate methods and materials.
QS: carry out valuation of interim applications, variations and final account.
Contract Administrator: adminster contract, make sure parties are carrying out their obligations, issue necessary notices, act independently.
33
What client specific considerations have you taken into account when selecting a contract type?
34
What is a contractor’s all risk insurance or contract works insurance?
Contractors all risk insurance is protection against physical loss or damage to the works being undertaken
Policy will pay for repair or replacement of insured works following damage caused by an insured event
35
What do you understand by insurance in joint names?
policy is in names of two or more parties (eg employer and contractor)
the insurer has no right of subrogation (where it steps into shoes of insured and sues party responsible for loss caused) against any of the insured parties, even where one of the parties has caused the loss for which insurer has to pay out.
36
What is a collateral warranty?
A formal contractual agreement which runs alongside another contractual agreement; its purpose is to create a contractual relationship between two parties where one would not otherwise exist.
37
What is your understanding of what a letter of intent is?
A letter of intent is a a letter from employer to contractor (or main contractor to subcontractor) indicating employers intention to enter into contract for works described.
Usually asks contractor to commence works before formal written contract is executed.
38
What is a:
- comfort letter;
- consent to spend;
- recognition of contract
Different forms of letter of intent:
- comfort letter: letter expressing parties intention to act in particular way at some point in future or at time of issuing letter.
- consent to spend: letter with instructions to proceed and spend up to certain value while the contract is being finalised.
- recognition of contract: (sometimes letter of acceptance) is used by some forms of contract to formally execute contract (eg FIDIC). Generally marks end of negotiations.
39
When might you use advance payments?
40
What is the final account?
The final account is the conclusion of the contract sum (including all necessary adjustments) and signifies the agreed amount that the employer will pay the contractor.
It includes any works that are paid to the contractor through the main contract.
Typically includes any loss and expense associated with any extensions of time and any other claims the contractor feels they are due under the contract. It also indicates the finalisation of any disputes that may have arisen and in that sense draws a line under the final obligations of both parties, save in respect of defects.
The final account will not typically include liquidated damages, VAT or interest on overdue payments.
41
Who prepares the final account in a JCT form of contract?
QS
42
Who prepares the final account in the NEC4 form of contract?
The Project Manager
43
On the issue of the final account what are the relevant time periods in a JCT form of contract?
The contractor has six months from the date of final completion to produce all relevant evidence to support its claims
QS has three months from receipt to consider and finalise final account.
44
When must the final certificate be issued?
Within 2 months of the last of the end of the Rectification Period of the Works, the date of issue of the Certificate of Making Good Defects or on teh date on which the Contractor is sent the Final Certificate
45
Tell me two of the information or statements that must be contained in the final certificate.
The final contract sum
The amount of prior interim payment
The final amount to be paid.
46
What are the usual constituents of a final account?
Variable costs (provisional sums, approximate quantities, prime cost sums, daywork allowances)
Variations
Contract Instructions
Loss and Expense
Fluctuations
Risk Allowances
47
What is released to the contractor in the final certificate?
Retention
48
What third party rights might be included in a contract?
49
How does dispute resolution work in a contract you have experience of?
JCT contracts deal with disputes in Section 9
9.1 notification and negotiation of disputes
9.2 mediation
9.3 adjudication
9.4 arbitration
The parties are required to give notification asap of anything that may lead to a dispute and to try to resolve dispute through direct, good faith negotiations.
50
What is common law?
law that is not enshrined in legislation
51
What do you understand by consideration in contract?
In a construction contract consideration is the agreement payment
52
What do you understand by invitation to treat in contract?
It is the invitation to make an offer - eg the invitation to tender letter.
53
How is the JCT form of contract structured?
Contract particulars - Agreement, recitals and attestation
Contract Conditions
Schedules
54
How is the NEC form of contract typically structured?
55
What is the difference between a contract executed under seal and underhand?
If it is executed under seal it is a deed and has a limitation period of 12 years
If it is executed underhand it is a simple contract and has limitation period of 6 years
56
When selecting a form of contract what factors do you consider?
Value of project
Complexity
Design responsibility
Risk
57
What alternative forms of contract are there available and what would influence your recommendation of a form of contract?
Fixed price - Contractor agrees to complete project for fixed price.
Cost-plus - owner pays contractor for actual price of build plus a fixed fee or percentage of costs
Guaranteed max price - contractor agrees to complete project for cost below max set price
58
Design and Build contracts - what are the 3 main forms of this contract?
JCT D&B
NEC design build and operate
59
Within a JCT SBC when and why would you use a Schedule 2 quotation?
Variation quotation / contractors estimate
Should include:
1. value of adjustment to contract sum plus necessary supporting calculations
2. length of any extension of time required
3. amount of any direct loss / expense arising from complying with the instruction, which is not included in any other quotation/estimate
4. additional resources required to carry out the variation
5. method statement for undertaking the variation
60
What are the timescales in a Schedule 2 quotation?
Quotation needs to be supplied within 21 days of contractor receiving all info required.
Employer has 7 days to accept
61
If the contractor on a D&B contract fails to issue the final account within the due period what action should you advise your client to take?
If the contractor fails to issue the final account then the employer can compile required information and QS can determine the final account.
62
If you had to explain the differences to your client between sectional completion and partial possession can you provide an example of the differences under a JCT D&B contract?
Sectional completion is set out in the contract - the sections are agreed and expressly provided.
Partial possession is when the contractor agrees that the employer can occupy part of the project prior to full completion. Not agreed prior and contractor must not reasonably withhold consent.
63
How do sectional completion partial completion and beneficial use differ?
What is beneficial use?
64
If you client wanted to place furniture in the completed parts of a project which would you recommend sectional completion or partial possession?
Depends at what stage of project client tells you that he wants to put furniture in part of project - if prior to contract could be included as a section (if appropriate), otherwise would be partial possession but would need to get contractor to agree.
65
What are liquidated damages?
The agreed damages for late completion by the contractor. Should be reasonable and based on potential losses that client could incur.
66
What is your understanding of retention and bonds?
A retention is % of contract sum that is withheld pending completion and rectification of defects.
A bond is an insurance policy to protect against defects / events.
67
What is your understanding of early possession?
68
What contractual weight does a practical completion certificate carry in a JCT contract?
69
Tell me about some of the insurances a subcontractor would need if they were responsible for a part of the design work.
Professional indemnity insurance
70
What do you understand by a parent company guarantee?
A guarantee given as security for work carried out by a subsidiary company
71
When might it be used?
When the main contractor is a subsidiary and doesn't have financial backing / assets that parent company has.
72
What is your understanding of sectional completion?
The parties can agree that the work will be completed in two or more sections. The sections are defined in the contract and sectional completion refers to completion of one of those sections.
73
What is your understanding of performance bond?
It is an insurance policy put in place to pay out to complete the project if the contractor goes into liquidation
74
When might it be used?
When the client wants security against the contractor getting into financial difficulties.
75
What is you understanding of limitation of liability?
It is the ceiling to liability of a party. EG company has limited liability.
Could be limitation in terms of timeframe - limitation act sets time limit on when proceedings can be taken for losses suffered under contract or in tort.
76
Talk me through how you’ve ensured insurances from subcontractors were at the correct level.
Consider the value of the work that the subcontractor is responsible for, work out what is the potential loss as a result of that and asked for copy of their relevant insurance policy.
If their own policy does not provide sufficient cover, enquire about extending cover on bespoke basis.
77
What do you understand by relevant event in a JCT form of contract?
the JCT contract set out a list of 11 events / scenarios that causes delay to the works.
If the contractor gives notice of a relevant event the CA considers if it agrees and can award extension of time.
Does not entitle contractor to loss and expense even if awarded
78
What do you understand by compensation event in a NEC form of contract?
It is an event that is likely to give rise to delay
79
In the NEC form of contract talk me through five things that can lead to a compensation event.
80
In the NEC form of contract when can the completion date be adjusted?
81
In the NEC form of contract what is a defined cost?
82
In the NEC form of contract what is a disallowable cost?
83
When were changes to NEC4 last made?
84
What changes were made?
85
How are NEC contracts categorised by different alternative pricing options? What are these pricing options?
86
How is BIM integrated in a contract you are familiar with?
87
Explain Secondary Option X7.
88
What issue was raised by Triple Point Technology v PTT Public Co?
The Supreme Court confirmed that the right to liquidated damages for non-completion continues until termination of the contract, and afterwards general damages may be sought.
89
How was Secondary Option Y(UK)2 updated to reflect the judgement in Rochford Construction v Kilhan Construction?
90
How were Secondary Option X22 and Secondary Option Y(UK) 1 amended?
91
When are NEC compensation events not time barred?
92
In a NEC contract how would you detail if the contract is to be D&B?
93
What does the works information is included in a NEC contract?
94
What are the different types of FIDIC contract and how do they reflect different risk profiles?
95
What is your understanding of the difference between delay and disruption?
96
When does financial management of a project typically take place?
97
Explain what happens during the post contract phase.
98
How do you implement and manage cost control procedures and reporting within the scope of a contract?
99
What contract legislation are you aware of?
Contracts (Rights of Thirds Parties) Act
Allows third parties to enforce terms of contracts they are not party to but which benefit them in some way or that contract permits
100
Explain how contracts may deal with contractor designed works.
Intermediate Contract with contractors design portion
Imposes obligations on contractor for design of the listed work items.
101
Explain your understanding of contracts and sub-contracting.
A sub-contract is a contract "beneath" the main contract which the contractor enters into with another contractor to complete part of the main works - usually works that require particular skill or different trade
102
What payments provisions and change procedures are you aware of?
JCT payment provisions are set out in section 4
JCT change procedures are set out in section 5
103
What factors affect the choice of security in a contract?
104
What insurances are you aware of?
All risks joint names insurance
Structural warranty
Professional indemnity insurance
105
What is novation and assignment?
Novation in D&B contract is process where design consultants are initially contracted to client and then novated to the contractor.
Assignment is transfer of rights under original contract to third parties
106
What is a collateral warranty?
A formal contractual agreement which runs alongside another contractual agreement, the purpose is to create a contractual relationship between two parties where one would not otherwise exist.
107
What are the three ways that benefits can be transferred under JCT contracts?
Collateral Warranty
Assignment
Third Party Rights
108
Who might want a collateral warranty?
A third party with a financial or inherent interest in the project but who is not a party to the project. EG funding institution, future tenants, purchasers.
The employer may want a collateral warranty with key subcontractors or suppliers, if the contractor were to go into liquidation, otherwise they would have no contractual link with them for redress in case of defective workmanship.
109
What are the common clauses / terms in collateral warranties?
110
What is the difference between a bond and collateral warranty?
A bond is usually a financial commitment backed by third party, a collateral warranty passes on contractual obligations.
Bonds contained within contract. Collateral warranties run alongside the contract.
111
With any D&B contract there is a high probability that collateral warranties will apply where would you expect to see them and between which parties?
112
Are there any alternatives to collateral warranties?
A bond may provide some protection
Some rights are provided under the Contract (Rights of Third Parties) Act
113
Explain your understanding of retention.
The retention is an agreed percentage which is withheld from payment to the contractor. Usually under JCT contract 5% reducing to 3/2.5% on practical completion
Remaining is held until end of defects period.
114
What is the purpose of retention?
Incentive to contractor to complete works and carry out remediation of defects.
Financial security for employer against contractor failing to complete or carry out defects.
115
What items do not have retention taken on them?
116
Who receives the interest accruing on retention money?
117
When is the retention released to the contractor?
First part on practical completion (usually first half)
Final part on completion of defects liability period
118
What if the contract sum increases?
The retention is calculated on interim payments so the retention total will also increase - it is a percentage of total
119
Explain your understanding of liquidated and delay damages.
Liquidated damages are agreed damages payable on weekly / other agreed period for late completion
Delay damages
120
Explain your understanding of claims for extensions of time acceleration and loss and expense.
121
What is early possession?
122
Explain your understanding of phasing.
Works may be split into phases, each phase would be separate contract or if all in one contract maybe each phase would be section?
123
How can a contract be terminated?
Provisions for termination are set out in Section 8 JCT contracts
Employer can terminate in five situations:
8.4 default by contractor
8.5 insolvency of contractor
8.6 corruption and regulation 73(1)(b) PC Regulations
8.8 Employers decision not to complete works
Contractor can terminate
8.9 Default by employer
8.10 Insolvency of employer
124
Explain the impact of insolvency on contracts.
Entitles the other party to terminate
125
How do you deal with final accounts?
Refer to RICS guidance "Final Accounts"
After receipt of all information from contractor (within 6 months of practical completion), employer has three months to determine final account.
Employer/ QS should work with contractor to negotiate and agree final account.
126
What is a pre-construction services agreement (PCSA)?
A contract between employer and contractor for pre-construction services.
- the agreement sets out what services contractor is to perform before signing the building contract and identifies the terms and conditions under which these services are to be performed.
127
When are pre-construction services usually used?
In a two stage tender to facilitate early contractor involvement
128
What should be taken into account in the wording of a PCSA?
Arrangements don't commit employer to enter into main contract. Employer needs to be able to secure alternative bid if negotiations fail.
Scope of service needs to be clearly defined.
Usual programme and delay damage clauses are carefully drafted.
129
What might the pitfalls of a PCSA be?
130
How does a PCSA differ to a LOI?
131
Explain your understanding of defects and rectification.
Defects are problems with the building works.
Rectification is the obligation on the contractor to fix the defects.
132
How has Covid-19 affected a contract you have worked on?
Covid-19 affected the commencement date - delayed planning and led to issues with contractor availability and interest in tender.
133
Explain the differences between cost reimbursement and lump sum contracts.
Cost reimbursement =
Lump sum =
134
Explain a key principle of the new RICS Guidance Note Subcontracting (1st Edition).
135
What is a subcontractor defined as within this?
136
What does the Guidance Note not cover?
137
If an architect develops a design to a certain stage and the appointed D&B contractor then wants to use the design and develop further what do they need to do?
Take over design responsibility - do they want to novate the services of the relevant design consultant
138
How does novation affect the employer’s rights?
139
What are the advantages of novation?
Reduced learning curve - by working with client from early stage the design team can gain a strong understanding of project requirements. If the design team are not novated this learning is potentially lost and parts of the process will need to be replicated with a new design team.
Reduced contractual risk for employer - the process of novation and transfer of responsiblity to contractor means employer assumes minimal risk contractually.
140
Are there any disadvantages of novation?
- Following novation of consultants the employer will generally require collateral warranties.
- the client may need to employ shadow team for compliance purposes
- there is potential for conflict of interest, particularly in relation to services that remain to be performed.
141
Do you have novation on traditional contracts?
Not usually because designers are typically retained by employer.
142
What measures can be taken to effectively control costs during the construction phase of a project?
Cost reporting - regular report to client to keep track of impact of changes to costs
143
How can you control costs to keep a job under budget?
Cost reporting - regular reports based on formal cost plan to keep track of changes and how impacts final outturn cost.
144
How do NEC and JCT manage change control?
JCT manage change control through provisions of section 5
145
Why is cash flow important?
To avoid insolvency of either party.
146
How does a cash flow help a company remain solvent?
The contractor may be responsible for payments out for deposits, purchase of materials and payment of employees or subcontractors. Important that it receives payment as soon as possible to avoid getting into debt and/or avoid having to borrow money to fund project.
147
What is risk allocation?
The placement of responsibility for risk under a contract.
148
What do you understand by risk management?
The identification of risk, assessment of liklihood and impact on project.
Having a plan to manage those risks to minimise impact.
149
What is a risk management strategy?
The identification of risk, assessment of liklihood and impact on project.
Having a plan to manage those risks to minimise impact.
150
What are the benefits of risk management?
Risk management is concerned with both threat and opportunity.
151
What are the stages of risk management?
152
Why is risk management needed in construction?
153
What is the risk response?
Risk response / mitigation strategies : risk exposure (ie potential effect of risk) changes as the building project progresses and continually managing risk is essential. As design evolves, more of project requirements are defined and risk response can be decided:
1. risk avoidance
2. risk reduction
3. risk transfer
4. risk sharing
5. risk retention
154
How is risk quantified?
RICS management of risk suggests risk is quantified :
various techniques are suggests eg...
Probability tree
Central limit theorem
Monte Carlo
Fault tree analysis
155
What are risk management techniques?
Identify risk and quantify impact of risk
Develop risk management strategy
Follow guidance in RICS Management of Risk
156
How do you report or monitor risks?
Follow RICS Management of Risk
- Agendas and minutes of meetings should have doc reference numbers and saved on programme document control management system.
- Risk register should be saved monthly
- Monthly project reports should describe most serious risks, and planned reponses
157
What are preliminaries?
158
What are preambles?
Bits to a contract that introduce things / bit of background - not part of the main agreement
159
What would you include in a work schedule?
160
What are the three main standard forms of construction contract?
JCT
NEC
FIDIC
161
What is the role of contract administrator in each of these?
JCT - CA is person responsible for independently implementing the contract provisions, issuing notices etc.
NEC -
FIDIC -
162
How do cost complexity and time impact selection of JCT contract?
Main considerations when selecting which is the most appropriate form of contract to use - can follow JCT table to assess how each contract treats cost, complexity, time
163
How does quality impact the contract selection?
Different contracts give responsibility for quality management to different parties
164
What are the key differences between the JCT forms of contract?
165
Why are valuing change and valuations crucial for a QS?
QS role to value changes and valuations - QS role in JCT contracts.
166
What other contract procedures must the QS be aware of?
167
What are the rules for valuing change?
Different under diff forms of contract :
JCT standard / intermediate employer and contractor shall agree value of variation. Where agreement not reached QS carries out a valuation of the variation in accordance with the valuation rules.
Valuation rules:
1. same method and material - BQ rates
2. if same method diff material - BQ rate with adjustment for material change
3. same material diff method - BQ rate with adjustment for labour change
4. if different but capable of measurement - measure and apply rate
5. if not possible to measure calculate on day works.
