Key Issue 2 - Case Study Flashcards
How would you deal with calling upon a materials off-site bond?
- Notifying the bondsman
- Notifying Skanska legal team
- If it were a matter of insolvency, Skanska would make contact with the administrators.
What were the risks with each option considered and what did you advice?
- Option 1 = Increased risk of Sub-Contractor failure, this was not a good way to manage them.
- Option 2 = Passed on the cash flow issue onto us, this was not ideal and was bad management of project finances
- Option 3 = We did increase the risk of on-site damage, however we felt we could manage this efficiently.
What is the JCT definition of materials?
- …all unfixed materials and goods delivered to and placed on or adjacent to the Works which are intended for incorporation therein’,
- Off site materials are called ‘listed items’
What is a vesting certificate?
• It’s a tripartite agreement between the sub-contractor, contractor and employer in which the sub-contractor is require to specify that the materials pass to the employer as soon as payment is received from the contractor.
Who owns the materials?
- In this scenario, clause 2.15.3, Unfixed materials and Goods. The materials will be owned by the Contractor if paid in an interim valuation, if they are then paid by the Employer, they would be their possession.
- However, under the sub-contract we state that the Sub-Contractors must continue to insure the works until fixed in there final position.
- Our all risks insurances would also cover any materials on site as additional protection.
What would on site materials be owned by if Skanska went bust?
- Transfer of materials to the Employer when paid in interim valuation.
- Clause 2.21 “Materials and goods - on site”. Amendment to the main contract: deleting second paragraph of cl. 2.21. Employers’ property. However, on default or termination of the Contractor materials become Employer’s property if paid, or to be included on the final valuation
Was the Sub-Contractor not just administrating their Sub-Contract by asking for materials off-site?
• The contractor has entire discretion on payment for materials off site based on the provisions in the main contract.
How does a bond provide Skanska protection?
• In the event materials are not delivered the bond will provide financial cover to the value of the materials.
What clause in the JCT D&B Sub-Contract relates to Listed items?
• 4.11 ‘Listed Items’ – (Section 4 Payments)
Where in the JCT Sub-Contract does it state that a bond is required for any listed items?
• Sub-Contract particulars, item 10.
What requirements are there under the sub-contract to incorporate materials as a listed item?
- The item must be in accordance with the Sub-Contract
- The listed item is insured for any loss or damage for its full value protecting the interests of the employer, until delivered too or adjacent the main contract works.
At the premises the listed items require clear identification of:
• The contractor and the employer
• The main contract works as its destination
• Each item must be clearly set apart and viably marked, individually.
If the Sub-contract particulars (Item 10) state a bond is required, the sub-contractor must provide a bond in favour of the contractor or employer from a suitable approved bondsman.
• They must allow for the value of the works as well as the terms set out in part 1 of schedule 3.
Where are ‘listed items referenced within the Sub-Contract?
- In the Sub-Contract Particulars No.10 (In the Sub-Con Agreement) OR:
- Subject to clause 4.11 of the Sub-Contract (Listed Items).
Where would you find standard wording as a schedule to the material off site bond?
• Schedule 3 of the JCT D&B Sub-Contract.
How is a material off site bond underwritten?
• As a deed
Why would they be required to update their insurances??
• It is prudent to have the sub-contractor name the employer on the policy in respect of their materials, or, have some form of ‘step in clauses’. A vesting certificate may give some form of rights, but I would consult a legal expert.
What is a bond?
• An arrangement where a contractual duty is backed up by a third party, usually financial institution, or bank.
What is the different between on-demand bonds and condition bonds?
- A bondsman can only refuse make payment on a regular demand for payment if the demand is clearly made fraudulently or dishonestly.
- A “conditional” bond the bondsman is only required to pay out if the contractor is in default under the underlying construction contract.
What other bonds could you consider?
• Advanced payment bond
Is it a risk that you have materials off site in your sub-contract but not in your main contract?
- Not necessarily, the sub-contract materials off site provision is at the Contractor discretion.
- As a last resort we would still use this but would have to absorb the cost impact on ourselves (which isn’t ideal).
Whose risk is material delays and shortages?
• The sub-contractors, and/ or Skanska. We have a relevant event in place if issues are because of Brexit and can be proven to be.
What must a bond be?
• In writing, common to be a deed
• Contains a duration and financial limit
Names of the protected parties
What is a listed item in the JCT?
• Materials, goods and or items prefabricated for the inclusion in the works.
What does the listed items clause in the JCT Main-Contract say?
- Listed items clause 4.15 (Payment).
* Listed items are scheduled out and annexed to the employers requirements (in the main contract!)
Do you hold retention on the listed items?
• Yes retention is held on listed items.
