Level 1 Flashcards
(204 cards)
1
Q
What was the Latham report about?
A
Sir Michael Latham, 1994. Government commissioned report.
Latham identified industry inefficiencies,
‘adversarial’, ‘ineffective’, ‘fragmented’, ‘incapable of delivering for its clients’ and ‘lacking respect for its employees’.
2
Q
What were the recommendations of the Lathem Report?
A
1) The government should commit itself to being a best practice client.
2) A checklist of design responsibilities should be prepared.
3) A target should be set for 33% of government funded projects starting over the next four years to use the New Engineering Contract.
4) Adjudication should be the normal form of dispute resolution.
3
Q
What is the Egan report about?
A
Rethinking Construction - Sir John Egan’s Construction Task Force (1998). The report identified a number of key drivers for change: committed leadership, a focus on the customer, integrated processes and teams, a quality driven agenda, and commitment to people.
4
Q
What were the affects of the Latham Report and subsequent reports?
A
The NEC contracts produced.
5
Q
What is a construction contract?
A
A formal agreement which sets out who does what for how much, how it should be done, and allocates the risk
6
Q
What are the key principles of a construction contract?
A
“The obligations of parties and others:
• The works, supplies (goods), services, material, matters or things to be carried out or supplied.
• The payment – how much is to be paid, how and when it is to be paid.
• The time within which the contract is to be performed
• Quality requirements and/or standards which must be met
• Requirements on the contractor/employer to hold and maintain appropriate insurance
Provides procedures to vary the contract – instructions, variations extensions.
Provides procedures to manage dispute and disagreement.
Details what happens in the event that the contractor fails to comply with its contractual obligations (in whole or in part). (Delay, defective work, non completion)”
7
Q
Name three factors that are necessary for a contract to be formed?
A
Offer, Acceptance and Consideration
8
Q
List the typical documents that make up a building contract?
A
1) The Building Contract
2) The Specification
3) Priced Schedule of Work/Bill of Quantities
4) Pre Construction Information Pack
9
Q
Can you expand on the building contract?
A
Legal document, usually in standard form. It sets out the roles, rights and responsibilities of the employer and the contractor.
10
Q
Would would typically be expecerted in the specification section of a contract?
A
1) Prelims
2) Preambles
3) Works
4) The drawings/plans
11
Q
What are Prelims?
A
Preliminaries are activities or costs that are not necessarily linked to the building work. They are costs associated with administration, setting up and Statutory Authorities regulations and fees
12
Q
What are Preambles?
A
Quality of materials and workmanship.
13
Q
What is the difference between preambles and preliminaries?
A
Prelims detail non-construction related works that the contractor needs to cost and preambles detail the quality requirements for materials and workmanship.
14
Q
What is the priced schedule of work/bill of quantities?
A
Breakdown of all items being incorporated in the construction project. This is usually the base of the application for payment.
15
Q
What is typically included in the Pre Construction Information Pack
A
Details of all the health and safety, security, welfare, access considerations that need to be taken into account. The response to which should be the contractors construction phase health and safety plan.
16
Q
What certificates are issued under JCT Contracts (List 5)
A
interim payment certificates practical completion certificate certificate of making good defects final certificate extension of time certificate
17
Q
What figures would you expect to be detailed on a payment certificate?
A
- The contract sum
- The gross valuation
- Less the retention
- Less the total amount previously certified
- Net amount for payment (in figures and words).
18
Q
List the JCT Suite of Contracts?
A
Standard building contract Intermediate building contract Minor works building contract Design and build contract Management building contract Construction management contract Major Project construction contract
19
Q
What are the forms of subcontract?
A
Short form of sub contract
Contractors design
Sub-sub contract
20
Q
What must the CA do if you wish to withhold payment to a contractor?
Fun Fact= AKA Payless Notice.
A
Section 111 of the Housing Grant Construction and Regeneration Act 1996- give an effective notice of their intention to do withold payment. The notice needs to clearly state the amount withheld and the grounds for doing so
21
Q
Did you or someone else in the firm sign the interim certificate?
A
All certificates were drafted by me, checked by a senior surveyor and then checked and signed by a Director.
22
Q
What is a retention?
A
A percentage of the amount certified as due to the contractor on an interim certificate that is deducted from the amount due and retained by the client
23
Q
What is the standard retention on your projects?
A
5% with 2.5% released at practical completion
24
Q
What are the advantages of a retention?
A
1) funds rectifying defects,
2) Incentive for contractors to complete the project on time without defects,
3) Incentive for contractors to return for Rectification Period &
offers the client protection against contractor insolvency.
25
What are the disadvantages of a retention?
1) Contractor is not paid in full for satisfactory work,
2) 5% can represent a large portion or all of contractor profits,
3) A subcontractor who completes their works may not receive payment for months/ years until the project is complete
26
What is the Pye Tait Review?
The review sought to assess the costs and benefits of retentions and alternative mechanisms. It found that the average retention was 4.8%.
27
What were the key findings of the Pye Tait review?
Non payment or late payment of retentions included:
1) Disputes over defects.
2) Contractors becoming insolvent.
3) Non-payment in a higher tier of the supply chain.
4) Contractors not asking for their retention money, with some Tier 3 companies pricing work to offset the retention costs, and others keen to maintain good relationships with their main contractor.
28
What alternatives to a retention were recomended in the pye tait review?
```
Project bank accounts,
Retention bonds,
Performance bonds,
Escrow stakeholdedr accounts,
Parent company gaurentees,
Retentions held in trust funds
```
29
What actions have been taken to improve retentions?
2017 - pye tait review,
2018 - bill passed so retentions are held in third party scheme
2019 - persimmon homes let buys hold back a retention until snagging issues are dealt with
2019, build uk published a set of minimum standards for retentions
2020- Debate in House of Commons- seen as a backward step?
30
What is a bond?
Bonds are means of protection against the non-performance of the contractor.
31
Can you list the different types of bonds?
```
Performance bond,
Advance payment bond,
Bid bond,
Retention bond,
Adjudication bond,
```
32
What is a performance bond?
Provides the Employer with some financial security payable by the Bank for the Contractor’s failure to perform under the contract. (10% of the contract value.)
33
What is a advance payment bond?
If the client decides to make an advance payment to the contractor a bond will be required to protect the client in the event of default by the contractor. This as an on demand bond.
34
What are bid bonds?
Rare in the Uk, typically used on international projects submitted with a tender to secure commitment to the project. This as an on demand bond.
35
What are adjudication bonds?
Emerged from PFI/PPP projects, a payable amount due upon the adjudicators decision.
36
What are retention bonds?
The client agrees to pay amounts that would otherwise be held as a retention. The value of the bond decreases after PC.
37
What is a bondsman?
A professional agent, agency or corporation who takes responsibility for another persons obligations by signing a bond to that effect.
38
What is a surety?
Takes responsibility for another persons obligations and may have to undertake payment to the client in the event of non-performance
39
What is an on demand and conditional bond?
On-demand bond - the bondsman pays an amount of money set out in the bond immediately.
Conditional bond - requires the client to provide evidence that the contractor has not performed before the amount stated in the bond is payed
40
What is a pay less notice?
The purpose of a pay less notice is to provide the employer with a method of notifying the contractor that he or she intends to pay less than the sum stated on a payment notice.
41
When must a payless notice be issued?
A pay less notice must be issued by the employer not more than 5 days (JCT) or 7 days (NEC) after the interim payment certificate was issued.
Failure to issue a pay less notice within the given times the value stated on the interim certificate will stand.
42
Can a contractor apply for a pay less notice?
Yes, The contractor must specify both the sum that they consider to be due to the employer at the date the pay less notice is given and the basis on which that sum has been calculated.
43
When is a payless notice required
A defect is found after the payment notice was issued
If the payer has made a fundamental error in their previous payment notice.
When the payer or specified third person has failed to serve a payment notice in time, or at all.
44
What are the types of payment described in the Construction Act 1996
Installments - pre-agreed payment dates not subject to payment after the completion date
Stage payments - payments made at pre-agreed milestones
Periodic payments - payments assessed monthly by a valuation
45
Why is can creating a bespoke definition of Practical completion be an issue
It adds complexity if a dispute were to arise.
| It can conflict with other contractual provisions such as payment.
46
How did you decide whether PC had been achieved?/ When can you certify practical completion?
1) Works are substantially completed/free of patent defects
2) Complete health and safety file has been issued in draft.
3) The client ability to take possession and make beneficial use of the building.
47
What are the consequences of issuing the PC certificate?
1) rectification period begins, the retention often reduces as detailed in the contract and responsibility for insuring the premises passes back to the client. Final account is then prepared.
48
What happens after the rectification period ends?
Joint snagging inspection should be undertaken by the CA and Contractor.
The contractor should rectify any defects
Second inspection should be undertaken to confirm this.
Certificate of making good defects and a final payment certificate should be issued (for the retention).
The contractor will then issue this to the client with his final invoice.
49
What is Sectional Completion?
Written into the contract = liquidated damages associated with it.
50
What is Partial Possession?
Client takes over part of the site that has been substantially completed with the contractor’s consent (which cannot be unreasonably withheld).
51
What is the effect of partial possession?
Any part for which partial possession is given is deemed to have achieved practical completion.
Half of the retention for that part must be released.
The defects liability period (or rectification period) begins for that part. Liquidated damages reduce proportionally.
The client is responsible for that part and should insure it.
52
Does the Contractor have to accept Partial Possession?
The contractor is not obliged to allow partial possession but cannot be unreasonably withheld, reasons for no allowing partial possession include, disruption to works or extra costs?
53
What is Partial Possession referred to under NEC?
New Engineering Contract (NEC) offers a different description of partial possession as 'taking over' the works.
54
What is the difference between Sectional Completion and Partial Possession?
Both involve the client taking exclusive possession of that area of the site. The CA will either issue a sectional completion certificate or a notice to confirm the partial possession. This will mean that the defects liability period begins for that area and responsibility for insuring the area passes to the client. With partial possession the liquidated damages is reduced on a pro rata a basis.
55
What do you know about collateral warranties?
A collateral warranty is an agreement which gives a third party rights collateral to rights in an existing contract entered into by two separate parties. It forms a contract between one of the parties to the underlying contract and a third party with an interest in the performance of that contract.
56
Under JCT IC, what collateral warranties may a principal contractor provide?
It is usual for a principal contractor to provide collateral warranties for subcontractors they intend to use that will have an element of design responsibility. Also under IC / SBC, the contract requests for collateral warranties to be provided by the contractor to the purchasers, tenants, funders as well as the employer.
57
What are some challenges with Collateral warranties?
JCT does not issue a Consultant Collateral Warranties. However, they do have a range of collateral warranties for contractors/Subcontractors/Employers/Tenants/Purchasers. It has been noted that clients often claim that industry-standard warranties favor contractors and designers.
Onerous terms that designers or contractors are unable to agree to as their insurers will not provide cover. As a consequence many collateral warranties are bespoke.
On large projects with many consultants and sub-contractors and multiple occupants, there can be a great number of warranties. The Contracts (Rights of Third Parties) Act can offer a way around this difficulty by allowing the primary contracts to confer benefits upon third parties even though they are not a party to that contract.
58
What is the JCT suite of Collateral Warranties?
JCT does not issue a Consultant Collateral Warranties. However, their suite of collateral warrenties include; Contractors/Subcontractos/Employers/Tenants/Purchase
59
How do you identify risks of a project?
1) risk workshop in the feasibility stage and produced a risk register.
2) Maintain that risk register throughout the project.
2A) The register identified the risk, scored it based on likelihood and severity, described the mitigating actions to be taken and apportioned ownership for that risk.
60
What is your role of contract administrator / project manager?
The CA is employed by the client to administer the contract on his behalf as an agent, however he must always act with impartiality and integrity. Duties include formulating the contract, issuing instructions, raising certificates, carrying out site inspections, assessing EOT claims.
A project manager is the person who has the overall responsibility for the successful initiation, planning, execution and closure of a project. This includes resource planning, risk management, quality control, managing teams and providing appropriate documentation.
61
What might you do if a contractor makes an error in his tender?
There are two alternative – the tenderer must stick by their price or withdraw, or they are given the opportunity to amend the price.
62
What helps managing meetings?
Issuing an agenda, allow each member of the member an opportunity to express their point of view, controlling when and how long people can speak, ensuring all points are covered thoroughly and resolutions are confirmed, ensure minutes are taken and reflected upon.
63
What does JCT stand for and what is the most recent edition?
Joint Contracts Tribunal and 2016.
64
What is a Design and Build Contract?
Designed for construction projects where the contractor carries out both the design and the construction work. Design and build projects can vary in scale, but the Design and Build Contract is generally suitable where detailed provisions are needed.
65
What is a JCT Construction Management Contract?
Designed for construction projects where the employer appoints seperate trades to carry out the works, and a construction manager to oversee the works for a fee.
66
What is an Intermediate form of Building Contract?
Designed for construction projects involving all of the trades and skills of the industry but without specialist or complex building services installations
67
What is a Minor Works Building Contract?
Designed for smaller, basic construction where the works are simple in nature. For traditionally procured projects
68
What is a Standard Building Contract
The JCT Standard Building Contract is designed for large or complex construction projects where detailed contract provisions are needed. Standard Building Contracts are suitable for projects procured via the traditional or conventional method.
69
In the JCT Suite of contracts, what are recitals, articles and contract particulars?
Recitals – Introduce the nature / background of the contractual relationships and includes work to be carried out, details of the drawings and specifications.
Articles – Details the contract sum, persons involved in the contact (Architect, QS, CDM-C) and methods of dispute resolution
Contract Particulars – Sections to be completed by the parties. It sets out a number of different provisions such as date for completion, dates of possession, LADs, rectification period, insurance options, etc.
70
Name some difference of the JCT MW and the JCT IC/SBC?
```
The following is not available under MW, but is available under IC and SBC:
• Sectional completion
• Early possession
• No relevant events
• Named subcontractors
• Advance payment
• Bonus for early completion.
```
71
What does FIDIC stand for?
International federation of Consulting Engineers
72
What are the FIDIC contracts?
Green Book - Short form, less value that 500,000
Red Book - Conditions of contract for buiding and engineering
Yellow book - Conditions of contract for plant design and build
Silver book - Conditions for EPC / Turnkey projects
73
What does NEC stand for?
New Engineering Contract
74
Can you give me some examples of NEC Contracts?
```
NEC4 Engineering & Construction
NEC4 Design Build & Operate Contract
NEC4 Engineering & Construction Subcontract
NEC4 Framework Contract
NEC4 Professional Servies Contract
NEC4 Supply Contract
```
75
What were some recent changes to NEC4?
Amendments to the NEC4 suites were published in October 2020. Some of which include;
1) Delay damages - amended to clarify that any delay damages cease at termination.
2) Plant and materials - amended to confirm that the Contractor is liable for loss of or damage to any equipment provided by the Client to the Contractor.
3) Banking - updated to reflect user feedback, electronic banking methods and best practice.
4) Gender-neutral wording.
These updates do not apply to users of NEC3 contracts.
76
What are some differences between JCT and NEC
JCT
* No Programme
* Lump sum with Provisional Sums
* Monthly interim valuations
NEC
* Programme is the heart of the contract docs
* No provisional sums
* Can be based on targets
* Easier to understand
77
What is the difference between JCT/NEC?
*JCT designed for use in England and Wales, whereas NEC are for international use with a choice of governing law and language;
* JCT uses legal terms, whereas NEC attemps to eliminate legal terms and provide a simple language;
* JCT seperate contracts for employer-design or contractor-design, whereas NEC allows for this or part and part. it is simply express in the works information;
* JCT subjective judgement of practical completion, whereas NEC defines a state of completion.
78
When are NEC contracts used?
To date NEC has most often been used for infrastructure and building contracts. The contracts are designed for worldwide application. Known for helping to improve project management, they can be used in any sector.
79
When would you use a FIDIC Contract?
International construction contracts.
80
What are the different pricing mechanisms used in nec?
```
A) Fixed Price or Lump Sum
B) Re-measurement
C) Target Cost
D) Guarenteed Maximum Price
E) Cost re-imbursement
```
81
Who formed the Joint Contracts Tribunal?
Royal Institute of British Architects (RIBA)
82
What is the Structure of NEC?
“Core Clauses”, a dispute resolution option W and secondary options X-Y. Finally, the cost components and contract data. Z clause for amendment.Written using straightforward/ simple English.
83
What is the Structure of JCT?
“Agreement” including recitals, articles, contract particulars, andattestation. Then the “Conditions” in 9 Sections, and finally “Schedules”.Most of the clauses incorporate other related ones by reference.
84
What is the structure of FIDIC?
General conditions in 21 Clauses with Sub-Clauses, then the Particular conditions which consists of Contract data and Special provisions. Many clauses are incorporate by reference to the main ones of procedures such as Variation.
85
What is the difference between JCT/FIDIC?
1) FIDIC the employer appoints an Engineer to administer the contract whereas JCT assigns a consultant such as a Architect/Building Surveyor.
2) FIDIC notices and communication is in writing whilst in JCT oral instructions are allowed in emergencies.
3) For insection in FIDIC the Engineer is responsible for supervision, appoints representatives and delegates whereas in JCT the employer appoints a clerk of works to act as inspector under CA directions.
86
Some differences between FIDIC and NEC?
1) The engineer represents the Employer in FIDIC (Yellow/Red) where the Project Manager does in the NEC.
2) FIDIC uses complex language whereas NEC is generally layman.
3) FIDIC programme only updated when works do not match what is planned whereas NEC contract has to submit detailed programme for acceptance regularly. NEC also has early warning- Both C/PM should notify when event/error has occured where FIDIC claim only when time/money losses have incurred.
4) FIDIC analyses cost and time separately whereas NEC analyses them jointly (compensation event).
5) FIDIC have contracts based on who designs it.
87
Why would you opt for the JCT Suite of Contract?
1) Protection from common issues (been around for many years
2) Swift dispute resolution (contract provisions for arbitrator or adjudicator)
3) Minimised costs (Standard form and benchmark provisions)
4) Protection from unreliable Contractor (Covers risk such as late completion/poor quality of work)
88
Are there any disadvantages of using JCT Contracts?
1) Unequal allocation of risk (Weighted against sub-contractors = sub-contractor loses ownership when materials are on site, so if the Contractor goes bust they lose the materials) (Also damages for delays can be unproportianate for small projects).
2) Long/Complicated document- contains hundreds of pages of legal documents.
89
What are risks of D+B?
Design & Build:
- No provision for CA. There is only employers agent. Design liability insurance required by Contractor. For simple projects where design quality is not the main consideration.
Advantages:
- Suitable for experienced and inexperienced clients
- Single point of contact and responsibility
- Contractors buildability input throughout (in design too)
- Early start on site, design & construction in parallel
- Relative cost certainty
Disadvantages:
- Quality can be compromised
- Fewer D&B contractors so less choice
- Less control on design for client
- Client may find it difficult to develop comprensive brief
- Often more expensive than tradional contracts
90
What are the sections of a JCT Contract?
```
Agreement
Recitals
Articles
Contract Paerticulars
Attestation
Conditions
```
91
What is an offer?
An offer is a promise from one party to enter a contract on certain terms. Offers must be specific, complete, capable of acceptance and made with the intent of it being accepted.
92
What is the difference between an offer and an invitation to treat?
An invitation to negotiate e.g. adverts or shop displays
93
What is acceptance?
Must be certain and unambiguous. This can be written or oral.
94
What is consideration?
Exchange of anything of value by each party. Most often, services or goods are exchanged or promised in a contract. The items do not have to be of equivalent value.
95
What is intention to create legal relations?
Mutuality of the contract is required. If there is no intention this needs to be stated clearly in the documentation.
96
What is certainty of terms?
There must be no ambequity of the terms. Any terms open to interpritation must be defined within the contract. Examples of ambigous terms are; lots, large many and ish.
97
How can a contract be terminated?
```
There are numerous ways to terminate a contract including;
Notice under section 8,
Default by the Contractor,
Insolvency of Contractor,
Corruption,
Frustration,
Convenience,
Recission
```
98
What is Default by the Contractor?
If the one of the parties to a contract fails to perform as required by the contract, this may constitute a breach of contract. If the breach of contract is serious (a material breach), then the innocent party may also consider that it is discharged from any further obligations under the contract.
99
What is an EOT?
Allow the construction period to be extended where there is a delay that is not the contractor's fault.
100
What notice is required when there is a delay?
Clause 2.27 of the JCT contract requires the contractor to give notice if and whenever it becomes reasonably apparent that the progress of the works is being or is likely to be delayed.
101
What is required in a notice of delay?
The notice must set out ‘the material circumstances’, including the cause or causes of the delay, and must specifically identify any event that is considered to be a Relevant Event.
102
How do you analysis an EOT?
Overview of the Facts - The facts will be evidenced by letters, emails, meeting minutes, progress records, photographs, instructions, drawings and other contemporaneous documents. Suitable for straightforward claims.
Critical Path Analysis - The primary purpose of critical path analysis is to show which activities on a programme of works are critical to completion and which are non-critical.
Comparing actual and planned progress - Quite simply, the duration of the work activities, as actually carried out on site, are plotted on the planned program, thereby illustrating discrepancies.
103
What is a loss and expense?
Money that the contractor is out of pocket due to a breach of contract by the client.
104
What is the purpose of a loss and expense claim?
To put the contractor's cash position back to where it was before the breach took place.
105
How is loss and expense calculated?
The contractor claims for loss and expense as soon as it becomes apparent.
Qs undertakes a calculation based upon actual proven loss and requests information from the contractor.
The contractor provides additional information and QS issues their calculation.
106
What is included in a contractor's L&E notice
Applicable relevant matter
The cause and effect of the matters
Reference to documents and records
Supporting information
107
What are some typical loss and expense claims
```
Prelims prolongation
Prelims thickening
head office overheads
increase costs
disruption costs
finance changes
subcontractor claims
```
108
What is prelim prolongations
This amounts to the largest portion of L&E claims. Essentially an extension of the current site prelims.
109
What is prelim thickening
Additional prelims that are required on-site as a result of a relevant matter i.e. additional site manager
110
What is included within an L&E cause and affect the schedule
| Item number,
```
Reference - drawing Nr/CAI e.c.t
Cause - Variation description
Effect - impact e.g. additional labour
Delay - delay time in days or weeks
L&E - Actual loss
```
111
What is the difference between a unilateral and bilateral contract?
```
BI= contains a set of promises that each party has made to another
UNI= 1 party makes a promise to do something if the other party does something stipulated by the former
```
112
How would you select an appropriate contract?
“Guide to selecting the appropriate JCT main contract 2016” Flow chart that takes into consideration procurement route, design responsibility, size of the project, if BoQ are required, subcontractors and various other factors that have a bearing on the type of contract.
113
What are liquidated damages?
A geniuene pre estimate of loss to the employer as a result of delay.
114
How would you caluclate this?
Loss of rent or income, additional profesional fees
115
How does the role of a CA differ between contracts, say traditional and D&B?
CA / Employer Agent.
116
What’s the difference between CA and EA?
CA Identified within the contract and is solely responsible for administering the contract for the employer. Role technically starts when the contract is signed.
EA = identified within the contract however acts on behalf of the employer in all matters – role starts before contract and manages delivery of the project.
117
What is the difference between minor works and intermediate contract?
More detailed procedures, collateral warranties, relevant events / matters, named sub-contractors, early possession, advance / interim payments
118
How do you determine what procurement route to take?
Time / cost / quality / experience.
119
At what Riba stage would you typically appoint a contractor under a traditional procurement route?
Typically stage 4 – Technical design.
120
What could be used to mobilise a contractor without a contract in place?
Letter of intent
121
What is a letter of intent?
A document expressing the intention to enter into a contract at a future date but creates no contractual relationship until that future contract has been entered into.
122
What must be included in a letter of intent
Can be used to commence works on site prior to final agreement of the contract.
If the client insists the following should be agreed:
- SoW
- Cost
- Contract terms
- Programme
- State the level of insurances and CDM requirements
- Warranties
- Copyright
- Agreement for termination, dispute resolution clause, contractors costs
Can be legally binding – depending on the wording
Letter should also ascertain confirmation that a contract will be formally executed & a monetary cap.
123
What if time, quality or cost if missing from a letter of intent
Cost - the contractor will be entitled to a reasonable sum that reflects the value of the works "quantum meruit basis"
Time - reasonable time for the completion will be implied
Quality - the contractor must carry out the works with reasonable skill and care notwithsanding statuatory obligations.
124
What is a comfort letter of intent?
Expressing interest to act in a particular way at some point in the future or at the time of issuing the letter. Does not form a contract but may impose either or both parties to obligations in relation to payment.
125
What are collateral warrenties?
Documents that provide a contractural link to a third party, to extend a duty of care to that third party
(Collateral warranties help create contractual relationships between entities that would not exist otherwise. They help ensure that, should there be an issue with the project, the employer/funder would have a direct line to the sub-contractor and vice versa in the event that the main contractor has completed the job or experiences insolvency.)
126
When might they be required?
* Sub-contractors
* Architects
* New tenant
127
Under JCT IC, what collateral warranties may a principal contractor provide?
It is usual for a principal contractor to provide collateral warranties for subcontractors they intend to use that will have an element of design responsibility. Also under IC / SBC, the contract requests for collateral warranties to be provided by the contractor to the purchasers, tenants, funders as well as the employer.
128
What are the advantages and disadvantages of collateral warranties?
* Familiar to construction professionals and to their insurers
* More regularly tested in the Court and therefore, more certainty of their meaning
* Time consuming – a warranty is required for each separate party
* Expensive – the administrative costs required are significant and expensive suing to enforce
* Often needed after work has started and therefore, not signed
* Could be unenforceable in the absence of consideration if not properly executed e.g. signed; insolvency of a contractor
129
What could be used instead of collateral warrenties?
* Third party rights. - Contracts (Rights of Third Parties) Act 1999
* Must be expressed in the contract
* JCT states that third party rights are not included.
130
What is the difference between collateral warrenties and third party rights?
A collateral warrenty requires an agreement separate to the contract. Third party rights only require a notice within the contract.
131
what are the key clauses within a collateral warranty?
* Parties to the agreement
* Refrence to the main contract
* Details of parties
* Profssional indemnity insurance
* Assignation
132
What is a relevant event?
Where a delay that impacts the completion date that is not caused by the contractor. This is addressed in section 2.20 of a JCT contract. The contractor may be entitled to an EOT or claim a loss of expense due to direct result of the delay.
133
Give me an example of relevant events under JCT IC/SBC?
There are 13 relevant events which may entitle a contractor to an EOT.
Variations.
Exceptionally adverse weather.
Civil commotion or terrorism.
Failure to provide information
Delay on the part of a nominated sub-contractor.
Statutory undertaker’s work.
Delay in giving the contractor possession of the site.
Force majeure (events that are beyond the reasonable control of a party, such as a war or an epidemic).
Loss from a specified peril such as flood.
The supply of materials and goods by the client.
National strikes.
Changes in statutory requirements.
Delays in receiving permissions that the contractor has taken reasonable steps to avoid.
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What are some specified perils under JCT?
Fire, Explosion, earthquakes, flooring, aircraft crash
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What is the test for exceptionally adverse weather?
The contractor has to prove that the weather had been worse than of a specified number of years previous, typically 10.
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What are relevant matters?
Where the client is responsible for an item that materially affects the progress of the works. This is addressed in section 4.17 of a JCT contract. A relevant matter does not always result in a delay or an EOT. This may enable the contractor to claim direct loss and / or expense that has been incurred.
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What are some relevant matters?
Failure to give the contractor possession of the site.
Failure to give the contractor access to and from the site.
Delays in receiving instructions.
Opening up works or testing works that then prove to have been carried out in accordance with the contract.
Discrepancies in the contract documents.
Disruption caused by works being carried out by the client.
Failure by the client to supply goods or materials.
Instructions relating to variations and expenditure of provisional sums.
Inaccurate forecasting of works described by approximate quantities.
Issues relating to CDM.
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What are the key differences between relevant events and relevant matters?
A relevant event is an event that causes a delay to the completion date, which is caused by the client/or a neutral event not caused by either party. Relevant events entitle the contractor to claim an extension of time; that is for the completion date to be moved. A relevant event does not necessarily entitle the contractor to claim loss and expense.
Similarly, a relevant matter need not necessarily result in a delay to the completion date, and so may not always entitle the contractor to an extension of time. A relevant matter is a matter for which the client is responsible that materially affects the progress of the works. This may enable the contractor to claim direct loss and / or expense that has been incurred
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How are delays dealt with in NEC that differ from JCT? (what are they called)
Compensation events- They do not treat compensation events as an allocation of blame, but rather an allocation of risk. Any risk that is not specifically identified as being attributed to the client is borne by the contractor.
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What did the case Balfour beatty v chestermount properties demonstrate?
Actual delay is required for a relevant event. Hypothetical delays are not accepted in court.
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What remedies would be available for the client should a contractor exceed their programme?
The SBC requires the contractor to use constantly his best endeavours to prevent delay in the progress of the works. If the contractor fails to meet the completion date the employer can claim compensation or damages to cover their financial losses.
To speed up this process construction contracts provide for employers to recover liquidated damages, a set sum, from contractors if they fail to complete the works or section of the works by the relevant completion date.
Liquidated damages must be ascertained - a genuine pre estimate of the likely loss to be suffered by the employer. Doesn’t have to be totally accurate but must be the result of a realistic attempt at prejudging the losses.
Must not be a penalty otherwise it risks being set aside by the courts if challenged.
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What are Liquidated damages?
Contracts generally include a clause making provision for the contractor to pay liquidated damages to the client in the event that the contract is breached.
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What is required to claim LADs?
1) Breach of contract (Typically a delay to the contract and a certificate of non-completion has been issued),
2) That the breach caused the loss;
The amount of the loss must have been based on a predetermined genuine calculation.
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What can be typically included in LAD calculation?
Calculations might include, amongst other things:
- Loss of rent
- Loss of income
- Professional fees
- Storage costs.
- Rental costs.
- Fees and fines imposed by third parties.
- Finance costs.
The client needs to be realistic in potential costs and have evidence to show it has been fully considered. The CA should question and interrogate the figures identified by the client.
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How can LADs be beneficial for the client?
LADs remove the clients obligation to prove actual losses in the event of delay occurring.
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How can LADs be beneficial for the contractor?
LADs can limit the contractors liability to a known amount in the event of delay.
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What is the big case for LADs?
Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd
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What did the case Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd eastablish?
The case related to LADS. specifically If the predetermind calculation is not genuine, the courts may consider it to be a penalty by the courts and will be unenforceable.
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When are LADs not applicable in the event of a delay?
If the delay is not the fault of the contractor and constitute a 'relevant event' the contractor may be granted an extension of time LADs are not apllicable
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Can an employer still claim LAD’s even if they do not actually incur the loss identified in the initial calculation.
In essence yes – providing the calculation is not deemed a penalty and is a genuine pre estimate. However, the client does not have to claim the full amount if they have not actually experienced that loss.
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What are un-liquidated damages?
Un-liquidated damages are not quantifiable by loss in the contract and must be ascertained by the courts. The client needs to demonstrate actual loss.
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What is the implication of writing nil in the liquidated damages clause?
Client is not entitled to deduct anything if the contract over runs. Contractor could argue that this was taken into account when pricing the works.
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What is the implication of leaving the liquidated damages clause blank?
If the clause is left blank then the client can pursue un-liquidated damages if they wish to do so but would need to do so through the courts.
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How did you certify PC?
I ensured that the client could make beneficial use of the work area, any outstanding snags were minor in nature and the H&S Files were completed and issued.
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Why have an EoT clause?
To preserve the right for liquidated damages.
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In which situations could a contractor terminate a contract with the employer (JCT)?
* Insolvency
* The employer does not pay by the final date for payment
* If the employer interferes with the issue of any certification
* The project is suspended for a continuous period of time stated in the contract particulars
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In which situations could a contractor terminate a contract with the employer (NEC)?
* Insolvency
* The employer has not paid an amount certified by the PM within 13 weeks of the date of certificate
* The PM has instructed the contractor to stop works and an instruction allowing the works to restart has not been given within 13 weeks due to default by the employer.
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Please describe the process which would take place in terminating the contract.
JCT?
* A warning notice is issued specifying the default or defaults;
* If the specified default continues then 14 days after the date of receipt of the first notice a notice of termination can be issued.
* If termination occurs, the Employer may employ and pay other persons to carryout and complete the works, the contractor is to remove all items relating to the works (materials, tool, plant), if the contractor becomes insolvent then further payments or release of retention ceases.
* If the contractor’s employment is terminated due to failings by the employer then the contractor prepares and issues a final account including the total value of the works executed, any sums ascertained in respect to the direct loss or expense, reasonable cost of removal and the cost of materials.
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What is Frustration?
Frustration occurs when circumstances that are not the fault of either party to a contract mean it is impossible to continue with the contract. This does not constitute a breach of contract.
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What are some relevent events that could lead to a contract to be terminated due to frustration?
The government imposing unforeseen restrictions on building.
Laws being passed that make it illegal to undertake what was promised under the contract.
The building where works were to be carried out being destroyed.
An event that was crucial for the contractual obligations being cancelled.
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What is the difference betweena force majure and a frustration event?
Force majeure provisions might provide for circumstances that could otherwise be considered frustration events, and so result in termination of the contract. However, most stipulated force majeure qualify as a relevant event which will lead to an extension of time rather than the termination of the contract.
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What is convinence termination?
Contracts may allow termination for ‘convenience’. This can be useful for example if the client fails to secure sufficient funding for the project to proceed.
However termination for convenience can leave the terminating party open to significant claims by the other party. Termination for convenience is only provided for in some forms of contract, and is often only available to the client.
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What is rescission?
Rescission is the process of returning both parties to a contract to the position they would have been in had they not entered into a contract. If a contract is rescinded, it is treated as if it did not exist. This might be appropriate for example if there is a serious error in the contract
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Why is rescission difficult?
Circumstances often make it impossible to rescind a contract, for example where works have already been commenced, in which case damages may be awarded.
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What is Insolvency of Contractor?
A company becomes insolvent when;
it enters administration,
it appoints an administrative receiver,
the making of a winding-up order,
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What section of JCT contract defines Insolvency?
JCT IC 16 Secion 8.1 "meaning of insolvency"
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What notice is required for default by the contractor?
CA may give notice, specifying defaults. if the contractor continues the specified default for 14 days. The employer may provide notice of termination within 21 days of the end of the specified default period.
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When may the contractor terminate the contract?
Default by the employer,
| Insolvency of the employer,
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What are some examples of Default by the employer?
Does not pay by the final date for the amount due,
Interferes with the issuing of any certificate,
If the employer is in breach of clause 3.18 (CDM),
Assign duties to the contractor without their knowledge.
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What if there are multiple contractor defaults?
If there are multiple breaches multiple warning notices will need to be issued. If a warning notice has already been issued and another default occurs the employer does not need to issue another warning notice and can issue a termination notice straight away.
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What is a novation agreement
A novation agreement is the process whereby contractual rights and obligations (i.e. both benefits and burdens) of a contract are transferred from one party to another.
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When is the design novated to the contractor
Either after planning or after tender stage.
Stage 2, Concept Design;
Stage 4, Technical l design;
Depends on the type of contract.
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What are the risk to your client if you / architect were novated to the contractor?
* Contractor is now paying architect so they will likely be more infuenced by the contractor
* Provide less protection to the client for advise
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What is the key case for novation agreements?
Blyth & Blyth Ltd v Carillion Construction Ltd (2001)
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Elaborate on Blyth & Blyth Ltd v Carillion Construction Ltd (2001)?
It is recomended that contractors enter collateral warrenties with design teams to protect themselves from pre-novation losses
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Difference between assignment and novation
Assignment gives some rights to a third party, whereas a novation transfers both rights and obligations to a third party.
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what are the similarities between JCT and NEC?
* Each provide for an employer to state a starting date, completion date, access dates and any sectional completion (if required).
* Both allow for damages to be included for late completion by the contractor.
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What types of events are covered by indemnity insurance under JCT
Accidents
Injury to property
Injury to a person
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When is a contractor not liable for an insurance claim
Employer negligence
Damage caused outside of its control
Damage to existing structures under option C even if they are negligent
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what insurances would you expect in a JCT Contract?
* Contractors Employers Liability - £5mill but many insurers provide £10mill as standard.
* Contractors Public Liability - in respect of third parties (injury to persons or property) - typically £5million
* Works insurance: Options A, B and C;
* Professional Indemnity Insurance in Intermediate where contractors design portion.
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What types of work are the insurance options under JCT?
Options A and B are for new buildings and Option C is for works involving existing structures.
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What are the insurance options under JCT Contract?
* A - Contractor takes out and maintains joint names all risks insurance of the works
* B - Employer takes out and maintains the joint names all risks insurance of the works
* C - Employer takes out and maintains a joint name all risks insurance of the works and the policy also insures the existing structure and contents against ‘specified perils’.
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What action is required to make an option A insurance claim
The contractor must notify the employer as soon as the damage occurs.
The contractor must inform their insurers. Not required under JCT but under the insurance policy.
The contractor should make good of any damage.
The contractor must authorise payment to the employer.
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How are insurance payments made?
Option A - An insurance payment is made separately to a normal payment notice. It is not included within an interim valuation or the final account and is therefore not subject to retention.
Option B & C - An insurance payment is dealt with as a variation.
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What is joint names insurance?
The contractor and employer are both named on insurance and cannot claim against one another.
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Why use joint names?
* Cant claim against each other
* Don’t duplicate the insurance of the works
* They will be notified if one party stops insuring
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What do all insurance options have in common
They are all in joint names
Extinguished by practical completion or termination
Must be for the full value of the works
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What are some insurance exclusions
```
Nuclear damage
Wear and tear
Obsolescence
War
Pressure waves
```
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What happens if the Employer doesn’t fully understand JCT Contracts?
Default to Option A which is not necessarily always in their best interests.
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What does the minor works not cover?
PI Insurance requirements for contractors design.
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When does the works insurance end?
At practical completion or termination. At this point, the employers building insurance commences.
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What is the joint fire code?
An optional provision that refers to a code of practice designed to reduce the incidence of fire on construction sites.
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What activities does the joint fire code cover? What is the general project value consensus?
The Joint Fire Code covers activities through all stages of design, procurement and construction. Generally it applies to contracts with a value of more than £2.5million, but it can also apply to lower value contracts which are considered to be high risk or which form part of larger projects.
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What is practical completion?
It is when the works are completed to the reasonable satisfaction of the contract administrator and building that is capable of being used for its intended purpose, even though it may have some minor defects .
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What does certifying Practical completion have an affect on?
Releasing half of the retention
End the contractor's liability for liquidated damages
Signifying the beginning of the defects liability period
The client takes possession and control of the site
A milestone that triggers a payment to the contractor
Bonds guaranteeing performance expire
Clients insurances commence
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What would you expect to receive before issuing PC?
* Testing certificates for works
| * Draft H&S file
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What does the CA need to do if the works have not been completed by the completion date?
Issue a Certificate of non-completion or issue an Extention of Time.
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What is Contractors Possession?
Contracts generally grant the contractor exclusive possession of the site until practical completion when a handover meeting takes place and possession reverts to the client.
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What is Deferment of possession
Set out in JCT Clause 2·5 This clause will entitle the client to defer giving the contractor possession of the site for a period of up to six weeks, unless a shorter period stated within the contract.
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What is a potential consequence of Deferment of possession
Deferment of possession can be considered a relevant matter, giving rise to the possibility of the contractor claiming an extension of time or loss and expense.
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What is a handover meeting?
A formal handover meeting when the contractor takes possession of the site is an opportunity to:
- Handover keys
- Discuss security.
- Verify insurance provisions
- Read meters
- Provide contact details for key personnel
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What is the difference between under hand and as a deed?
* Under Limitations Act 1980.
* Underhand 6 year limitation period
* As a deed 12 year period
* 15 year for claims of negligence
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Are the payment cycles calender days or workign days?
* Calender days
| * Interim valuation is on the nearest business day
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what do you understand the difference in roles to be between CA and Development Monitoring?
Monitroing:
* On behalf of the employer in an agency role
* Starts well before construction phase where the viability of the scheme needs to be reviewed
