Level 3 - Contract Practice Flashcards
(129 cards)
1
Q
- What is a contract?
A
A legally binding agreement (between two parties) to provide goods and services within a specified timeframe.
2
Q
What is necessary to form a contract?
and/or
What is required to form a contract?
A
Offer Acceptance (or counter offer) Consideration Intention (to be legally bound) Capacity (to make agreement) (e.g. power of attorney on behalf of a company)
3
Q
- How is a contract executed?
A
- Under hand, signed by both parties, 6 year limitation period. Means that a party must bring about any claim for breach of contract within 6 years of the breach taking place. Any later and the claim will be time-barred.
- Under Seal (as a deed), signed and witnessed, 12 year limitation period. Valuable consideration not required,
4
Q
What are common in contract documents?
A
- The Contract (with any amendments)
- Preliminaries
- Contract sum analysis/Pricing Schedule
- Drawings
- Specification
- Planning conditions/agreements
- Contractors Proposals
5
Q
What are the main contract suites?
A
- JCT (Joint Contract Tribunal)
- NEC (New engineering contract)
- FIDIC (International federation of Consulting engineers)
- ICE (Institution of Civil Engineers)
6
Q
Why use standard forms of contract?
A
- They are cheaper than getting a bespoke contract drawn up
- Offer a level of familiarity between the parties
- Tried and tested contracts in court, therefore you should be able to predict the outcome in the courts.
7
Q
Why wouldn’t you use a bespoke contract?
A
- They are costly to produce and time consuming
- Contractors do not like them, as they regularly put alot of the risk onto the contractor
- They are not tried and tested like a standard form
8
Q
What should you consider when selecting the contract?
A
- The criteria of the client;
- Nature of the works and the complexity of the project;
- The procurement method you are going to use
- Timings –> are the works required to start quickly or do you have time to produce a robust set of documents
9
Q
What standard forms of contract do you know that are offered by JCT?
A
- Standard Building Contract 2016
- Intermediate Building Contract 2016
- Minor works Building contract 2016
- Major Projects building contract 2016
- Design and build contract 2016
- Management Building contract 2016
- Construction management contract 2016
- Prime cost building contract 2016
10
Q
Can you name some NEC standard contract forms?
A
NEC - Engineering and Construction Contract (ECC)
- Option A, Priced contract w/ Activity Schedule
- Option B, Priced contract w/ BoQ
- Option C, Target contract w/ Activity Schedule
- Option D, Target contract w/ BoQ
- Option E, Cost reimbursable
- Option F, Management contract
11
Q
MW
When is a JCT Minor Works contract NOT suitable?
A
- Complex projects
- Detailed control procedures
- Where there are named Sub-Contractors
12
Q
MPCC
Can you provide more information on the JCT Major project construction contract?
A
- Used on large , complex project by experienced clients
- They place most of the risk on the contractor
- Has sub-contract derivatives
13
Q
D&B
Can you provide more information on the JCT Design and Build Contract?
A
- Used by Clients to create a single point of responsibility for the design and construction with the contractor
- Can be used on projects of all sizes
- Client must produce the Employers Requirements
14
Q
MC
Can you provide more information on the JCT Management Building Contract?
A
- Used then a management contracting route is chosen
- Used by experienced clients who understand the construction costs
- No real cost certainty until all packages are let
- Works are completed by a number of ‘Works Contractors’ who are placed under a management work contract.
- Works Contractors are contracted to the Management Contractor
- Management Contractor is a fee earning professional, which is added to the final construction costs.
15
Q
CM
Can you provide more information on the JCT Construction management contract?
A
- Used where a CM procurement route is chosen
- Used by experienced clients who understand the construction costs
- No real cost certainty until all packages are let
- Works are completed by a number of ‘Trade Contractors’, who are placed under a ‘Construction Management Trade Contract’.
- Trade contractors are contracted directly with the client
- The Construction Manager is only responsible for looking after the programme and construction.
16
Q
Can you provide more information on the JCT Prime Cost Building Contract?
A
- Used on projects which require an early/quick start
- Usually on a cost plus basis, as the extent of the works are not known until the project is underway
- Has sub-contract forms
17
Q
NEC
Can you provide more information on the NEC Option A contract?
A
Priced Contract with an Activity Schedule
- For all types of clients, the balance of risk is mainly with the contractor
- It comes with/requires an activity schedule, containing a list of activities the contract expects is required to complete construction.
- Lump sum
18
Q
NEC
Can you provide further information on the NEC Option B contract?
A
Priced Contract with a Bill of Quantities
- For all types of clients, the risk is mainly with the contractor
- Comes with a detailed BoQ, which can either be produced by the client or Contractor, which is a detailed statement of all the works that will be undertaken.
- Lump sum
19
Q
When was NEC3 published?
A
2005
Used by both the ICE and Government
20
Q
What are the perceived problems with NEC3 Contracts?
A
- Very admin heavy
- Requires alot of expertise to operate effectively
- Focuses too much on Project Management
- Cost information in relation to compensation events can take a long time. PM regularly has to decide how to proceed based on a cost estimate from the QS, which then gets replaced by the actual costs.
21
Q
What are the specialities with NEC?
A
- No Contract Administrator required, replaced by a Project Manager
- Compensation Events as opposed to variations, extensions of time, loss and expense etc.
22
Q
What is a compensation event?
A
Events that occur during the course of the works that cause the completion date to be changed, or additional cost to the contractor as a result to the client
23
Q
What might a Compensation Event include?
A
- Variations
- Instructions to changes contracted services
- Failure to provide access
- Late issue of information from client
- Failure by client to supply materials
- Instruction to halt/delay works
- Conditions that can’t have been reasonably foreseen
- Exceptionally adverse weather
- Acts of god.
24
Q
What is the process for a compensation event?
A
- Contractor must notify the project manager within 8 weeks of the event becoming apparent with an EARLY WARNING NOTICE, if not notified in this period then it will not be considered.
- PM has 1 week to review the claim and respond
- Contractor has 3 weeks to provide a quotation
- PM has 2 weeks to respond to the quotation
- Final costs of works calculated on a cost-reimbursable basis
25
What is the Project Managers role under NEC contracts?
- Manage programme
- Operate early warning mechanism
- Issue instructions
- Issue outcomes for compensation events
- Determine when practical completion has been achieved
- Assess defects
26
What is the Contract Administrators/Employers Agent role under JCT?
To manage the Contract:
- Issue instructions
- Certify payment
- Issue Extensions of time
- Consider all Variations, Loss and expense claims, interim applications
- Assess when practical completion has been achieved.
27
Who is the Employers Agent?
A 'Client-representative' in the Design & Build Contract
- -> ensuring that the Clients' best interests are met.
- -> administering the Contract on behalf of the Client.
28
What is the Main Contractor responsible for?
Role:
The construction of the project, through either direct labour or sub-contracted labour
Health & Safety:
As Principal Contractor then CDM regs apply;
- Construction phase plan
- Prepare, develop and implement written site plans
- Provide welfare facilities
- Ensure all workers have site inductions
- Provide all relevant information required for H&S plan to the Principle Designer
29
What is Novation?
When the benefits and burdens of a contract are passed from one party to another.
Ex:
Used in D&B to move the Design Team from Client-side to Contractor-side.
30
Is the Contractor responsible for the Novated party's design prior to Novation?
No.
| Uunless they state they have adopted the design.
31
What is an Assignment?
Where the benefits of a Contract are transferred from one party to another.
Such as the assignment of a collateral warranty from one tenant/operator to another.
32
When can the Assignment take place?
Anytime as this is a statutory right under the Law of Property Act.
However, the number of transfers is typically limited.
33
Give an example of how Assignment can be restricted?
Restricting the assignment of a collateral warranty to one time only, without the written consent of the warranter.
34
What is the aim of the Assignment?
They give the assignee the same rights as the assignor under the Contract.
35
What is a Collateral warranty?
A way of forming a direct contractual link between two parties that otherwise would not have a link
Ex:
Between a Sub-contractor and a Client.
Between a funder and the Design Team.
36
What case law do you know that relates to Collateral Warranties?
Parkwood Leisure v Laing O'Rourke
37
What happened in the case of 'Parkwood Leisure v Laing O'Rourke'?
It was found that Collateral Warranties can be considered to be a construction contract.
--> Therefore, the CW was subject to the same provisions as the Construction Act (Housing Grant, Construction, Regeneration Act).
38
What Collateral Warranties do you know of?
- Collateral warranty for a Purchaser/Tenant
- Collateral warranty for an Employer
- Collateral warranty for a funder
39
What are Third Party Rights?
- An alternative to Collateral Warranties (similar to CW);
- They allow a third party to be written into a Contract rather than forming a CW contract.
- Introduced as part of the Contracts (Rights of Third Parties) Act 1999.
40
What is the aim of Third Party Rights?
To give the Third-party the benefits of the contract only and no burdens.
Ex:
Writing in the tenant as a the third party will ensure that they receive all contractual benefits.
41
What is a Letter of Intent?
A document outlining an agreement between two parties, before a formal contract has been created.
Each letter of intent is different, with each being assessed based on it meaning.
42
How can a Letter of Intent be worded?
- An expression of the intention to enter into a contract at a future date, which doesn't give rise to any legal obligation.
- The creation of an interim contract
- The creation of a legally binding contract, whereby the letter can be offered and accepted.
43
What can be included within a Letter of Intent?
Should include the key aspects of the Agreement / Contract:
- Contract sum;
- Instruction to proceed on a certain date;
- Site possession date;
- Completion date;
- Insurance provisions
44
What is a Title Retention clause?
Where the goods and services remain the property of the seller until a certain obligation is undertaken i.e. payment.
45
What is a Performance Bond?
A form of financial security --> used to cover the Client against the Contractor failing to fulfil their contractual obligations.
The Contractor applies for a bond;
To offer the Client a form of financial security;
Used to cover the Client against the Contractor, if they fail to execute their contractual obligations.
46
What are the typical values of a Performance Bond?
Typically 10% of the Contract Value.
47
What are the problems with bonds?
They will come at the Client's cost --> Contractor will include this in their tender price, if it's a Clients' requirement.
48
What is a Retention Bond?
A 'Bond' is organised --> instead of taking retention from the interim valuations.
Purpose:
To improve the Contractors' cash flow.
49
Why would you use a Retention Bond?
Purpose:
1. To provide financial security for the Client and create an incentive for the Contractor to complete their works.
2. To improve the Contractors' cashflow.
50
What is a Parent Company Guarantee?
Parent Company is a company owning smaller 'sub' companies.
A Parent Company Guarantee (PCG) is to protect the Client if the Contractor defaults and is a 'Sub' Company of a Parent Company --> then the Parent Company will compensate for it's 'Sub' Company.
51
What is Professional Indemnity Insurance?
A form of insurance that covers professional negligence and a breach of duty of care.
52
What is Employers Liability Insurance?
A form of insurance that covers the injury and death arising from business activities.
53
What is Contractors All Risk Insurance?
A form of insurance that covers all risks normally associated with construction project.
Ex:
- tool and plant hire
- unforeseen damages and loss of building works
54
Payments
| What types of payment methods are there?
- Stage Payments
- Milestone Payments
- Payment based on an Activity Schedule
55
Payments
| What are Stage Payments?
An agreed amount is paid on a pre-determined date.
Stage Payments are time accurate but not necessarily accurate to the value.
56
Payments
| What are Milestone Payments?
A value is paid when a certain Milestone is
reached.
Milestone Payments are fairly accurate to time and value.
Ex:
Completion of footings, or pouring of the GF slab. i.e. completion of the footings.
57
Payments
| What are Payments based on an Activity Schedule?
Payments are made against activities that have been completed at pre-determined times.
Payments based on the Activity Schedule are reasonably value and time accurate.
58
What is Third-Party Certification payment?
- Traditional form of valuing the works complete to a certain date.
- Low form of predictability, but high accuracy of the value of works complete.
59
What is the real name for the Construction Act?
The Housing Grants, Construction and Regeneration Act 1996
60
What is the name of the Act which amended the Construction Act?
The Local Democracy Economic Development Act 2009
61
What provisions did the Construction Act introduce?
- The statutory right to adjudication;
- The right to be paid in interim, milestone, stage;
- The right to suspend performance for non-payment;
- The right to be informed of the amount due, and any amounts withheld.
62
What are the payment provisions under the construction act?
7 days from application date = due date
5 days after the due date = contractor can issue a default notice
17 days from due date = final date for payment
7 days prior to final date for payment = the last day a payless notice can be issued
Overall payment terms of 24 calendar days
63
What is a pay less notice?
A notice is issued stating how much less you intend to pay than the Contractors' application
64
What happens if the final date for payment is missed and no payment is made?
Then the contractor is entitled to issue a 7-day notice of their intention to withdraw from the site unless payment is received in full.
65
What is a '7-day notice'?
The Contractor notifies the Client that they intend to withdraw from site until payment is made.
66
What are the payment provisions under JCT?
- 21-day payment terms
| - Pay less notice up to 5 days prior to the final date for payment
67
What should be included within interim valuations?
- Measured works
- Dayworks
- Variations
- Fluctuations
- Loss and Expense
- Preliminaries
- Materials on/off site
- Provisional sums
- Prime cost sums
68
What are fluctuations?
| Inflation...
A way of dealing with inflation over long contract periods.
The Contractor can be reimbursed for the inflation of specific items within the contract.
69
What are the three main types of Fluctuation Clauses?
| Types of inflation...
- Changes to taxation
- Change in the cost of labour, transport and materials
- Change to office or administrative costs
70
How can fluctuation clauses be calculated?
```
Calculated in real-time such as actual cost increases; and
Pricing index (by JCT)
```
71
What are the three types of fluctuations considered under JCT?
- Changes to statutory contributions, levies and taxes
- Changes to labour, materials and statutory costs
- Formula adjustment --> adjustments to the contract sum in accordance to Formula Rules by JCT.
72
What is excluded from retention?
- Dayworks
| - Loss and Expense
73
What is retention?
A percentage of the amount certified for payment, retained by the Client as a financial incentive for the Contractor to complete the works, and also return to rectify any defects which may appear.
74
What value is normally taken for Retention?
3 - 5%
75
N 93. When does retention get released?
1. Half at Practical Completion;
| 2. End of Defects liability period --> Making Good Certificate is released.
76
What can a contractor request to protect their retention money?
That it is held in a separate bank account, which they have regular access to regularly updated statements.
77
What items do not have retention taken on them?
- Loss and expense
- Fluctuations
- Statutory charges
78
What is the definition of 'Change'?
An alteration to:
- The Scope of Works
- The Design
- The Quantity
- The Working Conditions
- The Sequence of Works
79
What change cannot be undertaken without the Contractors' consent?
When do you need permission to make a change?
- Omission of work
- Changes to the fundamental nature of the work
- Work that is instructed after Practical Completion
80
Who instructs changes under JCT?
Contract Administrator / Employers Agent
81
Who instructs change under NEC?
The Project Manager
82
How should change be valued under JCT?
1. Use the Method of Measurement used at tender.
2. Apply this to the bill of rates from the activity schedule.
1. Pro-rata rates.
1. Dayworks.
83
What is an Extension of Time?
An adjustment to the completion date --> relieving the contractors' liability to pay LADS for the additional time granted.
Can only be granted when there is a Relevant Event.
84
What is the process for submitting and granting an Extension of Time?
- When the delay becomes reasonably apparent, the contractor gives written notice to the client identifying the delay.
- CA/EA has 12 weeks to review and respond
- If found to be an RE, then the Contractor will be granted an EoT.
85
What is a Relevant Event?
An event that entitles a Contractor to an Extension of Time
86
What can be considered as a Relevant Event?
* Variations.
* Exceptionally adverse weather.
* Delays in receiving possession.
* Force Majure.
* Terrorism/ civil commotion.
* Failure by the client to issue materials.
* Delays caused by a nominated sub-contractor.
* Changes to statutory requirements.
* Failure by the client to provide information.
87
Do Extensions of Time benefit the client?
Yes, as they set a new contractual completion date the contractor must adhere to.
Otherwise, they will have liquidated damages levied against the contractor.
88
What is a Concurrent Delay?
Where delays caused by both the Contractor, Client and unforeseeable events.
89
How do you assess concurrent delay?
Each delay should be assessed on its merits, to determine the root cause of the delay.
90
What is a Relevant Matter?
A delay caused by the client, entitling the contractor to an Extension of Time and/or Loss and Expense.
91
How is a Relevant Event different to a Relevant Matter?
* A Relevant Event is any delay caused by the Client or a neutral event.
* A Relevant Matter is a typically caused by the Client, which entitles the Contractor to claim for Loss and Expense.
92
What is Loss and Expense?
Associated with Extensions of Time / Relevant Matters, whereby the contractor is entitled to claim additional costs as the result of a delay.
93
What are the Loss and Expense heads of claim?
* Preliminaries
* Overheads
* Loss of Profit.
* Interest
* Finance Charges
94
When do most disputes in construction contracts occur?
When there are discrepancies between tender and contract drawings or the information is poor, creating ambiguity.
95
What types of dispute resolution are there?
* Negotiation
* Mediation
* Conciliation
* Adjudication
* Arbitration
* Litigation
* Expert Witness.
96
What is a named sub-contractor?
A Sub-contractor is recommended by the Client, which doesn’t have to be used by the Contractor and also doesn’t impose any form of repercussions to the Client if the contractor uses the named sub-contractor.
97
What are the benefits of naming a sub-contractor?
It allows the client to influence the contractors' decision, whilst taking no responsibility for the performance or cost of the named sub-contractor.
98
What is nominating a sub-contractor?
It allows the client to choose a particular sub-contractor, and impose them on the main contractor.
99
What are the issues of nominating a sub-contractor for a client?
It will leave them responsible for the nominated sub-contractors performance and price.
100
What is Sectional Completion?
A similar method to Practical Completion - written into the contract:
It is used on a large project where the works can be broken down into sections, allowing the Client to take possession of sections once they are complete.
101
What is practical completion?
Practical Completion is awarded when the works are considered to be ‘substantially complete’.
102
What happens when Practical Completion is awarded?
* Half Retention is released.
* Defects liability period commences.
* Client is responsible for insuring the site.
* Ends the Contractors liability to pay liquidated damages.
103
What is Partial Possession?
Similar to Sectional Completion - more organic:
It is used when the Client wants to take possession of a particular part of the site early. The Contractor will need to grant this at their own discretion --> not guaranteed.
104
What happens when Partial Possession / Sectional Completion is awarded?
* Alleviates the contractor’s liability to pay LAD’s for that section partially taken over. LADs should decrease proportionally.
* Half Retention is released proportionally.
* End of defects period for that section commences.
* Client is responsible for insuring that part of the site.
105
Does the Contractor have to accept Partial Possession?
No, but they cannot reasonably refuse.
106
What is a contractors design portion (CDP)?
* Whereby the Contractor is required to design a portion of the works, as part of their contract.
* Items to be designed should be noted in the Tender Documents.
107
What is determination?
| Dispute...
Where both parties mutually agree to walk away from a contract.
108
What is a Final Account?
The final value of the works completed, inclusive of all adjustments to the contract sum.
109
How is the final account shown?
In the Final Certificate (end of Defects Liability Period).
110
What is included within the final account?
* Contract Sum.
* Variations.
* Provisional Sums.
* Prime Cost Sums.
* Retention.
* Loss and Expense.
* Contra Charges.
* Liquidated Damages.
* Payments to Nominated Sub-contractors.
* Fluctuations.
111
What is Completion?
- When all works are completed,
- Defects rectification period has ended and all defects have been made good.
- The Certificate of Making good should be issued.
112
What needs to happen if PC/SC is not achieved and the Client wants to levy liquidated damages?
Certificate of Non-complete needs to be issued as a pre-requisite.
113
When does the defects rectification period begin?
When PC/SC is achieved, and usually last 6 – 12 months.
114
What happens if defects are found?
* The Client notifies the CA, who will instruct the contractor to remedy the defects.
* At the end of the Defects rectification period, a schedule of defects will be issued to the contractor for remedy.
115
What are Liquidated Damages?
* An amount that can be levied by the client against the contractor if they fail to meet the contract practical/sectional completion dates.
* They must be a genuine pre-estimate of the contractors loss and are usually fixed daily/monthly sums.
116
What happens if they are construed as a penalty?
They will be unenforceable in court.
117
What are Un-liquidated damages?
Based on the actual loss of the employer, who will have to either negotiate with the contractor the value or refer the matter to legal proceedings.
118
When is the final certificate issued?
• It is issued at the end of the defects liability period, with it releasing the remaining half of the retention, along with ending the contractors liability for defects.
119
What is acceleration?
• Whereby the completion dated is brought forward, requiring the works to be completed quicker.
120
What are the methods of accelerating?
* Supplying the site with additional resources.
* Re-sequencing the works.
* Working Longer Hours.
* Reduction in scope by the client.
* Change of Specification.
121
What are the issues with Acceleration?
Acceleration will usually come at an additional cost to the Client in regards to:
- Quality;
- Cost
122
N 156. What is Constructive Acceleration?
* Arises where the contractor believes they have a valid claim from an Extension of Time, but the Client disagrees.
* The contractor will accelerate without instruction to mitigate their risk of Liquidated damages and try to recover costs from the Client.
123
CASE LAW QUESTION: DO YOU KNOW OF ANY CASE LAW RELATING TO A CONSTRUCTION CONTRACT?
* Yes, Parkwood Leisure v Laing O’rourke.
* The case was about determining whether a Collateral Warranty is considered a Construction Contract under the Housing Grants, Construction and Regeneration Act 1996.
* Due to wording of the Collateral Warranty, it was considered to be a Construction Contract, allowing Parkwood Leisure to Adjudicate.
124
CASE LAW QUESTION: DO YOU KNOW OF ANY CASE LAW RELATING TO A LETTER OF INTENT?
* Yes, Volkerfitzpatrick v Twintec Ltd.
* Volkerfitxpatrick instructed twintec to proceed with the concrete slab on a LOI, including the clause: in accordance with the DOM/2 sub-contract.
* Volker adjudicated against twintec for poor works.
* Twintec refered the matter to court, to get an injunction on the adjudication because it was invalid.
* Court ruled that because the Letter of Intent didn’t reference the dispute resolution method, that it was actually invalid and granted the injunction.
125
What are the DOM 2 suite of contracts?
A suite of sub-contracts published by the RICS
126
What are Relevant Events? (and give and example)
An event which causes a delay to the completion date. Relevant Event entitles Contractor to claim an Extension of Time that is, for the completion date to be moved.
```
Examples include;
o Variations
o Adverse Weather
o Terrorism
o Delay by nominated sub-contractor
o Force Majeure
o Loss from a specified Peril (such as flood)
```
127
What are Relevant Matters? (and give an example)
Something that the client is responsible for that materially affects the progress of the works.
A relevant matter enables the contractor to claim direct loss and expense incurred. A RM may not always result in an Extension of Time (i.e. a change to the completion date).
Example might include;
- Failure to give the contractor possession of the site
- Failure by the client to supply goods or services
- Instructions relating to variations and expenditure of provisional sums
128
What is a Bond?
It's a mechanism to protect the Client from non-performance from the Contractor.
A bondsman will make payment to the Client, and the bondsman will chase the Contractor.
129
What is a Variation
A change to the Scope of Works.
Includes:
- Design;
- Quality;
- Quantity;
Liable to EOT or Loss and Expense as a Relevant Matter.
