RICS - Contract Practice Flashcards
(60 cards)
What is a contract? What 4 elements does a contract need to be binding?
A contract is a legally binding promise by one party to another to fulfil an obligation in return for consideration.
- Offer
- Acceptance
- Consideration
- Intent to create legal relations
What are express terms?
Terms that are expressly agreed between party.
Ideally these are written down in a contract, if verbal these are terms that have been discussed and agreed.
What are implied terms?
A contractual term that hasn’t been expressly agreed but has been implied by either common law or statute.
What is Tort?
A Tory is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act.
How do statutory and contract provisions differ?
- Statutory provisions are set out by law and must be complied with regardless.
- Contract provisions relate to the contract in question.
What is your opinion of verbal contracts?
While they are legally binding, the difficult lies in proving the specific terms and conditions of the agreement. Written contract is always preferred.
What is the local democracy, economic development and construction act 2009?
- The act amended the Housing Grants and Regeneration act 1996.
- Changed the way construction contracts are entered into and introduced an amended regime for payment and adjudication.
What are the key provisions under the Local Democracy, Economic Development and Construction Act 2009? Part 1 (6) (Contracts, Payment, Payment Notices)
- Repeals requirement for construction contracts to be in writing. Allows parties to go to adjudication even if their involvement is not formally recognised in writing.
- Construction contracts must have an adequate mechanism for determining what payments are due and when they become payable.
- Pay when paid clauses can no longer be used to prevent payment of subcontractors.
- The contract must specify that either the payer or payee will issue the payment notice.
- This must be issued not later than 5 days after the payment due date and paid before the final date for payment identified in the contract.
- Payment notice must specify the sum the payer or payee considers to be due at the payment due date and the basis on which that sum was calculated. Must be issued even if for zero payment.
What are the key provisions under the Local Democracy, Economic Development and Construction Act 2009? Part 2 (6) (Payment notices, Pay less notices, Suspension of performance)
- If the payer is required by contract to issue a payment notice and fails to serve that notice in the required form or within the set timeframe, the payee is entitled to issue a default payment notice.
- A default payment notice obliges the payer to pay the amount due and allows the payee their statutory right to suspend performance for non-payment.
- Paying parties are required to either pay the notified sum specified in either the payment notice or default payment notice by the final date for payment or serve an effective pay less notice.
- To be effective, a pay less notice must specify the sum that the paying party considers to be due on the date the notice is served, the basis for that sum and served no later that the prescribed period prior to the final date for payment.
- Clarifies the contractor’s right to suspend carrying out the work in the event of non-payment.
- To validly suspend performance of obligations, a default notice must be issued and there must have been a failure to pay. The non-payer is liable to pay the payee a reasonable amount by the way of costs incurred by suspending all or part of the work.
What is a letter of intent?
A letter that indicated the employer’s intention to enter into a formal written contract for the works described. Typically asks the contractor to begin those works before the formal contract is executed.
What information is typically included in a letter of intent? (9)
- Description of work to be completed
- Contract sum (if agreed), and a maximum expenditure of LOI
- Date for possession
- Date for completion
- Insurance provision requirements
- Method of payment
- Expiration date of the letter.
- Typically will state the employer’s right not to award the main contract
- ADR method for dispute resolution.
What are the advantages of a letter of intent?
Allows work to commence before the main contract is agreed and signed.
What are the disadvantages of a letter of intent? (3)
- May lead to a disincentive to sign the main contract.
- Letter of intent is less robust than a main contract.
- Employer’s negotiation strength can be reduced.
When should a LOI be used? (2)
- Where works must commence before a certain date.
- Where materials have long lead periods and early procurement would aid the programme.
What would you say if the client asked you to draft a letter of intent?
It is a legally binding agreement like a contract and should be drafted by a legal professional.
What are the 3 main types of LOI?
- Comfort Letter - Expresses a party’s intention to act in a particular way at some point in the future.
- Instruction to proceed with consent to spend - Instructs to proceed up to a certain value whilst contract is being agreed.
- Recognition of contract - Used in FIDIC to mark completion of contract negotiations.
Ampleforth Abbey Trust v Turner & Townsend (2012)
- T&T found negligent as they were deemed competent PMs who failed to agree MC with contractor (Kier) who completed late, and LOI did not allow employer to implement LDs to the contractor.
LOI was repeatedly extended due to MC not being agreed between parties. The Court concluded that with the benefit of a contract, Kier could have been held liable for £340,000 by way of damages so, after factoring in the one-third risk that no contract would have been completed, this left damages of £226,667 payable by the T&T.
What is a Parent Company Guarantee?
Form of security that may be required by clients to protect them in the event of default on a contract by a contractor that is controlled by a parent company.
When are Parent Company Guarantees useful?
When a small contractor is part of a large financially stable group of companies, the guarantee is given by the parent company to the client, requiring the parent company to remedy a breach of contract and meet all the contractor’s obligations under the contract (including Loss and Expense incurred by the client).
What is a performance bond? What is the standard value of a performance bond?
1.Give the employer a guarantee of payment up to a stated amount of money should they suffer a loss as a result of a contractor’s breach of contractual obligations.
2. Usually 10% of the contract value, and the premium for taking out the bond is often added to the contract sum.
When might bonds be appropriate? (3)
- If the contractor is new or unproven.
- There is concern over the contractor’s finances/commercial standing.
- In a difficult economic climate, where the risk of insolvency is higher.
What are the pros of Parent Company Guarantees? (3)
- Do not need to be paid for as opposed to performance bonds.
- Can be unlimited.
- Can make the parent company responsible for performance as well as a financial guarantee.
What are the cons of Parent Company Guarantees?
- Not as secure as Bonds because of the financial link between a parent company and subsidiary.
What Act governs third party rights?
Contracts Act 1999