Technical - Contract Practice Flashcards
1
Q
What is a contract?
A
A legally binding promise by one party to fulfil an obligation to another in return for consideration. Can be written or oral.
2
Q
What are ‘express terms’?
A
The terms of agreement that are expressly agreed between the parties. Ideally they should be written down in a contract.
3
Q
What are ‘implied terms’?
A
A term that has not been expressly agreed between the parties but has been implied into the contract either by common law or statute.
4
Q
What is tort?
A
A civil wrong and part of civil law.
Concerned with loss or harm.
5
Q
What is a statutory provision?
A
Provisions set out by law and must be complied with.
6
Q
What is a contract provision?
A
Relate to the contract in question so only apply to that specific project.
7
Q
Would you advise a client to enter into an oral contract?
A
No. Whilst legally binding it is difficult to prove the terms and conditions if something goes wrong. Better to have a written contract.
8
Q
What is a breach of contract?
A
Occurs when one party in a binding agreement fails to deliver as per the terms of the contract.
9
Q
What is the Local Democracy, Economic Development and Construction Act 2009?
A
It was an update to an earlier act and came into force in October 2011. It changed the way construction contracts are entered into and amended the terms for payment and adjudication.
10
Q
What is a letter of intent?
A
A letter from the employer to the contractor indicating the employer’s intention to enter into a formal contract for works described in the letter.
Requests that the contractor start work on the project before the contract has been formally executed.
11
Q
What information should be included in the letter of intent?
A
Description of the works.
Contract sum (if agreed) or approved spend.
Date of possession and completion.
Insurances required.
Method of payment.
Expiry date of letter.
The right of the client not to award the main contract.
The ADR method.
12
Q
What are the advantages of a letter of intent?
A
Allows work to start before the contract is agreed and signed.
13
Q
What are the disadvantages of a letter of intent?
A
Can lead to complacency and further delay the contract being signed.
Contractually less robust then the main contract.
The employer loses strength in negotiations.
14
Q
In what circumstances would a letter of intent be used?
A
When the works need to start by a certain date.
Where materials have long lead in times and early procurement is helpful.
15
Q
Who issues the letter of intent?
A
The employer.
16
Q
Who signs the letter of intent?
A
The employer and the contractor.
17
Q
What would I say if a client asked me to draft a letter of intent?
A
No. As it’s a legal document I would advise a legal expert should write it. I would be willing to check that some elements, such as the contract sum, were correct.
18
Q
Name case law regarding letter of intent.
A
Ampleforth Abbey Trust v Turner & Townsend Project Management [2012] EWHC 2137 (TCC).
ERDC Group Ltd v Brunel University [2006] EWHC 687 (TCC)
Tesco Stores Ltd v Costain Construction & Ors [2003] EWHC 1487 (TCC)
19
Q
What are the different types of contract sum?
A
- Comfort letter – Expresses a party’s intention to act in a particular way at some point in the future, or at the time of issuing the letter.
- Instruction to proceed with consent to spend – Allows work to proceed up to a certain value whilst the main contract is being finalised.
20
Q
What is a Parent Company Guarantee?
A
If the contractor is under the control of a parent company, the client may want additional protection by asking that parent company to fulfil financial obligations if the contractor defaults on the works.
21
Q
When would a Parent Company Guarantee be required?
A
When a small contractor is part of a much larger, financially stable group of companies.
22
Q
What are the three ways that benefits can be transferred under a building contract?
A
Collateral warranties.
Third Party Rights.
Assignment.
23
Q
What is the Contracts (Right of Third Parties) Act 1999?
A
Allows third parties to enforce the terms of a contract that they are not party to but which benefit them in some way. They can also seek remedy if the contract terms are breached.
24
Q
Why would you use third-party rights instead of collateral warranties?
A
If a lot of collateral warranties are required then third-party rights can be a more time and cost efficient alternative.
25
What are the advantages of third-party rights?
Time and cost – saves time and money because you don’t have to draw up collateral warranties.
Certainty – limited room for rewording.
Subcontractors – the employer can confer third party rights to subcontractors, which helps avoid managing individual warranties.
26
What are the disadvantages of third party rights?
Not very flexible in the wording, so limited use for complex situations.
Need to draft them carefully so there are no legal gaps.
27
What is a collateral warranty?
A contract that runs alongside the main contract to create a contractual relationship between two parties that would otherwise not exist. Usually between the employer and a sub-contractor.
28
Give me an example of when you have used a collateral warranty.
When laying the underfloor heating pipework at the Edge in Digbeth, we requested a collateral warranty from the mechanical sub-contractor as they had designed and installed the system. This created a contractual link between the client and the sub-contractor should the main contractor cease trading.
29
Who might need a collateral warranty?
Employers with subcontractors, so they have a contractual link for faulty workmanship if the main contractor goes bust.
A third party with financial interests in the project such as a funder.
30
What is a bond?
A type of construction insurance taken out by the contractor and backed by the third party. Protects the employer should the main contractor go bust by paying out to help find a replacement company and mitigate the costs of contractual increases.
31
What is the difference between a bond and a collateral warranty?
Bonds are contained within the contract and a collateral warranty is a separate signed agreement sitting alongside the main contract.
32
Why are collateral warranties more common on a design and build contract?
The design team usually operate under the main contractor for a D&B contract, so the employer will want to retain a contractual link with them.
33
What is assignment?
The benefit of a contract is transferred from one party to another but the burden remains with the original party to the contract.
34
Can you provide an example of when you would use an assignment?
When a party to the construction contract wants to assign a benefit of the contract to a third party such as purchaser or tenant of a building.
35
What are the two typical clauses of assignment?
That the rights can be assigned twice without consent.
The other party should be notified in writing about the assignment.
36
What is a bond?
Protection for the owner against a contractor going bust, lack of performance and warranty issues. A type of insurance provided by a third party.
37
What are the five bonds that are used on construction projects?
Performance bond.
Retention bond.
Off-site materials bond.
Advance payment bond.
Tender bond.
38
What is a performance bond?
Form of security provided by the contractor to the employer. The insurance company pays out to the employer if the contractor goes bust.
39
When might the employer ask for a performance bond?
When the contractor is new.
If there is concern about the contractor’s financial position.
If the economy is heading into recession.
If they just want to protect themselves.
40
What is an on-demand performance bond?
Money available on demand without having to satisfy any preconditions.
41
What is a conditional performance bond?
The employer must provide evidence that the contractor has defaulted on their contractual obligations and has caused them a financial loss.
42
What is the typical value of a performance bond?
10% of the contract sum.
43
What is the typical cost of a performance bond?
Much like car insurance it depends on the credit score of the company, the size and risk of the project.
44
What is the risk of not having a performance bond?
If the contractor goes bust then the employer has to deal with all the costs associated with the insolvency.
The employer will have to pay to find a new contractor to complete the works and any associated price rises.
There will be no recompense from the contractor because they will be in liquidation.
45
What alternatives are there to a performance bond?
A Parent Company Guarantee if the contractor is part of a larger group of companies.
46
What is a tender bond?
Provides security against the preferred tenderer not entering into a contract.
Aims to prevent idle tendering.
47
What is an off-site materials bond?
If materials are being made off-site and the employer pays for them, the bond protects the employer if the contractor goes bust by making sure the materials are delivered to site or they are financially reimbursed for the costs.
48
What is a retention bond?
When practical completion is achieved, the contractor gets half the retention back. With a retention bond, the contractor gets all the retention back and the bond covers the employer for any defects not rectified in the next 12 months.
49
What are the disadvantages of a retention bond?
The employer has to pay the premium of taking out the policy.
Can disincentivise a contractor to complete works to the desired standard, or return to fix defective work.
50
Why would you use a retention bond?
If the contractor is a new or small company.
If the financial market is difficult and the contractor needs cash flow.
51
What is an advanced payment bond?
If the employer pays the contractor in advance of the works being done, then the bond protects them. An example is buying materials in advance.
52
What are antiquities?
Historical artefacts like coins, pottery and bones.
Something of historical interest.
53
What should a contractor do if they find something?
Cease work if the object could be disturbed or destroyed.
Note the location and protect the area.
Inform the contract administrator and project archaeologist if applicable.
54
Who is liable for the delay and expense incurred if an antiquity is discovered?
The employer, and it can be very costly.
55
What is a defect?
Work, materials, design or system that is not up to standard, resulting in damage to the project and potentially causing loss to the employer.
56
What are patent defects?
Defects you can see by looking such as plaster cracks, broken gutters, peeling paint and slipped tiles.
57
What are latent defects?
Defects that aren’t visible just by looking. You need to open up the building to see what’s gone wrong underneath.
58
Why does the defect rectification period last 12 months?
Allows the building to go through all seasons and experience wet, dry, cold and heat. Most defects should become apparent in that time.
59
What is novation?
Used for Design & Build contracts. The design team that was initially hired by the client for RIBA 0 to 4 is then ported over to the contractor to manage the remaining design work.
60
Why don’t we use novation for traditionally procured projects?
Because the design team stay under contract with the employer.
61
What are the advantages of novation?
Contractor doesn’t need to hire a new design team – less potential for errors and saves time understanding the Employer’s Requirements and starting the design from scratch.
Less risk for the employer as the responsibility of the design has been contractually passed to the contractor.
62
What are the disadvantages of novation?
Need to get collateral warranties to protect the employer.
Potential conflicts of interest because the design team has worked for the employer first and may be wedded to certain design aspects.
Employer may need to hire a secondary shadow team for compliance purposes, if part of a funding requirement.
63
What is retention?
When you agree a valuation, a portion of that agreed amount is retained by the employer during the construction period. It’s typically 3% to 5%.
64
What is the purpose of the retention?
It’s held as a safeguard against the contractor defaulting on their contractual obligations or to rectify any defects that they fail to come back and fix.
65
What can the employer use retention money for?
To fix any defects that the contractor does not return to fix. Need to give written notice to the contractor if you intend to do that.
66
How is retention released to the contractor?
In two stages. Half at practical completion and the remaining at the end of the defect liability period. Unless they haven’t returned to fix the defects, then the employer can retain money to pay for someone else to fix things.
67
Who typically benefits from holding the retention?
The employer by having a pot of money as a safeguard, and by gaining interest on that sum.
68
What alternatives are there to holding retention?
The employer can ask for a retention bond.
69
What is professional negligence?
When a professional fails to perform their responsibilities to the highest standard or fails in their duty of care. This poor performance results in financial loss, physical damage or injury to their client.
70
How can a client recover a loss if the professional is professionally negligent?
Make a claim on their Professional Indemnity Insurance.
71
What is product liability insurance?
Manufacturers and suppliers of products are at risk of claims if the products they supply are defective and lead to damage or injury. Product liability insurance protects the manufacturers and suppliers against liability.
72
What is public liability insurance?
Protects the holder against liabilities for injury to third parties and/ or their property. E.g. a brick falls off the scaffold and damages a member of the publics car.
73
What is employer liability insurance?
Pays compensation and legal costs if an employee claims compensation for a work-related injury or illness.
74
What is Contractor Designed Portion?
Usually used with a traditionally procured project. Whilst the design team will provide construction information for most of the project, there may be some elements that the contractor will need to design.
75
What is the difference between traditional procurement with contractors design portion and a design and build?
With traditional the design responsibility remains with the employer apart from the few elements that are transferred under CDP. With design and build all of the design responsibility is transferred to the contractor.
76
How are CDP elements executed?
A performance specification is provided at tender stage and the contractor submits a design proposal as a response. The design team review the proposals and accept, comment or reject them.
77
Name some typical CDP elements.
Mechanical systems like underfloor heating.
Steelwork connections.
Cladding.
Rooflights.
Temporary works.
78
What are domestic sub-contractors?
Subcontractors that are chosen by the main contractor to do the work. Can’t be chosen by the client or design team.
79
What are named sub-contractors?
A list of sub-contractors pre-approved by the client that the contractor can choose from. Once appointed by the main contractor they become a domestic sub-contractor.
80
What are the advantages of named sub-contractors?
Gives the client more control on the quality but still gives the contractor an element of choice as they have the responsibility for their performance.
81
What are nominated sub-contractors?
A sub-contractor chosen by the employer to carry out an element of the works. The contractor has no choice in who is appointed.
82
What are the disadvantages of nominated sub-contractors?
The main contractor can object if there is a safety concern. There can be conflict between the two parties if they aren’t used to working with each other.
83
What are the advantages of a nominated sub-contractor?
The client should be happy with the quality of their work if they have chosen them.
84
What is insolvency?
The inability of a company to pay its debts.
85
What can be done at tender stage to lower the risk of encountering contractor insolvency?
Check contractor financial accounts.
Check for front loading on the tender submission.
Dun and Bradstreet report/ credit check.
References from banks and previous clients.
Request a bond or parent company guarantee.
86
What is termination?
The contract is terminated and the parties are no longer obligated to perform their duties under the contract.
87
Can the contractor suspend works for non-payment?
If the notified sum is not paid by the final date for payment, then the contractor can suspend performance for all its obligations. This concerns the works, stop insuring the site, not applying for consents or carrying out instructions.
The client may be responsible for remobilisation costs and an extension of time.
88
What are delay damages or liquidated damages?
An estimated financial loss that the client will experience if the works are not finished on time. The figure is inserted into contract. It cannot be punitive. Contracting parties agree to this figure when they enter into the contract.
89
What can the employer include in their calculations for liquidated damages?
Loss of rent.
Loss of income.
Storage, rent, aborted moving costs.
Capital salaries.
Legal fees.
90
What should I do if the client tells me that their liquidated damages are £100,000 per week?
Check how they have arrived at that figure.
Explain that the figure may be seen as punitive and non-enforceable.
Advise that contractors are unlikely to tender with such a large risk hanging over them, unless the contract is of an exceptionally high value.
91
What documents are required under a JCT contract in order for damages to be deducted?
A certificate of non-completion.
Written notice to the contractor of your intention to deduce liquidated damages.
A pay-less notice.
92
What is a liquidated damages holiday or liquidated damages free period?
A grace period where the contractor has no commercial liability for the delay.
93
What is the implication of inserting £0 or ‘nil’ in the contract section related to liquidated damages?
The contractor has no financial liability if the project is delayed.
94
What are unliquidated damages?
Damages granted by the courts based on the assessment of the loss suffered by a party due to a breach of contract.
95
What impact does granting an extension of time have on liquidated damages?
The completion date moves so liquidated damages are only applicable from this revised date, not the date originally written in the contract.
96
What is a PCSA?
A pre-construction services agreement. The employer can hire a contractor to be part of the pre-contract team. The services agreement sets out the terms and conditions of this agreement.
97
When are PCSA’s usually used?
For a two-stage tender to facilitate early contractor involvement.
98
What are the advantages of a PCSA?
Should improve the buildability of the design and the cost certainty of the project. Early engagement also helps the contractor have a better understanding of the project and should reduce disputes and variations.
99
What can you use a PCSA for?
Contribute to the design process.
Advise on buildability, sequencing and risk.
Advise on what sub-contractors will be required.
Advise on costs.
Develop a realistic programme.
Assist with planning applications.
Contribute to pre-construction health and safety information.
100
What do you need to consider when drafting a PCSA?
That you’re not committing the client into entering into a contract with the contractor. They should still be able to competitively tender for the project if they want to. Make sure the scope of services is clear and unambiguous.
101
What building contracts am I aware of?
JCT (Joint Contracts Tribunal)
NEC (New Engineering Contract)
PPC 2000
But I’ve only used JCT.
102
What should I consider when selecting a contract?
Priorities – cost, time, quality and risk allocation.
If the client is private and public sector and if they have specific requirements.
Procurement method.
Value of works.
Nature and complexity of the work.
103
What is a bespoke contract?
A contract that must be used instead of a standard contract. Unique for the one project or client.
104
What are the disadvantages of bespoke contracts?
Parties aren’t familiar with them.
Have to pay legal expert to make them.
Can lead to problems if they aren’t drafted correctly.
Clauses and provisions may not have been tested in court.
Could put off a contractor.
105
What are the advantages of standard forms over a bespoke contract?
Written by legal experts.
People are familiar with them and know how to use the provisions.
Sufficient detail to cover all parties.
106
When would you choose to use a bespoke contract over a standard form?
When the standard contract requires too many amendments and it would be easier to make a new contract from scratch.
107
Have you amended a standard contract?
I have worked on a project where the standard contract has been amended, but I did not and would not amend a contract. This was done by legal experts.
108
What are the main risks with amending a standard contract?
Can create legal uncertainty.
They must be reasonable and comply with legislation.
Can be struck by courts if they aren’t in good faith.
Can sometimes add cost to tenders.
109
What does JCT stand for?
Joint Contracts Tribunal.
110
What are some of the JCT contracts?
Standard Building Contract.
Intermediate.
Intermediate with contractor’s design portion.
Minor works.
Design and Build.
111
What project information influences the choice of contract used?
Value.
Whether contractor design is needed.
Type of project.
Client’s attitude to risk.
Whether cost certainty is required.
Programme.
112
When would I choose a JCT Minor Works contract?
Small, simple works procured via a traditional route.
113
What are the key features of a JCT Minor Works contract?
Employer responsible for the design.
Can add contractor’s design if required.
Not suitable for projects needing BoQs, control procedures or named specialists.
Administered by architect or contract administrator.
114
When would I use a JCT Intermediate contract?
A full construction team is required but the works aren’t too complex and don’t require specialist works or installations. Require detailed design, SoW or BoQ and detailed contract provisions. Can include contractor’s design portion. Suitable for traditional procurement.
115
When would I choose a JCT Standard Contract?
For large/ complex building projects that need detailed contract provisions. Can include contractor’s design portion but employer responsible for the main design. Works can be carried out in section. Suitable for traditional procurement.
116
When would I choose a Design & Build contract?
When the contractor carries out the building work and is responsible for the design. When the client wants to transfer the risk of the design responsibility to the contractor.
117
What are the key features of a Design & Build contract?
The scale of the construction work can vary greatly.
Contractor will complete the RIBA 5 construction design based on a concept provided by the client, and the Employer’s Requirements.
The contractor is responsible for the design.
Different to contractor’s design portion as there is more responsibility on the contractor.
The employer’s design team can be novated.
The employer usually hires an Employer’s Agent to administer the contract.
118
When would I use a JCT Prime Cost Contract?
When a project needs to start on site before all the design works are complete, usually for urgent repair work.
Costs are usually reimbursed on a cost reimbursement or cost plus basis.
119
What are relevant events?
An event that causes a delay to the works completion date and entitles the contractor to claim an extension of time. Examples include:
Adverse weather conditions.
Materials or supplies being delayed.
Failure to provide information.
Force majeure.
120
What is force majeure?
Acts or events that can not be foreseen by any party to the contract. Sometimes called an act of god. Pandemics and natural disasters are examples.
121
What happens when a relevant event occurs?
The contractor needs to write to the contract administrator as soon as they are aware a delay will occur.
They need to detail the particulars and the extent of the delay.
State what relevant event applies.
Contract Administrator to respond within 12 weeks with their decision.
If accepted, a new completion date is fixed.
122
Does a relevant event entitle the contractor to loss and expense?
No, only an extension of time. The contractor needs to apply for a relevant matter if they think they’re entitled to loss and expense.
123
What is a relevant matter?
An event that the employer is responsible for that materially effects the progress of the works and may enable the contractor to claim loss and expense.
Examples include:
Failure to give the contractor possession of the site.
Failure to provide the contractor with access.
Delays issuing instructions.
Disruption by work carried out by the employer.
Employer fails to provide materials.
124
What’s the difference between a relevant event and a relevant matter?
Event allows an extension of time.
Matter allows money (loss and expense).
125
What is a loss and expense claim?
Where the contractor incurs a loss due to the actions or inactions of the employer. A relevant matter.
126
What are the most important things when assessing a loss and expense claim?
It must be the actual loss incurred by the contractor. Don’t use rates in the bill/ sow as these are not the actual costs.
127
Do you get an extension time for a loss and expense claim?
Not automatically. The contractor must submit a separate extension of time.
128
What are common claims for loss and expense?
Prelims (prolongation).
Extra site supervision (thickening of prelims).
Disruption.
Increase in labour and material costs during the period of delay.
Finance charges (interest).
129
What are prolongation costs?
A claim made by contractors for late running projects. Usually the cost of time related resources such as prelims.
130
What is partial possession?
The contractor allows the employer to have partial possession of the site/ works before they have been formally completed.
The contractor must give consent but enables the employer to use a part of the building for its intended purpose prior to the whole project being completed.
131
What are the key points of partial possession?
It’s not agreed prior to signing the contract.
Usually completion is deemed to have occurred for the section.
A voluntary agreement between the employer and the contractor.
Contractor must give consent.
132
Can the contractor refuse partial possession?
The contractor must give their consent, but they can’t unreasonably withhold it. They can withhold it if giving the client partial possession would interfere with their ability to complete the rest of the project, or if it’s dangerous.
133
What are the implications of partial possession?
Half the retention is released – proportional to the area size handed over.
The contractor’s responsibility for insuring the works to that area ends.
The contractors liability for liquidated damages ends – proportional to the area size handed over.
The employer becomes responsible for any damages to the works.
The defect period begins.
134
What is a sectional completion under JCT?
A provision in the contract that enables different sections of works to be completed on different dates. Each section has its own liquidated damages applied to it should the contractor fail to achieve the completion date.
135
What’s the difference between sectional completion and partial possession?
Sectional completion is pre-planned and included in the contract documents.
Partial possession is not pre-planned and is access given with the contractor’s consent.
136
What are the benefits of sectional completion over partial possession?
Sectional completion is agreed in advance so is easier for the employer to plan for. Also the contract administrator can deal with delays, changes or acceleration if it’s all included in the contract.
137
What are the main options for insuring the works under a JCT contract?
Option A – The contractor takes out and maintains joint names all risks insurance of the works for new buildings.
Option B – The employer takes out and maintains joint names all risks insurance of the works for new buildings.
Option C – For renovations and existing structures. The employer takes out and maintains a joint names all risks insurance of the works and the policy also insures the existing structure and contents against ‘specified perils’.
I usually use Option C!
138
What is a joint names insurance policy?
A policy in the name of two or more parties – contractor and employer.
Prevents the insurer from having any right of subrogation over either of the insured parties.
139
What is contractor’s all risk insurance?
Protection against the physical loss or damage to the works being undertaken. The policy will pay for repair or replacement of the insured works if they are damaged by something covered by the insurance policy.
140
What are specified perils?
Common ones are:
Fire
Explosions
Earthquakes
Flooding
141
What is subrogation?
Allows an insurance company that has paid out to sue the party that may be responsible for causing them the loss.
142
What NEC Contracts are there?
A – Priced Contract with Activity Schedule
B – Priced Contract with Bill of Quantities
C – Target Contract with Activity Schedule
D – Target Contract with Bill of Quantities
E – Cost Reimbursable Contract
F – Management Contract
143
What is the difference between a JCT and NEC Contract?
The JCT contract concentrates on the transfer of risk and liabilities, and by contrast, the NEC focuses on an equal balance of risk between both parties and requires a proactive application of contract management and administration
144
What are NEC Compensation Events?
Events that if they occur and do not arise from the contractor, entitle the contractor to be compensated for any effect the event has on prices. There is an early warning system where the contractor must notify the project manager within 8 weeks of the event occurring. These include instructions, failure to provide access and adverse weather conditions.
