Contract Administration

Question 1

D&B vs SBC

Answer 1

• Contractor responsible for design,
• No listed subcontractors,
• No architect/CA/QS (EA only), No clerk of works,

SBC Payment Certificates - Contractor can issue Payment Notice if no Payment Certificate issued (SBC)

Question 2

Roles/Responsibilities: Client, MC, QS, CA, EA

Answer 2

• Client - Pay, Possession, Insure, Not obstruct, Pay Less if does not agree/LDs
• Contractors – Complete Work & Design, Comply, Inform EA of discrepancies
• QS – Only EA (no QS role D&B), Undertake valuations, Confidential, L&E, Final Account, Value variations
• CA – (Only EA D&B), Chair meetings, Inspect work, Instructions, EoT, Issue Certificates, Certify Completion
• EA – As CA but for D&B, typically QS but contractually is assumed as different party as no acknowledgement in contract. Issues Payment Notices

Question 3

Change to Design Process

Answer 3

• JCT SBC CDP or D&B – Contractors Proposals inc drawings & specs,
• CA respond in 14 days;
  A; Accept
  B; Accept & Incorporate comments
  C; Re-Submit, No Response = Acceptance, Contractor must reply if disagrees in 7 days –
• CA confirm or withdraw in 7 days.

Question 4

Insurances:

Answer 4

• Contractor’s all risk – Joint policy with employer, protects against loss or damage to works, machinery, materials
• Employer Liability; Required by all firms employing staff, Pays out if employee is injured or ill
• Public Liability; Covers injury or death to public, also covers loss or damage to 3rd parties
• Professional indemnity insurance; Professional services – Negligence – assurance against bankruptcy in case of claim, run off cover for retirement/ winding down
• Terrorism insurance; Damage or loss, pool re-insurance back by UK gov. should losses be too large, premium for high-risk areas e.g. London
• Non-negligent insurance – Insurer may not pay if non-negligent, contractor acquires. (Work undertaken correctly but despite this neighbouring property is damaged -non-negligent insurance covers this eventuality)

Question 5

Construction All Risk Insurance Options

Answer 5

• Option A - New Building - Contractor – Full reinstatement plus Fees, Risk of underinsurance with contractor
  Typical
• Option B - New Building – Employer - Full reinstatement plus Fees, Employer must cover any insurance shortfall
  MWL
• Option C – Existing structure – Employer – Replacement schedule required (Expert required) (Insurance covered by Landlord not party to contract if tenant is Employer). Employer must cover any insurance shortfall
  Newbridge

Question 6

Performance Bond

Answer 6

• Surety to Employer of Contractor non-performance
• Worth 10% of Contract value (delay & re-tendering)
• Cost varies 2-10%
• Expires at PC or EoD
• On Demand (unconditional) or (Conditional -prove non-performance and loss)

Question 7

Parent Company Guarantee

Answer 7

• Contractor procures in Employers favour (MWL BCEGI UK - Bejing Construction PCG)
• No Cost
• PC assume responsibility for Contractor obligations should they become insolvent
• Lasts the limitation period of contract (6/12 years)

Question 8

3rd Party Right vs CWs

Answer 8

• 3rd Party Rights; Rights of third parties Act 1999
• Can only apply if written into contract prior to execution
• e.g. SC’s are identified – SC’s must be known early on (typically they are not appointed until post MC appointment) –
• Less favourable than CW’s as not tested in court
• CW’s clearly set out the parties to contract along with their obligations (transparent & clear)

Question 9

Change D&B

Answer 9

• Change from ER’s; Design, Quality or Quantity or Imposition (site access, working hours, reduced working area)
• Employer makes EA aware – Instruction/EAI (if immediate) or Estimate
  Employer Proceed? – Change Proposal to Contractor –
• Contractor Price – Accepted or Negotiated
• Instruction by EA – Contractor confirms within 7 days – takes effect from 7 days of confirmation (i.e. that is the point from which the scope of works is assessed from in relation to for example an EoT claim)
• If Contractor does not comply Employer/EA can give notice
  7 days post notice 3rd party can be appointed

Question 10

Section/Practical Completion Requirements

Answer 10

• Requirements must be confirmed in contract;
• H&S file,
• Testing & Commissioning,
• Work Practically Complete,
• O&M,
• CW’s,
• Building Certificate,
• Planning Compliance,
• Structural Warranty,
• As Built DWGs,
• Keys.

Question 11

Implications of PC

Answer 11

• Rectification period begins
• Half retention released
• Client insures -
• LDs & LE are not applicable
• Employer must accept building early if it is actually complete

Question 12

Sectional Completion
Partial Possession
Early Use

Answer 12

• Sectional Completion – Contract provision – Pro Rata – Value of Section must be stipulated
• Partial Possession – Post contract variation – Contractor cannot unreasonably withhold – Detail to clarify extent of area, implications as SC
• Early Use – Employer may use part of the site early for storage or otherwise with contractors consent – contractor responsible – notify insurers as likely to attract premium (third party use)

Question 13

Named Subcontractors

Answer 13

Nominated no longer included in JCT

• Client can influence the selection of sub-contractors - MC responsibility for SC performance
  1. Client short-list SC’s in the tender documents for the main construction contract.
  2. MC has opportunity to reasonably object to any firm on the list.
  3. MC leads the tender process for each named SC package.
  4. After appointment, the named subcontractor becomes a domestic subcontractor. The main contractor is only paid the rates in the accepted subcontract tender.

Question 14

Materials on/off site
Off Site:

Answer 14

• Employer not obliged to pay for any materials off site unless ‘listed items’ within the contract
• Listed items e.g. bespoke cladding or steelwork, lift
• To be included in valuation:
• Listed (in contract)
• Vesting certificate (in the employer)
• Insurance (against specified perils until delivery to site then covered under all risk insurance)
• Set apart, clearly marked, identified and properly protected

Question 15

On Site

Answer 15

• Can be included in a valuation if:
• Not delivered prematurely
• Suitably protected from weather
• The materials become property of the employer once they are paid for but the contractor is still responsible for any damage and/or theft.

Question 16

Determination

Answer 16

• Events may occur on site which are so serious that the other party may prefer not to continue with the contract
  o Provision allowing the termination of the employment of the contractor
• Termination is of the contractor’s employment under the contract rather than termination of the contract itself
  o Parties will remain bound by the contract and can bring losses associated with it. If the contract is terminated, this cannot happen.
• Termination can be initiated by the employer or contractor.

Question 17

Termination by the Employer:

Answer 17

• Notice of default 14 days
• Notice of termination 21 days
• Employer can employ others
• Reasonable time for final account
  Contractor Default
• Suspends work with no cause
• Fails to proceed
• Refuses to comply
• Insolvency
• Corruption

Question 18

Termination by the contractor

Answer 18

• Notice of default 14 days –
• Notice of termination 21 days
• Employment terminated
• Reasonable time for final account
• 28 day payment
  The contractor can terminate its own employment under the contract due to:
  Employer default:
• Does not pay
• Fails to comply with CDM

Question 19

Termination by either party

Answer 19

• Either party has the right to terminate the contract if the works are
• suspended for the period noted in the contract particulars
  2 months suspension
• Warning notice 7 days
• Termination
• Reasonable time for final account 28 day payment
  Suspension reasons
• Force majeure (COVID)
• Negligence of statutory undertaker
• loss/ damage by insurance
• terrorism
• UK government (Covid)

Final account;
- Value
- loss & damage
- removal
- protection/security

Question 20

Defects/rectification period

Answer 20

• Default period for JCT is 6 months but commonly amended to 12 months (allow for a full season of weather)
• Employer should provide a schedule of defects within 14 days of the end of the Rectification Period e.g. 12 months +14 days
• If contractor refuses to undertake rectification of the defects and suitable notice is given to the contractor, the employer may use the retention monies to undertake the works and deduct any allowances from any further money due to the contractor
• Once complete - Notice of Completion of Making Good is issued (pre-condition of the final payment)
• Retention released upon issue of Notice of Completion of Making Good.
• Contractor responsible for rectifying all defects during the period.
• Latent defect (remember Later) – defects which arise in future that could not be seen (rectification dependant on limitation period – 6 or 12 years)
• Patent defect (remember Present) – defects discovered upon inspection during rectification period.

Question 21

FINAL Final date for payment

Answer 21

• Final date for payment is 14 days from the FINAL due date which is one month after either
• final statement,
• end of defects or
• notice of making good

Question 22

Novation

Answer 22

• Contract between the employer and architect will be replaced by a contract on identical terms between architect and contractor
• Contractor replaces the employer as he accepts all obligations and liabilities formerly as the employer’s.
• The architect will have no liability to the employer.
• A deed of variation to the appointment is required to reflect this change (a novation agreement).

Question 23

I have studied the RICS Contract Administration Guidance Note and I am aware of the main standard forms of contract used in the construction industry. I appreciate how the main contract forms are associated with different types of construction work.

Answer 23

• Lump Sum - contract sum is determined before construction work is started SBC Q/xQ
• Measurement - SBC AQ, MTC contract sum not finalised until after completion
• Cost Reimbursement Contracts PCC - Contract sum on basis of prime cost of labour/plant/ materials with additional amount for overheads and profit
• Quickest Overall Procurement Route; CM; works can commence as design is being developed. CM quicker than MC as client can engage trade contractors straight away (MC must be appointed first).
• Cost Certainty; D&B; Contractor accepts design risk.
  Most Economic; Traditional; design is fully developed at tender (easiest to price -minimal risk pricing)
• Greatest Client Risk; PCC; quick to commence but no cost certainty until project is complete
• Least Client Risk - D&B; Contractor has design risk
• Greatest Control of Quality – Traditional (vs D&B); Client retains control of design team. CM over MC

Question 24

Early Use

Answer 24

• Employer may use part of the site early for storage or otherwise with contractors consent
• Contractor cannot unreasonably withhold
• Contractor responsible and risk is that they will claim L&E associated with disruption if proposal is not sufficiently prepared
• notify insurers as likely to attract premium (third party use)

Question 25

Partial Possession

Answer 25

- Post contract variation - Contractor cannot unreasonably withhold - Detail to clarify extent of area, - implications as SC/PC

Question 26

Sectional Completion

Answer 26

- Contract provision - As above but Pro Rata - Value of Section must be stipulated

Question 27

Winnington - EA Role Payment Notice process as set out within the contract

Answer 27

VALUATION DATES: 1. Contractor makes Application for Payment at the Interim Valuation Date (1st) 2. Due Date is 7 days after (8th) 3. Payment Notice is issued 5 days after the due date (13th) 4. Employer can issue Pay Less Notice 5 days before the final date for payment (17th) 5. Final Date for Payment is 14 days from due date (22nd) (typically amended to 21 days (29th))

Question 28

Difference of Payment Notice on SBC

Answer 28

- QS issues payment recommendation - Payment is certified by Contract Administrator (like Payment Notice) - Payment Notice is technically only issued by MC if no payment certificate is issued by CA

Question 29

I understand the implications of, for example failing to pay the Main Contractor on time in accordance with the timescales stipulated within contract.

Answer 29

- The contractor can terminate its own employment under the contract due to: Employer default: - Does not pay - Notice of default 14 days - Notice of termination 21 days - Employment terminated - Reasonable time for final account - 28 day payment (Following agreement of FA)

Question 30

Winnington Over the course of the project a tenant was identified who wished to take multiple adjacent units whereby division walls needed to be omitted from the works. To formally instruct the change I followed the change procedure as outlined within the contract.

Answer 30

- Employer makes EA aware - Contractor variation request - Contractor Price (Saving circa £18k - Accepted - EAI to omit - Contractor confirms within 7 days - Takes effect from 7 days of confirmation (early on in programme so not significant)

Question 31

Winnington The Client wanted the Main Contractor to dispose of excavated arisings on a local site also owned by the Client. In line with the contract, I issued a formal instruction to the Main Contractor

Answer 31

- Off-site to build up another site levels - £5m3 saving offered to Client - Win win as client would have had to pay for material. - Contractor rate was £25m3 so they saved as well - Material must be inert (not contaminated) - Site engineer undertook testing to excavated material and confirmed inert on site records

Question 32

Winnington Due to the works not completing by the contract completion date I issued a Non-Completion notice which ensured that “time was not at large”. Did you issue an EoT?

Answer 32

- Contractor delay - 2 weeks due to lime stabilisation works being recommended by structural engineer early on in project (MC risk) - Client reserved the right to deploy LD's although informally advised that they would not issue - Contractually they would have to issue PLN 5 days before Final Date for Payment. Note that PC may fall close to FDFP e.g. decision on LD's would have to be made quickly

Question 33

Winnington Following the completion of the works I issued the Practical Completion certificate which prompted several key changes in liability.

Answer 33

- Rectification period begins - - Half retention released - - Client insures - - LDs are not applicable - Claims end (LD & L&E)

Question 34

Winnington How did you make instructions?

Answer 34

- To manage change control I ensured that all parties were clear on the process for changes to the contract. - Any change requests from either the contractor or the client were formally sent in writing. - Upon receiving a change request from the client I would prepare a project change proposal for the contractor.