Contract practice

Question 1

What is a contract?

Answer 1

• A contract is a legally binding promise (written or oral) by one party to fulfil an obligation to another party in return for consideration
• A basic binding contract should comprise four key elements: offer, acceptance, consideration and intent to create legal relations

Question 2

Please define ‘express terms’?

Answer 2

• Express terms are the terms of the agreement which are expressly agreed between the parties
• Ideally, they will be written down in a contract between the parties but where the contract is agreed verbally, they will be the terms discussed and agreed between the parties.

Question 3

Please define ‘implied terms’?

Answer 3

A contractual term that has not been expressly agreed between the parties but has been implied into the contract either by common law or by statute.

Question 4

What is tort?

Answer 4

• A tort is a civil wrong
• Part of the civil law
• A claim in tort is concerned with loss or harm

Question 5

How do statutory provisions and contract provisions differ?

Answer 5

• Statutory provisions are set out by law & must be complied with regardless.
• Contract provisions relate to the contract in question & therefore only apply to a specific project

Question 6

What is your opinion of oral contracts?

Answer 6

• Whilst they are legally binding, the difficulty lies in proving the specific terms and conditions of the agreement.
• Having a written contract is always the preferred opinion

Question 7

What is a breach of contract?

Answer 7

A breach of contract occurs when one party in a binding agreement fails to deliver according to the terms of the agreement. A breach of contract can happen in both a written and an oral contract

Question 8

What is the Local Democracy, Economic Development and Construction Act 2009?

Answer 8

• October 2011 - the Local Democracy, Economic Development and Construction Act 2009 (the 2009 Act) came into force in England and Wales
• The Act amended the House Grands Construction and Regeneration Act 1996 (the Construction Act)
• The Act changed the way construction contracts are entered into and in particular, introduced an amended regime for payment and adjudication

Question 9

What are the key provisions under the Act?

Answer 9

Contracts
- The LDEDC Act repeals the requirement for construction contracts to be in writing therefore, contracts that are partly in writing or wholly oral are now covered. This will allow parties to go to adjudication, even if their involvement is not formally recognised in writing

Payment

• Under the HGCR Act a construction contract must have an ‘adequate mechanism’ for determining what payments are due and when they become payable
• Pay when certified clauses can no longer be used to prevent paying a subcontractor on the basis that a certificate in the main contract is yet to be issued

Payment notices: contractual requirements

• The construction contract must specify that either the payer or payee (but not both) 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 by the construction contract (the parties being free to agree how long the period is between the date the sum becomes due and the final date for payment
• The payment notice must specify the sum the payer/payee considers to be due at the payment due date and the basis on which that sum was calculated. A payment notice must be issued, even if the amount of the payment notice is nil.

Payment notices: payee’s notice in default of payer’s notice

• The the payer is required by contract to issue a payment notice and fails to serve that notice in the required form or in 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

Payless notice

• 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. This allows the payer to amend the sum due if it is later discovered the work covered, or the amount notified within the payment notice turns out to be unsound
• 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 on which that sum is calculated and be served no later that the prescribed period prior to the final date for payment

Suspension of performance for non-payment

• The LDEDC Act clarifies the contractor’s right to suspend carrying out the work in the event of non-payment
• to validly suspend performance of its obligations by reason of non-payment, a default payment notice must be issued and there must have been failure to pay. The party in default (the party who has not paid) is liable to pay the payee (contractor stopping work) a reasonable amount by way of costs and expenses incurred by exercising the suspension of all or part of the work

Question 10

What is a letter of intent?

Answer 10

• Typically used to describe a letter from an employer to a contractor (or from a main contractor to a subcontractor) indicating the employer’s intention to enter into a formal written contract for works described
• The letter of intent typically asks the contractor to begin those works before the formal contract is executed

Question 11

What information is typically included in a letter of intent?

Answer 11

• Detailed description of the work to be completed
• Contract sum (if agreed)
• Date for possession
• Date for completion
• Insurance provisions required
• Method of payment
• Expiry date of letter
• Typically states employers’ right not to award the main contract for whatever reason.
• ADR method

Question 12

What are the advantages of a letter of intent?

Answer 12

Allows work to commence before the main contract is agreed/signed

Question 13

What are the disadvantages?

Answer 13

• May lead to complacency and disincentivise both parties from signing the main contract
• Contractually less robust than the main contract
• The employer loses incentive in negotiations of the main contract

Question 14

In what circumstances might a letter of intent be used?

Answer 14

• Where the employer needs to commence works before a certain date
• Where materials have long lead in times and early procurement would aid the programme
• Starting construction works might trigger early founding

Question 15

Who issues the letter of intent?

Answer 15

The employer

Question 16

Who signs it?

Answer 16

Both the employer and the contractor

Question 17

What would you say if the client asked you to draft a letter of intent?

Answer 17

It is a legally binding agreement like a contract; therefore, we would NOT draft those

Question 18

What are the different types of letters of intent?

Answer 18

Comfort letter
A comfort letter is a letter expressing 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
A letter with instructions to proceed and consent to spend is sometimes referred as an “if” contract. This type of letter allows work to proceed up to a certain value while the contract itself is being finalised

Recognition of contract
This type of letter is also referred to as a letter of acceptance and is used by some forms of contract (such as FIDIC) to formally execute the contract itself. Generally, such a letter will be issued on once the contract has been substantially agreed and usually marks the completion of negotiations between the parties

Question 19

Are you aware of any case law relating to letters of intent?

Answer 19

Ampleforth Abbey Trust v Turner and Townsend

The defendant project managers were retained by the Trust in relation to a project to build new accommodation at a school. The defendant’s retainer included obligations ‘facilitating, assisting and being involved in the procurement of the building contractor and the building contract’. The contractor never signed the building contract and the whole of the works (which were completed late) were procured using letters of intent. The effect of this was that the Trust was not able to claim liquidated damages under the building contract for the later completion of the works.
HHJ Keyser QC help that the defendant had been negligent in failing to take the steps reasonably required of a competent project manager for the purpose of finalising the building contract between the Trust and the contract

Question 20

What is a parent company guarantee?

Answer 20

A parent company guarantee (PCG) is a form of security that may be required by clients to protect them in the even of default on a contract by a contractor that is controlled by a parent company (or holding company). Typically, such a default might be caused by the insolvency of the contractor

Question 21

In what circumstance may a PCG be required?

Answer 21

Parent company guarantees can be particularly useful where a small contractor is part of a large financially stable group of companies. The guarantee is given by the parent company to the client and in the event the contractor defaults on their obligations, the parent company is required to remedy the breach, meeting all the contractor’s obligations under the contract (and / or covering loss and expense incurred by the client)

Question 22

Are there any Acts which govern third party rights?

Answer 22

Contract (Rights of Third Parties) Act 1999

Question 23

What is the overarching purpose of the Act?

Answer 23

• The Act allows third parties to enforce terms of contracts that they are not a party to, but which benefit them in some way, or which the contract allows them to enforce
• It also gives parties access to various remedies if those contract terms are breached

Question 24

What are the advantages of third-party rights?

Answer 24

Time and cost
Since no separate document (i.e. a collateral warranty) is being entered into, using the Act cuts down on the time and cost associated with warranties being drawn up, signed and circulated

Certainty Once the rights to be conferred on third parties are negotiated and agreed by all parties, there is limited room to revisit the working when protection is required as is often the case when new collateral warranties are circulated for signature

Subcontractors
The third-party rights process can also be extended in subcontracts, so that (provided the relevant building contract and subcontract are drafted accordingly) an employer can confer third party rights in relation to work done by subcontractors unilaterally. This avoids the need to chase large numbers of individual warranties

Question 25

What are the disadvantages of third-party rights?

Answer 25

Lack of flexibility Once the schedule of third-party rights being conferred has been agreed, there is limited room for negotiation. While this can be an advantages as it will help to keep costs down, in some circumstances the inflexibility could cause a problem if a specific provision is required for a particular party, such as an incoming tenant or purchaser. Need for careful drafting Recent cases have been shown the importance of drafting provisions relating to the enforcement of third-party rights very clearly to ensure that all the necessary rights are conferred on the third party, for example the right to commence adjudication proceedings if this is required

Question 26

Why might third-party rights be used instead of collateral warranties?

Answer 26

- If a lot of collateral warranties are required, it can involve a lot of administration and cost - Third-party rights are easier to get in place because there is no separate document required

Question 27

What is a collateral warranty?

Answer 27

A collateral warranty is a formal contractual agreement which runs alongside another contractual agreement - its purpose is to create a contractual relationship between two parties (e.g. companies; individuals) where one would not otherwise exist

Question 28

Can you provide a working example of of how a collateral warranty could be used?

Answer 28

The employer places a contract with a contractor, the contractor then places several subcontracts with its suppliers to actually do the works, the employer has a direct contractual relationship with the contractor, but he has not contractual relationship with any of the subcontractors (this is known as 'privity of contract') In these circumstances the employer may wish to have a direct contractual relationship with the subcontractor so that is can enforce the obligations that the subcontract owes directly, or to create other obligations and rights between them. This might be considered as a security measure if the contractor should become insolvent or if its employment were to be terminated for any reason.

Question 29

Who might want a collateral warranty?

Answer 29

- Any third party with a financial or inherent interest in the project but is not party to the main contract. e.g. funding institution, future tenants, purchasers - The employer may want a collateral warranty with key subcontractors or suppliers, if the contractor were to go into liquidation, otherwise they would have no contractual link with them for redress in case of defective workmanship

Question 30

What is the difference between a bond and collateral warranty?

Answer 30

- A bond is usually a financial commitment backed up by a third party, a collateral warranty passes on contractual obligations - Bonds are contained within the contract - Collateral warranties are a side agreement to the contract

Question 31

Are there any alternatives to collateral warranties?

Answer 31

An alternative method to confer such rights is provided by the Contracts (Rights of Third Parties) Act 1999 which allows third parties to obtain the benefits from contracts, which are entered into by others

Question 32

What are the three ways that benefits can be transferred under a building contract?

Answer 32

- Collateral warranties - Third party rights - Assignment

Question 33

There is a high probability that collateral warranties will be needed under a D&B contract, can you explain why?

Answer 33

The design team typically sit below the contractor under D&B contract; therefore, the employer will need to retain a contractual link with the design team (using a collateral warranty)

Question 34

Are you aware of any case law relating to collateral warranties?

Answer 34

Parkwood Leisure v Laing O'Rourke

Question 35

What happened in the case of 'Parkwood Leisure v Laing O'Rourke'?

Answer 35

In light of the particular wording used in the collateral warranty, there was no doubt that is should be treated as a construction contract under section 104 of the Housing Grants, Construction and Regeneration Act 1996

Question 36

What is assignment?

Answer 36

Assignment is the process whereby the benefit of a contract is transferred from one party to another, but the burden of the contract remains with with the original party to the contract.

Question 37

Can you provide a working example to explain how assignment might be applied?

Answer 37

- Assignment can arise where a party to a construction contract, collateral warranty or consultant's appointment wants to assign the benefit under that contract to a third party, such as a purchaser or tenant of a building. - Banks and other funders will also frequently take an assignment of the benefit of a suite of construction documents in respect of a development, as an additional part of the security package for their loan to finance the development. A bank will want to acquire the benefits of such documents to be able to assume the position of the employer under them in the event of the employer defaulting on its financial obligations during the works

Question 38

What are some of the typical clauses of assignment?

Answer 38

- It is standard to allow assignment of rights twice without consent - The assignment should be notified in writing to the other party

Question 39

What is a bond?

Answer 39

- Construction bonds are protection for the owner against non-payment, lack of performance, company default and warranty issues. - An arrangement where a contractual duty owed by one party to another is backed up by a third party

Question 40

Can you list 5 different bonds which might be used on a project?

Answer 40

- Performance bond - Retention bond - Off-site materials bond - Advance payment bond - Tender bond

Question 41

What is a performance bond?

Answer 41

- A Performance Bond is a form of security provided by a contractor to a developer of employer - It consists of an undertaking by a bank or insurance company to make a payment to the employer in circumstances where the contractor has defaulted under the contract

Question 42

When might the employer want a performance bond?

Answer 42

- If the contractor is new or unapproved - If there is concern over the contractor's finances/commercial standing - The economy might be heading into recession - The employer simply wants to protect their commercial exposure

Question 43

What is the difference between on-demand and conditional performance bond?

Answer 43

On-demand bonds - Money set out in the bond is immediately available on demand without needing to satisfy any preconditions whatsoever (including establishing the contractor's liability) unless the demand is fraudulent Conditional bonds - Requires the employer to provide evidence that the contractor has not performed their obligations under the contract and that they have suffered a loss consequently

Question 44

What is the typical value of a performance bond?

Answer 44

Usually 10% of the contract sum

Question 45

What is the typical cost of a performance bond?

Answer 45

The cost largely depends on the financial stability of the contractor and the number of previous claims (if any).

Question 46

What is the risk of not having a performance bond?

Answer 46

- In the event a contractor goes into insolvency and there is no bond in place, the employer will be liable to pay all costs to deal with the insolvency - Costs include sourcing a new contractor to complete the works and any premium that will attract - The employer will not be able to pursue the contractor as the company will be in the process of liquidation

Question 47

Are there any alternatives to a performance bond?

Answer 47

- If the contractor is part of a group of companies, then the employer may wish to consider a Parent Company Guarantee (PCG) - If the smaller common breaches the contract, the parent company is obligated to step in and remedy the breach

Question 48

What is a tender bond?

Answer 48

- Requested by the employer when inviting contractors to tender for a contract - A tender bond provides security against the risk of the successful bidder failing to enter the contract - It should help to prevent idle tendering

Question 49

What is an off-site materials bond?

Answer 49

Covers an employer against the risk of paying the contractor for materials being manufactured off-site. If the contractor or subcontractor becomes insolvent, the employer can claim on the bond for goods paid for (in the event they are not delivered to site)

Question 50

What is a retention bond?

Answer 50

- Typically, an employer could hold up to 5% of the contract value for a period of up to 12 months. The main contractor or subcontractor then must wait for the funds to be returned at the end of the making good defect period, this can affect business cash-flow - A retention bond will provide the employer with the same level of comfort as the retention, but the contractor / subcontractor has the real benefit of retaining the cash in their account

Question 51

What are the disadvantages of a retention bond?

Answer 51

- The employer will ultimately have to pay the premium for taking out the bond (usually through the contract sum) - May reduce the contractor's incentive to complete the works promptly and to the desired standard

Question 52

Why might a retention bond be used?

Answer 52

- An advances payment bond is required to protect and support payments to contractors by the employer in advance of works being done. - Some contracts require the purchase of materials in advance of a contract commencing, there is always a risk to the employer in advancing money to a contractor who may not be well known to them to allow the purchase of goods to enable the contract to commence - an advanced payment bond protects the payment being advanced in exchange for a bond underpinned by a suitable guarantor to give peach of mind to both parties

Question 53

What are antiquities?

Answer 53

Items as: - Historical artefacts, pottery and coins - Bones or fossils - Something of historical interest of value - Archaeology

Question 54

What should the contractor do if they discover such objects?

Answer 54

- Use best endeavours to avoid disturbing - Cease work if it would endanger the object - Take necessary measures to preserve in existing location and condition

Question 55

When objects of interest are discovered, who is liable for the delay and expense incurred?

Answer 55

- Usually the employer | - Significant delays and costs can arise - can be a serious event for the employer

Question 56

What are defects?

Answer 56

- Broadly defined as a defect in workmanship, design, materials, or systems used. The result is a failure of the building project or structure that causes damages to people or property. This, in turn, leads to financial losses or harm to the owner The NEC contract defines a defect as: - A part of the works which is not in accordance with the works information or, - A part of the works designed by the contractor which is not in accordance with the applicable law or the contractor's design which the project manager has accepted.

Question 57

What are patent defects?

Answer 57

- Patent defects are those which can be discovered by reasonable inspection - Patent defects would include wall cracks, sagging gutters, broken windows, missing tiles

Question 58

What are latent defects?

Answer 58

Latent defects are those which cannot be discovered by reasonable inspection, for example problems with foundations which may not become apparent for several years after completion when settlement causes cracking in the building

Question 59

Why is the defect rectification period typically 12 months?

Answer 59

12 months will allow the building to go through all seasons of the year; therefore, most defects (with exception to latent defects) will become apparent within this period

Question 60

What is novation?

Answer 60

- Under a design & build contract, novation normally refers to the process by which design consultants are initially contracted to the client, but are then 'novated' to the contractor - The contractor will then go on to manage the remaining design process with the existing design team, rather than bring their own consultants onboard

Question 61

Are novation agreements required under traditionally procured projects?

Answer 61

Not usually, this is because the designers are typically retained by the employer

Question 62

What are some of the advantages of novation?

Answer 62

- Reduced learning curve - working with the client at an early stage, the design team can gain a strong understanding of the project requirements. If the design team are not novated, this learning is potentially lost and parts of the process will ned to be replicated with a new design team - Reduced contractual risk for the employer - the process of novation and the transfer of responsibility to the contractor means the employer assumes minimum risk contractually

Question 63

What are some of the disadvantages of novation?

Answer 63

- Following novation of consultants, the employer will generally require collateral warranties. - The client may need to employ a shadow team for compliance purposes - There is potential for conflict of interest, particularly in relation to services that remain to be performed

Question 64

What is retention?

Answer 64

A percentage of the sums certified for payment under the construction contract (typically 3-5%) is held by the employer during the construction phase

Question 65

What is the purpose of retention?

Answer 65

It is used as an assurance of project completion and is intended as a safeguard against subsequent defects that the contractor may fail to remedy

Question 66

What can the employer use retention monies for?

Answer 66

- If the contractor does not return to correct the defects, then the retention held may be used to fund the payment of others to correct the defects - The project manager / contract administrator will need to check the contract on the ability to do this and the relevant notices that should be given to the contractor prior to appointing others to undertake the works

Question 67

How is retention released to the contractor?

Answer 67

Typically, retention monies are released in 2 stages: - At the time of issuing the completion/practical completion certificate, the first half of retention monies will be certified and released - The second half of retention monies will be certified and released upon the expiry of the defect period

Question 68

Who typically benefits from interest accruing on the retention money?

Answer 68

Usually, the employer

Question 69

Are there any alternatives to holding retention?

Answer 69

It is possible to procure a retention bond to cover retention that would otherwise have been deducted

Question 70

What is professional negligence?

Answer 70

Professional negligence is when a professional fails to perform their responsibilities to the required standard or breaches a duty of care. This poor conduct subsequently results in a financial loss, physical damage or injury of their client or customer

Question 71

How can the employer / client recover a loss if the consultant or contractor is professionally negligent?

Answer 71

Make a claim on their professional indemnity insurance (PII)

Question 72

What is product liability insurance?

Answer 72

- Manufacturers and/or suppliers of products incorporated in construction works are at risk of claims being made against them for damages if defects in those products result in damage or injury. - Product liability insurance protects the policy holder against liability resulting from these defects

Question 73

What is public liability insurance?

Answer 73

- Public liability insurance protects against liabilities for injury to third parties (non-employees) or their property - For example, a member of the public could make a claim if a fallen brick damaged their car, or if a supplier trips over an unsecured cable

Question 74

What is employer liability insurance?

Answer 74

Employers' liability insurance can pay the compensation amount and legal costs if an employee claims compensation for a work related illness or injury

Question 75

What is Contractor Designed Portion (CDP)?

Answer 75

Typically used on traditionally procured projects, design responsibility for specific elements of the building is transferred to the contractor

Question 76

What is the difference between traditional procurement with CDP and design & build?

Answer 76

- Traditional procurement with CDP - the design responsibility lies with the employer except for certain elements that are transferred under CDP - Design & build - all responsibility for the design rests with the contractor

Question 77

How are CDP elements executed?

Answer 77

A performance specification is provided at tender stage which the contractor provides the design proposals in response. These proposals are then reviewed by the design team and either accepted, commented upon or rejected

Question 78

Can you list typical CDP elements which the employer may wish to transfer?

Answer 78

- Steelwork connections - Cladding - Roofing - Temporary works - MEP elements

Question 79

What are domestic subcontractors?

Answer 79

- Domestic subcontractors are chosen by the contractor to execute a package of works - The employer's consultants (e.g. architect, PM, QS) not the employer themselves influence the appointment or the conditions

Question 80

What are named subcontractors?

Answer 80

- The employer provides a list of named subcontractors which are pre-approved - The contractor selects one from the list through the tendering process - Once appointed by the contractor, they then become a domestic subcontractor

Question 81

What are the advantages of naming subcontractors?

Answer 81

Naming a subcontractor provides the employer with more control to the selection of a subcontractor by the contractor, while still leaving them with the element of choice and the responsibility of monitoring their performance

Question 82

What are nominated subcontractors?

Answer 82

- A nominated subcontractor is selected by the employer to carry out an element of the works (still employed by the contractor - Nominated subcontractors are usually imposed upon the contractor

Question 83

What are the disadvantages of nominated subcontractors?

Answer 83

- As the subcontractor is being imposed on the contractor, the contractor will generally be allowed the right to object under certain conditions (safety reasons for example) - The contractor and subcontractor may have conflicting procedures, ethics, attitudes

Question 84

What are the advantages of nominated subcontractors?

Answer 84

On the basis the employer has nominated them in the first instance, their work should be of high quality and acceptable to the employer

Question 85

What is insolvency?

Answer 85

Insolvency is concerned with the inability to pay debts

Question 86

What can be done at tender stage to identify potential contractor insolvency?

Answer 86

- Through check financial accounts for stability - Check for front loading of the tender submission - Bank references - Use credit checking agencies (Dun and Bradstreet report) - Previous references (from consultants and employers) - Request a bond and / or parent company guarantee - this will not prevent insolvency but will give the employer comfort in the event of default

Question 87

What is termination?

Answer 87

When a contract is terminated, the parties to the contract are no longer obliged to perform their obligations under the contract

Question 88

Can the contractor suspend works for non-payment?

Answer 88

- If the notified sum is not paid by the final date for payment, the Construction Act 2009 puts the payee in a stronger position than before. It can now suspend performance of any or all its obligations, not just the work - The contractor can stop insuring the works, postpone applying for a necessary consent or refuse to implement a variation instruction - The payee will be entitled to a "reasonable amount" for its re-mobilisation costs, as well as an extension of time

Question 89

What are delay damages / LDs?

Answer 89

A genuine pre-estimate of loss suffered by the employer because of late completion of the works. The damages are inserted into the contract prior to signing by the contracting parties Key points - LDs should not be a penalty - Quick remedy to avoid having to prove actual loss due to the breach - The contractor knows their liability - The employer should the calculate the figure (consultants should not do this on their behalf)

Question 90

What sort of expenses/costs can an employer include in the damage calculation?

Answer 90

- Loss or rent or other income - Additional professional fees - Expected costs incurred by other parties - Cost of not having facility (storage, rent, abortive costs) - Capital salaries - Associated legal costs The figure should not be construed as a penalty; thus the employer needs to be realistic when identifying potential costs

Question 91

What if your client tells you the damages are £100,000 per week?

Answer 91

- Exercise due diligence - check they do believe £100,000 per week is genuine pre-estimate of likely loss - If there is a concern - explain the dangers that the damages might be construed to be a penalty (they may not be enforceable)

Question 92

Under a JCT contract, what contractual documents must be in place before damages can be deducted?

Answer 92

- A non-completion notice/certificate is in place - The contractor is notified that the employer may require the payment of; or may withhold or deduct LDs - A payless notice is served

Question 93

What is a LD holiday or LD free period?

Answer 93

- This is essentially just a grace period during which the contractor has no commercial liability for delay - For example, if the contractor has a two-week LADs holiday, LADs will only begin accruing after the delay has continued for two weeks

Question 94

What is the implication of inserting 'nil' or £0 in the section against the damage clause?

Answer 94

The consequence of this can be that the contractor's liability for damages for delay is zero

Question 95

What is the difference between liquidated and unliquidated damages?

Answer 95

- Contracting parties might agree to pay a certain amount on breach on contract. When such provisions are created in the contract, they are known as liquidated damage - Unliquidated damages are granted by the courts based on an assessment of the loss or injury caused to the party suffering such breach of contract

Question 96

If an extension of time is issued, what affect would this have on delay damages?

Answer 96

Damages cannot be deducted from the original date; damages are levied from the revised practical completion / completion date

Question 97

What is a pre-construction services agreement (PCSA)?

Answer 97

- A contract between the employer and contractor for pre-construction services - The PCSA documents the services that the contractor is to perform before signing the building contract and identifies the terms and conditions under which these services are to be performed

Question 98

When might a PCSA be used?

Answer 98

In a two-stage tender approach to facilitate early contractor involvement

Question 99

How can a PCSA benefit a project?

Answer 99

Early involvement of the contractor should improve the buildability and cost-certainty of the design as well as creating a better integrated project team and reducing the likelihood of disputes

Question 100

What sort of activities can a PCSA be used for?

Answer 100

- Contribute to the design process - Advise on buildability, sequencing and construction risk - Advise on the selection of specialist subcontractors - Help develop the method of construction - Prepare a site layout plan for the construction stage - Assist with any planning application matters or other approvals

Question 101

What should be considered when drafting a PCSA?

Answer 101

- Arrangements do not commit the employer to enter into the building contract. It is important that the employer have means of securing an alternative bid if second-stage negotiations fail - The scope of service for the contractor is clearly defined and unambiguous - Usual programme and delay damage clauses are carefully drafted by the legal team

Question 102

What are the main forms of building contract?

Answer 102

- JCT (Joint Contracts Tribunal) - NEC (New Engineering Contract) - FIDIC (International Federation of Consulting Engineers) - Bespoke contracts are also used

Question 103

What are some of the considerations when selecting the appropriate construction contract?

Answer 103

- Nature of the client - Priorities - cost, time, quality and risk allocation - Procurement choice - Value of work - Type/nature of work - Public or private employer - Complexity of work - Size and location of work

Question 104

What is a bespoke contract?

Answer 104

- Bespoke contracts are contracts that are tailored to fit the specific requirements of a project - Bespoke contracts are often used when standard forms are not suitable

Question 105

What are the advantages of standard forms over bespoke contracts?

Answer 105

- Written by legal experts - Rights and obligations of each party are clearly set out to the required level of detail - Parties should be familiar with the provisions in the form - greater consistently in application and fewer unforeseen anomalies

Question 106

What are the disadvantages of bespoke contracts?

Answer 106

- Familiarity is decreased as they are rarely used - Expensive to draft (legal fees) - May be poorly drafted and lead to ambiguity - not familiar to the party administering the contract - Clauses / provisions might be untested in court - This type of contract could be unappealing to the contractor

Question 107

When would a bespoke contract be appropriate to use (rather than a standard form)?

Answer 107

When amending a standard contract will not do, the most efficient means of achieving a client's requirements might be to create a bespoke contract

Question 108

Have you amended a standard contract? Can you explain exactly how you did this?

Answer 108

- As consultants, we do not have legal training, so we do not amend the contract ourselves - All amendments should be drafted by the legal team

Question 109

What are some risks associated with amending a standard contract?

Answer 109

- Amendments can spoil the delicate balance of risk allocation - Can create legal uncertainty - Can attract a cost premium to tenders - Amendments must be reasonable and comply with legislation - Courts can strike out amendments if contrary to good faith

Question 110

What does JCT stand for?

Answer 110

Joint Contracts Tribunal

Question 111

What are some of the contracts in the JCT family?

Answer 111

- Standard Building Contract - Intermediate Building Contract - Minor Works Building Contract - Major Project Construction Contract - Design & Build Contract - Management Building Contract - Construction Management Contract - JCT Constructing Excellence Contract - Measured Term Contract - Prime Cost Building Contract - Repair & Maintenance Contract - Homeowner Contract

Question 112

What are key project characteristics which influence which JCT contract is used?

Answer 112

- Size, value and type of project - Need for contractor design - Certainty on final cost - appetite for risk ownership and risk transfer - Employer experience - Programme requirements

Question 113

When would you use the JCT Minor Works Contract?

Answer 113

The contract is designed for smaller, basic construction projects where the work is of a simple nature. Minor Works Building Contracts are suitable for projects procured via the traditional method

Question 114

What are the key features of the JCT Minor Works Contract?

Answer 114

- The employer is responsible for the design. The employer (through its advisers) will need to provide drawings, a specification, or work schedule to specify the quantity and quality of work at tender stage - If the appointed contractor is to be responsible for designing specific parts of the works, then a Minor Works Building Contract with contractor's design must be used - The Minor Works Building Contract is not suitable where the project is complex enough to require bills of quantities, detailed control procedures, or provisions to govern work carried out by named specialists - Minor Works Building Contracts are normally administered by the architect or a contract administrator

Question 115

When would you use the JCT Intermediate Contract?

Answer 115

- The contract is designed for construction projects involving all the recognised trades and skills of the industry, where fairly detailed contract provisions are needed, but without complex building service installations or other specialist work - Intermediate Building Contracts are suitable for project procured via the traditional method

Question 116

When would you use the JCT Building Standard Building Contract?

Answer 116

- Designed for large or complex construction projects where detailed contract provisions are needed, suitable for projects procured via the traditional method - The employer is responsible for the design. However, Standard Building Contracts also have option provision for a 'Contractor's Designed Portion' if the appointed contractor is to be responsible for the design of specific parts of the works - Works can be carried out in sections

Question 117

When would you use the JCT Major Project Construction Contract?

Answer 117

- Designed for large-scale construction projects where major works are involved - It is used by employers who regularly procure large-scale construction work and the work is carried out by contractors with the experience and ability to take greater risk that would arise under the JCT contracts - Major Project Construction Contracts are suitable for projects procured via the design & build method

Question 118

What are the key features of the JCT Major Project Construction Contract?

Answer 118

- Often in Major Projects, a 'novation' agreement is put in place so that the architect or designer who initially worked with the employer continues to complete the design under the responsibility of the contractor - The employer usually employs a representative to exercise their powers and functions under the contract - Project can be carried out in sections - The employer and contractor have their own detailed in-house procedures, so only limited procedures need to be set out in the contract conditions - The contractor is responsible for the design, as well as completing the works. The scale of design work to be carried out by the contractor can vary

Question 119

What would you use the JCT Design & Build Contract?

Answer 119

The JCT Design & Build Contract is designed for construction projects where the contractor carries out both the design and the construction work. Design & build projects can vary in scale, but the Design & Build Contract is generally suitable where detailed provisions are needed

Question 120

What are the key features of the JCT Design & Build Contract?

Answer 120

- The scale of design work needed to be carried out by the contractor can vary greatly on design & build projects - Contractor will complete design based on a concept provided through the employer's advisers of will be responsible for producing and completing the design right from the outset - The design requirements and responsibility of the contractor in design & build projects go beyond that covered in a traditional contract with a contractor's designed portion - The employer normally uses an agent to administer the contract - Works can be carried out in sections

Question 121

When would you use the JCT Prime Cost Contract?

Answer 121

- Design for projects that require an early start on site, often alterations or urgent repair work (such as fire damage) - Usually the exact nature and extent of the work is not known until the project is underway, so full design documents are not completed until work has commenced - Suitable for projects procured via the traditional method, using a cost reimbursement or cost plus payment structure

Question 122

When would you use the JCT Measured Term Contract?

Answer 122

- Designed for use by employers who have regular flow of maintenance, minor works and improvements projects that they would like to be carried out by a single contractor over a specified period. - Measured Term Contracts are suitable for projects procured via the traditional method, using a measurement payment structure

Question 123

When would you use the JCT Construction Management Contract?

Answer 123

- For use on construction projects where the employer appoints separate trade contracts to carry out the works and a construction manager to oversee the completion of the works for a fee - Construction management contracts are suitable for projects procured via the management method

Question 124

What are the key features of the JCT Construction Management Contract?

Answer 124

- Works can be carried out in sections - The contract is used where separate contractual responsibility for design, management and construction of the project is desired - The employer provides the design and enters into direct separate trade contracts with suppliers to carry out the construction of the works - The construction manager is appointed by the employer to manage the project and act as an agent on the employer's behalf. The construction manager also administers the conditions of the trade contract

Question 125

When would you use the JCT Management Building Contract?

Answer 125

- Management Building Contracts are suitable for large, complex projects, where flexibility and an early start on site is required - Construction is completed under a series of separate works contracts, which the management contractor appoints and manages for a fee - The management contractor employs works contractors to carry out the construction and the works contractors are directly contractually accountable to the management contractor - Works can be completed in sections - the employer is responsible for the design and this is usually supplied to the management contractor by the architect or design team working on the employer's behalf

Question 126

What are relevant events?

Answer 126

- A relevant event is an event on or off site that causes a delay to the completion date of the works - For example, a relevant event could be something that happens during the design and manufacture process to delay things, or a site event that prolongs the installation works

Question 127

Can you provide examples of relevant events in the contract?

Answer 127

- Variations and instructions - deferment of possession of the site - Suspension by the contractor for non-payment - The carrying out of work by statutory undertakers - Impediment, prevention, or default by the employer - Loss or damages occasioned by a Specified Peril (fire, flood) - Exceptionally adverse weather conditions - Strike or lockout - Civil commotion or terrorism - The exercise of any statutory power after the base date by the UK Government or Local or Public Authority - Force Majeure

Question 128

What is force majeure?

Answer 128

Force majeure events are usually defined as certain acts, events or circumstances beyond the control of the parties, for example, natural disasters or the outbreak of hostilities

Question 129

can you provide some examples of force majeure event?

Answer 129

- War, hostilities, invasion, act of foreign enemies - Rebellion, revolution, insurrection, civil war - Contamination by radioactivity - Riot, commotion, strikes, go slows, locks outs or disorder - Acts or threats of terrorism

Question 130

What happens when a relevant event occurs?

Answer 130

- Upon it becoming reasonably apparent that a delay will occur, the contractor notifies the contract administrator in writing, stating the particulars and extent - The contractor must state one of the relevant events and detail of how and why the delay is occurring or likely to occur - The contractor should give an estimate of delay in his notice so that the contract administrator can form his/her own opinion - The contract administrator responds within 12 weeks stating whether a relevant event has or has not occurred - If the event has occurred, the contractor administrator assesses the delay - A new completion date is then fixed (extension of time)

Question 131

Assuming the relevant event has occurred and is accepted by the contract administrator, is the contractor entitled to loss and expense?

Answer 131

- Relevant events entitle the contractor to claim an extension of time only - The contractor will need to demonstrate a relevant matter has occurred to claim loss and expense

Question 132

What are relevant matters?

Answer 132

- A matter for which the employer is responsible that materially effects the progress of the works - This may enable the contractor to claim direct loss and / or expense that has been incurred

Question 133

Can you give some examples of relevant matters?

Answer 133

- Failure to give the contractor possession of the site - Failure to give the contractor access to and from the site - Delays in receiving instructions - Failure by the employer to supply goods and/or materials - Disruption caused by work carried out by the employer

Question 134

What is the difference between a relevant event and relevant matter?

Answer 134

- Relevant events entitle the contractor to claim additional time - Relevant matters entitle the contractor to claim additional costs (loss and expanse)

Question 135

What is a loss and expense claim?

Answer 135

Loss and expense claims are often associated with delays but can be for any event where the Contractor incurs loss due to the failure of the employer (relevant matter)

Question 136

What is the key thing to remember when assessing loss and expense claims?

Answer 136

- It should be actual loss incurred by the contractor - The prices in the contract bill of quantities, contract schedule of rates or preliminaries should not be used (actual costs may be more or less than these)

Question 137

Do you need an extension of time for a loss and expense claim?

Answer 137

No, loss and expense can be due without an extension of time

Question 138

What are the common heads of claim in loss and expense?

Answer 138

- Prolongation (extra site overheads i.e. preliminaries) - Thickening of preliminaries (extra site supervision) - Disruption (causing plant and labour to be underutilised / unproductive) - Increase in labour and material costs during the period of delay - Finances charges (i.e. interest)

Question 139

What are prolongation costs?

Answer 139

- Prolongation costs are a type of financial claim made by contractors in respect of late running projects - They typically include claims for the cost of time related resources such as site management, site accommodation and key items of plant and machinery

Question 140

What is partial possession?

Answer 140

- A building contract may allow the employer to take partial possession of part of the works, before they have been formally completed - Partial possession often requires the agreement of the contractor but allows the employer to use part of the works for its intended purpose (prior to completion of the whole of the works)

Question 141

What are the key points of partial possession?

Answer 141

- Not agreed in advance (prior to signing the building contract) - Usually, completion is deemed to have occurred for that section - A voluntary agreement between employer and contractor - Contractor must give consent

Question 142

Can the contractor refuse to give partial possession?

Answer 142

- Partial possession can only be taken with the consent of the contractor, but that consent may no be unreasonably withheld - The contractor would be entitled to withhold if occupation of completed areas would hinder their ability to complete the remaining areas

Question 143

What are the typical implications of partial possession?

Answer 143

- Half retention is released (proportionate to the area of possession) - The contractor' responsibility for insuring the works (if applicable) ends. - The contractor's liability for liquidated damages ends (proportionate to the area of possession) - The employer becomes responsible for any damages to the works - The defect period commences

Question 144

What is sectional completion under a JCT contract?

Answer 144

- Sectional completion refers to a provision within the building contract which allows different completion dates to be set for different sections of the works - Once it is in the contract, the contractor has an obligation to achieve the sectional completion date. Liquidated damages are agreed up front should the section be delivered late

Question 145

What is the difference between sectional completion and partial possession?

Answer 145

- Sectional completion leaves less to chance, because the parties the parties have agreed many of the practical consequences of that completion in advance - If something does go wrong (a delay to practical completion for example), it is easier for the contract administrator to deal with delays, changes or even acceleration with sections in place

Question 146

What are the main options for insuring the works under a JCT contract?

Answer 146

- 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 the joint names all risks insurance of the works for new buildings - Option C - The only option referring to renovations and involving existing structures. This is where the 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'

Question 147

What is contractor's 'all risk' insurance?

Answer 147

- The essence of the contractor's 'all risk' cover is protection against the physical loss or damage to the works being undertaken - Sometimes referred to as 'CAR insurance' - The policy will pay for repair or replacement of the insured works following damage caused by an insured event

Question 148

What are specified perils?

Answer 148

Specified perils tend to be significant events that would cause very significant damage to the works, including but no limited to: - Fire - Explosions - Earthquakes - Flooding

Question 149

What is subrogation?

Answer 149

- Subrogation is a concept that allows an insurance company that has paid a loss to step into the shoes od its insured to then sue a party that may be responsible for causing the loss. Working example If a contractor's crane drops a steel beam (causing damage), the owner's builder's risk insurer pays the loss, the owner's insurer can step into the shoes of the owner and sue the contractor for the loss it caused

Question 150

What is a joint names insurance policy?

Answer 150

- Policy in the names of two or more parties (i.e. contractor and employer) - Under a joint names policy, the insurer will have no right of subrogation against on of the insurer parties, even where an insured party has caused the loss for which the insurer has had to pay out

Question 151

What does NEC stand for?

Answer 151

New Engineering Contract

Question 152

What does ECC stand for?

Answer 152

Engineering and Construction Contract

Question 153

Please can you give me an overview of NEC ECC contract?

Answer 153

- Suitable for any construction-based contract between an employer and a contractor - It is intended to be suitable for any sector of the industry, including civil, building, nuclear, oil & gas - There are six main options to choose from Key points - No reference to the QS in the contract - PM assumes full authority on behalf of the employer - PM controls time and cost as an administrative function - PM updates the risk register and issues instructions - It is widely accepted that the contract generates a large volume or paperwork / administration - Programme is a contract document - Requirement for parties to give early warnings

Question 154

What are some of the perceived advantages of using the NEC ECC contract?

Answer 154

- The contract is based on mutual trust and co-operation - Focuses on pro-active risk management rather than on what happens when things go wrong - Encourages all parties to resolve cost and programme issues 'up front' rather than waiting until the final account - The contract is written is plain English

Question 155

What are the 6 main options (NEC3 ECC)

Answer 155

- Option A: Priced contract with activity schedule - Option B: Priced contract with bill of quantities - Option C: Target contract with activity schedule - Option D: Target contract with bill of quantities - Option E: Cost-reimbursable contract - Option F: Management contract

Question 156

Can you provide an overview of Option A please?

Answer 156

- Option A is a priced contract with an activity schedule where the risk of carrying out the work at the agreed prices is largely borne by the contractor - The advantage of using an activity schedule is that it simplifies the administration of the interim payment process. With subsequent interim payments being made against the completion of each activity - so no partial payments Key points - Lump sum contract - Project is usually well defined at tender - Payment on completion of defined activities - Suitable for traditional and design & build

Question 157

Can you provide an overview of Option B please?

Answer 157

- Option B is a priced contract with a bill of quantities (BoQ) where the risk of carrying out the work at the agreed prices being borne by the contractor Unlike option A where specific elements of work within an activity schedule are certified for payment upon full completion, when using Option B the contractor is entitled to be paid interim payments based on a percentage of each BoQ item in line with the contract payment schedule

Question 158

Can you provide an overview of Option C please?

Answer 158

- Option C is a target cost contract with an activity schedule where the out-turn financial risks are shared between the client and the contractor in an agreed portion - The Option C contract allows the financial risks to be shared between the parties (employer and the contractor) which motivates the contractor to deliver the works in the most cost-efficient way - The target cost is agreed between the parties which is made up of the contractor's estimate of the 'Defined Costs' plus a fee which is to cover the contractor's costs, overheads and profit Key points - The target cost is set by the activity schedule - The target moves with compensation events - The contract uses the paid & gain mechanism for sharing risk

Question 159

Can you provide an overview of Option D please?

Answer 159

- Option D is a target cost contract with a bill of quantities where the out-turn financial risk are shared between the client and contractor in an agreed proportion - The contract operates in a similar way to Option C; however, a BoQ is used instead of an activity schedule Key points - Target cost set by the bill of quantities - Target moves with compensation events - The contract uses the pain & gain mechanism for sharing risk

Question 160

Can you provide an overview of Option E please?

Answer 160

- Option E is a cost reimbursable contract, often referred to as "cost plus". - Under this option, the employer will largely take on the financial risk, the contractor is reimbursed for all their actual costs plus a pre-agreed overhead and profit percentage - Option E might be used where the nature or scope of the work to be carried out cannot be properly defined at the outset, such as emergency work (urgent alteration or repair work)

Question 161

Can you provide an overview of an Option F please?

Answer 161

- Option F is a cost reimbursable management contract - The works are designed and/or constructed by multiple subcontractors who are contracted to a management contractor - The management contractor is responsible for the work and is paid a fee (the cost that it pays the works contractors plus an additional fee), while the financial risk is largely take by the client

Question 162

Which NEC ECC main option carries the least financial risk for the employer?

Answer 162

Option A, this is because it is a fix price contract

Question 163

Which NEC ECC main option carries the most financial risk for the employer?

Answer 163

- Option E, this is because the contractor is reimbursed and the actual costs they incur in carrying out the works, plus an additional fee - The below table shows how commercial risk is apportioned for each of the 6 contracts

Question 164

What are Secondary Options under NEC3 ECC?

Answer 164

Dispute resolution - W1 - W2 X Clauses - X1 - Price adjustment for inflation - X2 - Changes in the law - X3 - Multiple currencies - X4 - Parent Company Guarantee - X5 - Sectional Completion - X6 - Bonus for early completion - X7 - Delay damages - X8 to X11 - Not used in ECC - X12 - Partnering - X13 - Performance bond - X14 - Advanced payment to the contractor - X15 - Limitation of the contractor's liability for his design to reasonable skill & care - X16 - Retention - X17 - Low performance damages - X18 - Limitation of liability - X20 - Key Performance Indicators Options dealing with national legislation - Y(UK)2 - The Housing Grants, Construction and Regeneration Act 1996 - Y(UK)3 - The Contracts (Rights of Third Parties) Act 1999 Additional conditions - Z clauses

Question 165

What are Z Clauses?

Answer 165

Z clauses are used to amend standard form NEC contracts. They can be inserted into NEC contracts as a means of adding conditions or amending wording

Question 166

What problems can potentially arise when drafting Z clauses into the contract?

Answer 166

- Poorly drafted Z clause can be problematic if it does not work effectively with the core clauses in the standard contract. For example, a Z clause which amends one part of the core clauses may impact upon other core clauses as there may already be a complex interaction between many of the terms - Z clauses should therefore only be drafted by individuals with a good knowledge of NEC contracts and who understand both the intention of the parties and how the clauses will affect the rest of the contract

Question 167

With reference to the contractor's programme, how does NEC differ from JCT?

Answer 167

- The programme is not a contract document under JCT, under NEC it is - The programme plays a significant role in the NEC contract, one of its key functions to assist with the compensation event assessment process

Question 168

What are the different types of float on an NEC programme?

Answer 168

- Total float - Time risk allowance - Terminal float

Question 169

Can you explain what total float is please?

Answer 169

- The time an activity can be delayed from its early start date without delaying the planned completion - Available either to the employer or the contract (on a first come first served basis) - In the case below, total flow is 3 weeks, activity F could be delayed by 3 weeks prior to effecting the planned completion

Question 170

Can you explain what time risk allowance is please?

Answer 170

- This is the duration allows in each activity by the contractor to account for the risk in not completing that activity in the minimum possible period - It is 'owned' by the contractor and cannot be used to mitigate the effect of a compensation event - For example, an activity might take 3 weeks 2 days to complete assuming normally circumstances and conditions. However, downtime and poor weather might result in the activity actually taking 4 weeks to complete (time risk allowance is therefore 3 days)

Question 171

Can you explain what terminal float is please?

Answer 171

- The duration between planned completion and the current contract completion date - This is also 'owned' by the contractor and cannot be used to mitigate the effect of a compensation event - If planned completion moves forward due to unused risk allowance and the gap between the planned completion and contract completion becomes greater, this can be "banked" as terminal float

Question 172

How can the completion date be changed?

Answer 172

By a compensation vent or acceleration

Question 173

How can the planned completion date be changed?

Answer 173

- Anything can change it - For example, the contractor could be delayed in completing activities or works could be going faster than originally anticipated

Question 174

What are key responsibilities or the project manager under the contract?

Answer 174

- The NEC contract has no contract administrator, clerk of works or architect (named in the contract). As such, the project manager is the focal point. It is the project manager's duty to manage the contract on behalf of the employer - The project manager will administer the contract on behalf of the employer and is designated authority to issue all instructions, notifications and other communication required under the contract - The project manager is the only person who can change the works information using his/her expertise - The project manager should be on site regularly and be aware of progress, including any changes to price, defects and compensation events - Monitors the execution of the project and ensures all parties adhere to conditions of contract

Question 175

What are the key responsibilities of the supervisor under the contract?

Answer 175

- Defined as an individual or a team responsible for the contractor's compliance with the works information (basically to check for defects an is independent to the project manager) - The traditional clerk of works role (JCT contracts) is the closest comparison; however, the supervisor is much more involved and has significant authority under the NEC contract - The supervisor raises defects notices for works not in accordance and can issue instructions to search for a defect

Question 176

What are key responsibilities of the employer under the contract?

Answer 176

- Give site access - Ensure any transfer of authority over and above what is normal within the contract is communicated to the contractors - Make payments in accordance with the contract - Take out any necessary insurance provisions - The employer is defined as an organisation and not an individual. This is common practice and avoids issues when individuals move on within an organisation the liability is kept within the organisation as it is the organisation's ultimate responsibility

Question 177

What is key requirements for the contractor under the contract?

Answer 177

- The contractor's responsibilities are outlined in Clause 2 of the contract. The key / overarching responsibility is to provide works in accordance with the works information

Question 178

What is the works information (WI)?

Answer 178

- Works information specifies and describes the works the contractor is to provide and sets out any constraints to how the contractor provides the works - Good quality works information is vital to achieving better outcomes for projects and reducing misunderstandings and disputes. Works information should be prepared with individual project requirements and the operation of the ECC in mind - If works information is not precise, there is a risk that the contractor will interpret it differently from the employer's intention Key points - Specifies and describes the works - States any constraints on how the contractor provides the works - Works information provided by the employer includes: - Technical information - Specification and drawings - Constraints (for example specific safety requirements) - Employer's requirements for work to be designed by the contractor

Question 179

How can you make the NEC3 ECC a design & build contract?

Answer 179

You would specify in the works information that the contractor is responsible for carrying out all aspects of the design

Question 180

What are compensation events?

Answer 180

- Compensation events are events which are usually not the fault of the contractor and change the cost of the work or the time needed to complete it - As a result, the prices, key dates or the completion date may be reassessed and in many cases the contractor will be entitled to more time or money

Question 181

Does the NEC contract have relevant events and relevant matters like JCT?

Answer 181

- No, NEC contracts deal with issues under the single heading - compensation events - Compensation events deal with both time and money

Question 182

Where are compensation events detailed in the contract and can you provide examples?

Answer 182

- Compensation events are dealt with under clause 601 Examples - The PM gives instruction changing the works information - The employer does not allow access to and use of part of the site - The project manager gives an instruction to stop or not start any work or to change a key date - A test or inspection done by the supervisor causes unnecessary delay - The project manager or the supervisor changes a decision which he has previously communicated to the contractor

Question 183

What happens if the contractor notifies a compensation event 12 weeks after becoming aware of the event?

Answer 183

- The contractor is not entitled to a change in the prices, the completion date, or a key date. Clause 61.3 requires the contractor to notify a compensation event within eight weeks of becoming aware of the event - There are exceptions to this - If the event arises from the project manager or the supervisor giving an instruction, issuing a certificate, changing an earlier decision, or correcting an assumption (the 8-week rule does not apply).

Question 184

What are early warning notices?

Answer 184

The early warning process is a mechanism for both parties to identify potential problems to the project. The contract emphasises that both parties are obliged to notify the other as soon as they become aware of a matter that cold affect time, cost or quality Clause 16.1 The contractor and the project manager give an early warning by notifying the other as soon as either becomes aware of any matter which could: - Increase the total of the prices - Delay completion - Delay meeting a key date - Impair the performance of the works in use

Question 185

What are the key updates in NEC3 to NEC4?

Answer 185

- NEC4 has introduced two new contracts into its suite of contracts: - Design and Build and Operate (DBO) Contract - The DBO contract combines the functions of design, construction, operation and/or maintenance to enable it to be procured from a single supplier - Alliance Contract (ALC) - This is for clients who wish to enter a single contract with several participants to deliver a project or programme of work. The focus of the contract will be on collaborative working encouraging all parties to work together in achieving client objectives - The 'Risk Register' has been re-named 'Early Warning Register' to distinguish it from the project risk register often used for wider project management purposes - 'Employer' becomes 'Client' and 'Works Information' becomes 'Scope' - A 4 week period for escalation and negotiation of a dispute has been introduced, which takes place prior to commencing any formal proceedings. This requires nominated senior representatives of each party to meet and try to reach a negotiated solution - In secondary option X12, 'Partnering' has been changed to 'Collaboration' better to reflect the intent - There is now only one fee percentage, with no separate fee percentage for subcontracted works - Payments - Contractors must submit applications for payments, rather than the project manager being obliged to assess if they fail to do so - Language - All contracts are written gender neutral (no more he/his)

Question 186

What are the key differences between NEC and JCT construction contracts?

Answer 186

- NEC is drafted in plain English. NEC attempts to eliminate the use of legal terms and instead provides for simpler language and gives words their natural meaning - NEC operates an 'early warning' process where both the project manager and contractor are required to notify each other of any matter which could affect time, cost, or quality - JCT splits up the components of time and cost, dealing with them and their subparts independently at various stages after a change arises. NEC deals with the effects of time and cost together - JCT: variations - NEC: compensation events - Each has an allotted person to act on behalf of the employer (contract administrator in JCT, project manager in NEC) - NEC uses 6 main options and secondary options, JCT uses separate contracts (for example Minor Works, Standard Building Contact, Design & Build) - The QS is not mentioned in NEC, only project manager - NEC is considered a more collaborative approach to working. Parties are required to work in the spirit of 'mutual trust and cooperation' - Under NEC, the programme is a contract document, 25% of monies due can be withheld if the contractor does not submit an accepted programme - NEC has 'periods of reply' (incentivises the parties to respond to each other in a timely manner); however, the contract is heavy on administration - JCT contains provisional sums, NEC does not.