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 compiled 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 Housing Grants 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 the 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 the 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
- If 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.

Pay less 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 that 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 than 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 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 to 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 employer’s 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 disincentive 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

Who issues the letter of intent?

Answer 14

The employer.

Question 15

In what circumstances might a letter of intent be used?

Answer 15

• 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 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 only 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 late completion of the works.
HHJ Keyser QC held 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 Contractor.

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 event 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 circumstances may a PCG be required?

Answer 21

Parent company guarantees can be particularly useful where a small contractor is part of a 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

Contracts (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 wording 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 into subcontractors, 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 advantage 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 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 provide a working example 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 no 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 it 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, etc. - 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 etc.

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

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

Answer 33

Parkwood Leisure v Laing O'Rourke

Question 34

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

Answer 34

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

Question 35

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

Answer 35

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

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 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 benefit 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 or 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 bonds?

Answer 43

On-demand bonds - Money set out in the bond is immediately available on demand without needing to satisfy any preconditions whatsover (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 10percent 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 group of companies, then the employer may wish to consider a Parent Company Guarantee (PCG). - If the smaller company 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 5percent 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 of 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

May be used in difficult market conditions to aid the contractor's cashflow.

Question 53

What is an advanced payment bond?

Answer 53

- An advanced 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 peace of mind to both parties.

Question 54

What are antiquities?

Answer 54

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

Question 55

What should the contractor do if they discover such objects?

Answer 55

- Use best endeavours to avoid disturbing. - Cease work if it would endanger the object. - Take necessary measures to preserve in existing location and condition. - Inform the contract administrator or project manager of the discovery and the location.

Question 56

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

Answer 56

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

Question 57

What are defects?

Answer 57

- 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 58

What are patent defects?

Answer 58

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

Question 59

What are latent defects?

Answer 59

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 60

Why is the defect rectification period typically 12 months?

Answer 60

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 61

What is novation?

Answer 61

- 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 62

Are novation agreements required under traditionally procured projects?

Answer 62

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

Question 63

What are some of the advantages of novation?

Answer 63

- 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 need 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 64

What are some of the disadvantages of novation?

Answer 64

- 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 65

What is retention?

Answer 65

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

Question 66

What is the purpose of retention?

Answer 66

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 67

What can the employer use retention monies for?

Answer 67

- 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 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 68

How is retention released to the contractor?

Answer 68

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 defect period.

Question 69

Who typically benefits from interest accruing on retention money?

Answer 69

Usually, the employer.

Question 70

Are there any alternatives to holding retention?

Answer 70

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

Question 71

What is professional negligence?

Answer 71

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 72

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

Answer 72

Make a claim on their professional indemnity insurance (PII).

Question 73

What is product liability insurance?

Answer 73

- Manufactures 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 74

What is public liability insurance?

Answer 74

- Public liability insurance protects against liabilities for injury to third parties 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 75

What is employer liability insurance?

Answer 75

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

Question 76

What is Contractor Designed Portion (CDP)?

Answer 76

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

Question 77

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

Answer 77

- 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 78

How are CDP elements executed?

Answer 78

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 79

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

Answer 79

- Steel work connections - Cladding - Roofing - Temporary works - MEP elements

Question 80

What are domestic subcontractors?

Answer 80

- Domestic subcontractors are chosen by the contractor to execute a package of works. - The employer's consultants (e.g. architect, PM, QS etc.) nor the employer themselves influence the appointment or the conditions.

Question 81

What are named subcontractors?

Answer 81

- 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 82

What are the advantages of naming subcontractors?

Answer 82

Naming a subcontractor provides the employer with more control of 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 83

What are nominated subcontractors?

Answer 83

- 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 84

What are the disadvantages of nominated subcontractors?

Answer 84

- 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 etc.

Question 85

What are the advantages of nominated subcontractors?

Answer 85

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 86

What is insolvency?

Answer 86

Insolvency is concerned with the inability to pay debts.

Question 87

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

Answer 87

- Thoroughly check financial accounts for stability. - Check for front loading of the tender submission. - Bank refences - 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 88

What is termination?

Answer 88

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

Question 89

Can the contractor suspend works for non-payment?

Answer 89

- 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 90

What are delay damages/LDs?

Answer 90

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 91

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

Answer 91

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

Question 92

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

Answer 92

- 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 constructed to be a penalty (they may not be enforceable).

Question 93

Under a JCT Contract, what contractual documents should be in place before damages can be deducted?

Answer 93

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

Question 94

What is a LD holiday or LD free period?

Answer 94

- 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 95

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

Answer 95

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

Question 96

What is the difference between liquidated and unliquidated damages?

Answer 96

- Contracting parties might agree to pay a certain amount on breach of the 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 97

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

Answer 97

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

Question 98

What is Pre-construction services agreement (PCSA)?

Answer 98

- 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 99

When might a PCSA be sued?

Answer 99

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

Question 100

How can a PCSA benefit the project?

Answer 100

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 101

What sort of activities can the PCSA be used for?

Answer 101

- Contribute to the design process - Advise on buildability, sequencing and construction risk - Advise on the selection of specialist subcontractors - Help develop the cost plan and construction programme - Help develop the method of construction - Assist with any planning application matters or other approvals.

Question 102

What should be considered when drafting the PCSA?

Answer 102

- 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 103

What are the main forms of building contract?

Answer 103

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

Question 104

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

Answer 104

- 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 105

What is a bespoke contract?

Answer 105

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 106

What the advantages of standard forms over bespoke contracts?

Answer 106

- 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 107

What are the disadvantages of bespoke contracts?

Answer 107

- 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 108

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

Answer 108

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 109

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

Answer 109

- 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 110

What are some risks associated with amending a standard contract?

Answer 110

- 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.