Contract Practice

Question 1

What is contract?

Answer 1

1. A legally binding promise in return for a consideration.
2. Offer, Acceptance, Consideration and Intent.

Question 2

Define ‘express terms’

Answer 2

Terms of an agreement which are expressly agreed between the parties.
Ideally will be written down in the contract.

Question 3

Define ‘implied terms’

Answer 3

Terms have not been expressly agreed between the parties, but it has been implied into the contract by common law or statute.

Question 4

what is tort?

Answer 4

A civil wrong
Concerned with loss or harm

Question 5

What is a statutory provision?

Answer 5

Law set out and must be complied with.
e.g. Equality Act 2010

Question 6

What are contract provisions?

Answer 6

Refers to contract in question and the clauses set out.

Question 7

What is a breach of Contract?

Answer 7

When one party in a binding contract fails to deliver accoring to the terms of the agreement. Could be both written and oral.

Question 8

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

Answer 8

Came into force in October 2011
It amended the HGCRA
It introduced an amended regime for payment and adjudication

Question 9

What are the key provisions under the Local Democracy, Economic Development and Construction Act?

Answer 9

1. Contracts - It repealed the need for contracts to be in writing and covered oral.
2. Payments - determined when payments are due.
3. Payment Notices: Contractual requirements
4. Payment Notices - payees notice in default of payment notice.
5. Pay less notice
6. Suspension for performance for non-payment

Question 10

What is a letter of intent?

Answer 10

A letter from the employer to the contractor indicating the employer’s intention to enter into a formal written contract.
The letter of intent asks the contractor to commence works without a signed contract.

Question 11

What is included in a letter of intent?

Answer 11

1. Contract sum
2. Date of possession
3. Date for completion
4. ADR Method
5. Expiry Date of letter
6. Method of payment.

Question 12

What is the key advantage of a Letter of Intent?

Answer 12

Allows works to commence before the main contract is signed

Question 13

What are the dis-advantages of a letter of intent?

Answer 13

1. Contractually less robust
2. Employer loses incentive in negotiations on main contract.

Question 14

In what circumstances might a letter of intent be used?

Answer 14

1. When the employer needs to commence on site quickly
2. Where materials have long lead times

Question 15

What are the different types of Letter of Intent?

Answer 15

1. Comfort Letter - a written document intended to give assurance that an obligation will be met.
2. Instruction to proceed with consent to spend - allows work to proceed up to a certain value while the contract itself is still being drafted.
3. Recognition of contract

Question 16

What is assingment?

Answer 16

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 of the contract.

Question 17

What are antiquities?

Answer 17

• Historical artefacts, pottery, coins
• Bones, fossils
• Archaeology

Question 18

What should a contractor do if they discover such objects?

Answer 18

1. Stop work immediately
2. Take steps to preserve the location
3. Inform the contract administrator

Question 19

What are Defects?

Answer 19

• A defect in workmanship, design or materials results in failure of the building or causes damage to people or property causing financial harm or losses to owner.
• Rectification period is 12 months – most defects will become apparent in this time.

Question 20

How does the NEC contract define defects?

Answer 20

‘A part of the works which is not in accordance with the works information’ or ‘works which are not designed by the contractor’

Question 21

What is a patent defect?

Answer 21

Defects which can be discovered by reasonable inspection – cracks, broken windows, missing tiles, sagging gutters etc.

Question 22

What is a latent defect?

Answer 22

• Defects which cannot be discovered by reasonable inspection
• Problems found several years after completion (issues with foundations etc.)

Question 23

How long is the defect rectification period?

Answer 23

Usually 12 months. With all 4 seasons, most defects will become apparent.

Question 24

What is novation?

Answer 24

Refers to the process by which the design consultants are contracted to the client but are then ‘novated’ to the contractor.

Question 25

What is retention?

Answer 25

- A percentage of sums certified for payment held by the Contractor/Employer (3 – 5%) - RICS Guidance on Retention – 1st Edition – 2012. - Purpose of retention to safeguard against defects that the contractor/subcontractor may fail to fix. - Alternative to retention is a ‘retention bond’.

Question 26

When is retention released?

Answer 26

- On PC first half of retention released. - Second half certified and released upon the expiry of the defect period.

Question 27

What can you use retention for?

Answer 27

If a contractor does not return to rectify defects, then retention can be used to fund the payment to correct these defects. Relevant notices will need to be given before works can be undertaken.

Question 28

What can you use retention for?

Answer 28

If a contractor does not return to rectify defects, then retention can be used to fund the payment to correct these defects. Relevant notices will need to be given before works can be undertaken.

Question 29

What is CPD (Contractors Design Portion)?

Answer 29

It is associated with JCT construction contracts. It is an agreement for the contractor to design specific parts of the works.

Question 30

How are CPD elements executed?

Answer 30

A performance specification is provided which the contractor provides a design and proposals for in response.

Question 31

What are domestic sub-contractors?

Answer 31

Chosen by the Contractor to execute a works package. No employer influence.

Question 32

What are named sub-contractors?

Answer 32

Employer provides a list of named sub-contractors who are pre-approved. Contractor selects one from the list and appoints.

Question 33

What is insolvency?

Answer 33

The inability to pay ones debts.

Question 34

How can we protect at tender stage against insolvency?

Answer 34

1. Financial checks 2. Bank References 3. Previous references 4. Request a bond or PGC

Question 35

What is termination?

Answer 35

When a contract is terminated and both parties no longer are required to complete their once, binding obligations.

Question 36

Can a contractor suspend works for non-payment?

Answer 36

In accordance with the Housing Rights and Grants act, and the Construction Act 2009. Yes.

Question 37

What are delay damages?

Answer 37

Where the employer has suffered loss because of the late completion of works. (loss of rent, loss of income, legal cost, capital salaries).

Question 38

What is PC?

Answer 38

- It is a JCT term for Practical Completion - Practical completion means ‘fit for purpose’ or sufficiently complete for the employer to take over and nothing remains outstanding. - You cannot rescind a PC certificate after it has been issued.

Question 39

What is a Non-completion certificate?

Answer 39

- Issued by the CA to confirms that works have not been completed by the contractual completion date. - Consequences are: o Employer to issue pay-less o Employer has right to withhold liquidated damages o Employer must write to contractor notifying them of intention to levy LD’s.

Question 40

What happens upon PC?

Answer 40

- 50% retention released - Defect period starts - Employer required to start insuring the building - Liquidated damages ceased.

Question 41

What is an interim valuation?

Answer 41

A document which is put forward by the Contractor which contains current progress against each element of work.

Question 42

What are the main elements of an interim valuation?

Answer 42

- Prelims - Measured works - Variations - Fees - Retention - Materials on/off site - Contra-charges

Question 43

What are the implications of an over and under value of works?

Answer 43

- Over valuation - high risk to the contractor/employer - Under valuation - could cause financial strain on contractor/subbies

Question 44

What does the term 'on account' mean?

Answer 44

For any item where works may have been undertaken in good faith and a payment is due but not yet fully assessed or agreed.

Question 45

What is a variation?

Answer 45

A change in the scope of works.

Question 46

What happens if the employer fails to pay the amount due before the final date for payment?

Answer 46

- Liable for interest (subject to contract) - Contractor may wish to suspend works

Question 47

What is the payment timeline of a JCT D&B?

Answer 47

- Sub-Contractor should make application 7 days before 'Due date' - Payment notice should be issued no later than 5 days after the due date. - Final date for payment is 14 days after the due date. - Pay-less should be issued no less than 5 days before the FDFP.

Question 48

What is the payment timeline of an NEC ECC?