Contract Practice

Question 1

What is Indemnity?

Answer 1

Indemnity is the obligation that one party holds in paying compensation to another party that suffered losses.

Question 2

What is insurance?

Answer 2

transferring a risk from one party to another in exchange for a payment made.

Question 3

What is the difference between Indemnity and Insurance?

Answer 3

Insurance can be seen as a periodic payment that is made to guard against any losses suffered, whilst indemnity is a contract between two parties for which the injured party will receive compensation for any losses.

Question 4

How would you assess the cost of LDs a client proposes?

Answer 4

• Check LD figure is a genuine pre-estimate of the loss
• Explain even if LDs are applied, client may need to substantiate the figure
• Cannot be punitive or figure may not be enforceable
• If LDs not enforgeable employer would have to pursue the maic Co for actual direct loss that can be susbtantiated through formal dispute resoln procedure

Question 5

What are EOT?

Answer 5

EOT adjust the completion date and relieve the contractor’s liability to pay liquidated damages for the period of the extension

Question 6

What are liquidated damages?

Answer 6

a genuine pre-estimate of the likely loss incurred by the employer should the completion date not be met

Question 7

What must be in place for LDs to be claimed?

Answer 7

• A non-completion certificate
• had a certificate been issued, a witholding notice (pay less notice)

Question 8

What if E actually suffered no loss of damage?

Answer 8

• it does not matter
• damaged will be deducted at the pre-agreed rate stated in the contract

Question 9

What are the benefits of being able to grant an EOT?

Answer 9

• relieves Co liability for LD for the delay they did not cause
• enables another completion date to be set, maintianing the Es ability to deduct LDs if another delay occurs
• prevents time becoming at large

Question 10

what happens when time is at large?

Answer 10

• no completion date set
• Co only has obligation to complete the works in a reasonable time
• LDs cannot be claimed as no date to take them from
• E would have to prove Co did not complete in a reasonable time

Question 11

What are relevant events in the JCT contract?

Answer 11

the events that entitle the contractor to an EOT

Question 12

p178

Question 13

What is retention?

Answer 13

Retention is a sum of money (the retention fund) held by the employer as safeguard against defective or nonconforming
work or materials provided by the contractor. It is to safeguard the employer against defects discovered after PC (latent) or the contractors failure to complete the C

Question 14

What is a prime cost sum ?

Answer 14

a sum of money included in a unit rate to be expended on materials or goods from suppliers (e.g. ceramic wall tiles at £36.00/m or door
furniture at 75.00/door).It is a supply-only rate for
materials or goods where the precise quality of those materials and goods are unknown. It excludes design and install costs, OHP and prelims.

Question 15

What is a Provisional Sum?

Answer 15

A sum of money included in pricing doc. A provisional sum is provided to cover the cost of something that cannot be entirely
foreseen or detailed accurately at the time tenders are
invited e.g. ceiling grid amendment and tile replacement where needed in the data halls

Question 16

How is a Prov Sum used in contract?

Answer 16

CA instructs the designed works when known, ps deducted, new work costed and added to contract sum

Question 17

What is a Defined PS

Answer 17

Where scope, timing and specific limitations of the works are known at PS inclusion

Question 18

What is an undefined PS

Answer 18

Scope, quality, extent, timing and limitations are not known at inclusion

Question 19

When do defined and undefined PS terms apply

Answer 19

When the contract pricing doc is a firm or approx BoQ measured in accordance with NRM2: Detailed measurement of capital building works, or the C has been amended to say this. In a CSA or BoQ measured another way, only Provisional Sum should be used.

Question 20

What are LDs

Answer 20

LDs stands for Liquidated Damages, also called damages and delay damages are a sum of money stated in the contract as the damages payable in the event of a specified breach.

Question 21

What requirements must LDs meet?

Answer 21

• genuine pre-setimate of the loss
• The genuine purpose must be to compensate
  the employer rather than punish the contractor.
• if the rate of liquidated
  damages is considered to be a penalty, the employer may
  still pursue an action for his or her actual damages
  (unliquidated damages) at common law.

Question 22

What are the advantages of LDs?

Answer 22

+no need to prove loss in the event of a breach
+deduct under contractual mechanism (no court involvement)
+Co aware of liability in advance of a breach
+ can be pre-agreed controlling risk
+no increased liability if actual loss higher or lower

Question 23

Are LDs subject to VAT?

Answer 23

No - E must factor the lack of VAT in to the loss calculation if this impacts the damages required

Question 24

Why are LDs related to EOT?

Answer 24

LDs can only be claimed form a completion date in the C, EOTs extend this and prevent time becoming at large. EOTs are only issued for non-fault delay/ rel events. So EOT means no LDs

Question 25

What is time at large?

Answer 25

When the time is at large there is no set completion date and the Co only need complete in a reasonable time. -EOTs prx time becoming at large. -Cannot claim LDs if time at large (no date to charge from) -only claim is for unliquidated common law damages

Question 26

What must be in place to claim LDs?

Answer 26

- a set Completion Date - breach of this date (delay of Co fault) - a non-completion cert - a warning notice LDs may be required - a notice of the deduction demanding LDs or witholding - if ddt from Co payment alongside other deductions, a pay less notice showing all of them

Question 27

What statute does retention of title impact?

Answer 27

Sale of Goods Act 1979 but also more relevant is the Sale of Goods and Services Act 1982