Contract Practice

Question 1

What happens at Practical Completion?

Answer 1

1. 50% of Retention is released
2. Employer surrenders right to claim LADs
3. Works are substantially complete*
4. Possession returns to emplyer and obligation to insure

Question 2

What is Sectional Completion?

Answer 2

1. Handover of works in pre-agreed stages
2. Only possible under JCT IC and SBC, not possible with JCT MW contract.

Question 3

Do works have to be totally complete at Practical Completion?

Answer 3

No, it is down to the opinion of the Contract Administrator under JCT contracts. Normally for ‘De Minimus’ works to be outstanding, but nothing that restricts the employer’s beneficial occupation of the building.

Mears vs Costplan is relevant piece of case law - is the defect ‘trifling’ in nature.

Question 4

What is Partial Possession?

Answer 4

• Employer requests to take possession of some or all of works prior to PC.
• Contractor must consent (unlike Sectional Completion)
• Effect is same as Practical Completion
• CA must issue a written statement to contractor

Question 5

What is a Collateral Warranty?

Answer 5

• Creation of a contractual relationship between parties to a contract an an external 3rd party.
• Needed because of ‘Privity of Contract’
• Can protect an employer through creation of a relationship with a key sub-contractor in case where main contractor has become insolvent.
• Atlantic Works - assisted in creating a collateral warranty between the client and the sub-contractor roofing company.

Question 6

What are the common terms within a collateral warranty?

Answer 6

• Step-in rights - beneficiary of the CW can ‘step-in’ to shoes of employer if they become insolvent e.g. a funder
• Assignment rights - CW will set out number of times it can be assigned to 3rd parties.
• CW normally mirrors terms of main contract

Question 7

What is an Letter of Intent and When is it Used?

Answer 7

• A document expressing an intention to enter into a contract at a later date.
• Typically used as an interim arrangement to mobilise construction prior to formal contracts being signed.
• Has no legal significance and courts will look to establish is a contract has been formed e.g. offer, acceptance, consideration, clear intention.

Question 8

What are JCT Minor Works Insurance Clauses?

Answer 8

• 5.4A New Works. Contractor takes out ‘Joint Names’ Policy
• 5.4B New Works and Existing Structures. Employer takes out ‘Joint Names’ policy
• 5.4C New Works and Existing Strucutures by ‘Other Means’ Allows more flexibility e.g. if employer is a tenant and a LL insures the building.

Question 9

What are JCT Intermediate and Standard Building Contract Insurance Provisions?

Answer 9

• Option A. Contractor maintains joint names ‘All Risk’ Insurance for the Works. Most common as most contractors have an existing ‘all risk’ policy that projects can be added to in joint names.
• Option B. Employer maintains joint names ‘All Risk’ insurance for the Works. Not common.
• Option C. Employer maintains insurance for existing structures and ‘All Risk’ insurance for works. Required when refurbishment or extensions are contructed and cover the existing structures from ‘specified perils’.

Question 10

What is role of Contract Administrator under a Traditional Contract?

Answer 10

• Impartiality
• Issue Instructions/Certificates
• Chair Meetings/Minutes
• Progress Reports to Client

Question 11

What must be in place before LADs can be deducted?

Answer 11

• Certificate of Non-Completion
• Withholding Notice

Question 12

Can an employer still claim LADS if no loss suffered?

Answer 12

Yes

Question 13

What is a typical statutory ‘Limitation Period’ in a construction contract?

Answer 13

• The period, following rectification period, under which the contractor can still be liable for defects according to the law.
• Limitation Act 1980 allows a claim for breach of contract or ‘negligence’ to be bought during period of 6 years from date of breach (12 years if signed as a deed).
• The Latent Damage Act 1986 provided an extension to the above by an additional 3 years from date that defect discovered.

Question 14

Why did you use the JCT IC at Cobden Avenue? What are the differences between a JCT IC and MW Contract?

Answer 14

• JCT IC allows for sectional completion and partial possesion - this was the reason for use on this project.
• Other differences: JCT IC allows for more complex project delivery. It allows for:
• Third party rights / collateral warranties.
• Client appointed named specialists.
• Bills of quantities
• There is no provision in JCT MW for the requiring of the contractor to use a particular sub-contractor through naming or nominating.

Question 15

You drafted a Letter of Intent for Francis Avenue. What needs to be included in this and what are the legal implications?

Answer 15

• Must have agreement, intention and consideration for a Letter of Intent to the legally binding.
• Should state:
• Details of project including dates of instruction and site possession.
• Limits on expenditure and the client’s liability.
• Terms of the forthcoming contract including payment terms.
• LADs to applied in event of late completion.
• Provisions for contractor to have access to the site.