Contract Practice Flashcards

Question

What are events that is reasonably foreseeable?

Answer 1

* The contract (with any amendments) * Preliminaries * Contract Sum Analysis/ Pricing schedule * Drawings * Specification * Planning conditions/ agreements * Contractors Proposals.

Answer 2

JCT -joint Contract Tribunal NEC – New Engineering Contract FIDIC - International federation of Consulting Engineers

Answer 3

FIDIC is, when translated into English the International Federation of Consulting Engineers. It was originally founded by France, Belgium and Switzerland in 1913. The UK later joined the in 1949. FIDIC has produced suites of contracts known by the colour of their cover. The most common contracts are: * The Red Book – Employer’s Design – suitable where the majority of design rests with the employer. * The Yellow Book – Design and Build – Contractor has majority of the design responsibility. * The Silver Book – Turnkey – places significant risk on the contractor. * The Gold Book – Design Build and Operate * The Orange Book – Design Build and Turnkey

Answer 4

EOT adjust the completion date and relives the contractor’s liability to pay liquidated damages for the period of the extension. This can be achieved by CE's, Acceleration of Acceptance of a Defect

Answer 5

It relives the contractor’s liability for LDs for a delay that they did not cause. It enables another completion date to be set, which maintains the employer’s ability to deduct LDs if another delay occurs.

Answer 6

Liquidated Damages are a genuine pre-estimate of the likely loss incurred by the employer should the completion date not be met. A non-completion certificate and a withholding notice must be in place before LDs can be deducted.

Answer 7

* Retention Bond is a bond provided by the Contractor in lieu of taking retention from interim payments. * It should be equal to the same value as the retention deducted. * Requirement for the bond should be stated in the contract particulars. * A standard form is provided in the JCT contract schedules and Option X13 Performance bond on NEC contract.

Answer 8

If the Contractor does not maintain the retention bond then the employer can deduct retention from the interim payments. If the bond is subsequently taken out, the retention deducted must be repaid to the contractor.

Answer 9

A non-completion certificate and a withholding notice must be in place before LDs can be deducted. As well as X7 Delay Damages selected for NEC.

Answer 10

It does not matter. Damages can still be deducted even if the Employer suffered no loss or damage.

Answer 11

Relevant Events are events that entitle the contractor to EOT when using JCT. They are caused by the client or a neutral event not caused by any party. The contract should set out what constitutes a relevant event

Answer 12

There are 13 relevant events: * Variations. * Exceptionally adverse weather. * Civil commotion or terrorism. * Failure to provide information. * Delay on the part of a nominated sub-contractor. * Statutory undertaker’s work. * Delay in giving the contractor possession of the site. * Force majeure (such as a war or an epidemic). * Loss from a specified peril such as a flood * The supply of materials and goods by the client. * National strikes. * Changes in statutory requirements. * Delays in receiving permissions that the contractor has taken reasonable steps to avoid.

Answer 13

ECSC is a shorter version of ECC, it removes some of the most sophisticated PM procedures. Under the short contract pricing mechanisms are either a lump sum and/or schedule of rates approach.

Answer 14

NEC and Bespoke contracts.

Answer 15

Programme, Early warning procedure, Compensation Events, Accelerations, take-off etc.

Answer 16

Have a legal expert review contract especially reviewing x clauses and any z clauses. Use a standard form of contract, such as NEC ECC and make sure correct Y and W clauses have been selected for the country of contract.

Answer 17

Debating over disallowed costs.

Answer 18

None, just looked at it during my masters. I am aware it is an international contract and often referred to by the colour of the cover. FIDIC contracts are often used for large infrastructure projects.

Answer 19

Determine the clients attitude to risk.

Answer 20

- Comfort letter (aka letter of support, comfort letter) o Letters of comfort are generally used when the holding company is unable or unwilling to give a guarantee, but wishes to give some comfort (to the recipient of the letter) as to its subsidiary's ability to satisfy its contractual obligations.

Answer 21

- Consent to spend o In construction the term 'consent to spend' is sometimes referred to as an 'if' contract. A letter with instructions to proceed and consent to spend allows work to proceed up to a certain value while the contract itself is still being drafted.

Answer 22

Letter of Intent - is a document expressing an intention to enter into a contract at a future date but creates no contractual relationship until that future contract has been entered into. A letter of intent is not an 'agreement to agree'.

Answer 23

Assignments is where contractual benefits are assigned however contractual burdens cannot be transferred under assignment.

Answer 24

Novation is a mechanism whereby one party can transfer all its obligations under a contract and all benefits arising from that contract to a third party.

Answer 25

NEC secondary option Y(UK)3 offers an alternative way for parties to give third-party rights. This invokes the UK Contracts (Rights of Third Parties) Act 1999 (‘the Act’), section 1 of which allows people who are not party to a contract to enforce a term of the contract if the contract expressly states they may. Third Party Rights – The Contracts (Rights of Third Parties) Act 1999 in the UK allows third parties to enforce terms of contracts that they are not a party to, but which benefit them in some way. This act provides an alternative to collateral warranties.

Answer 26

A collateral warranty gives rights to a client or third party which would not otherwise have direct contractual rights. In NEC4 contracts, collateral warranties can be made part of the contract using secondary option X8 on undertakings. A collateral warranty is a separate promise made to a client or third party (the beneficiary) by a contractor or subcontractor (the warrantor) that they will perform their contractual obligations. The warranty is therefore said to be ‘collateral’ as it sits alongside the relevant contract. The beneficiary will usually have an interest in the asset for which contracted work or service is being performed. Collateral Warranties – is a separate contract that sits alongside the main contract, creating a direct contractual link between third party and the Contractor or professional consultant. It provides that the contractor or consultant owes the third party the same duty of care as it does the employer under the original contract.

Answer 27

Parent Company Guarantee - is an arrangement where the contractual performance of one company in a corporate group is underwritten by the other members of the corporate group. This means that it must complete the works itself if it can or pay the financial equivalent.

Answer 28

– Main clause of NEC divided into 2 (Clause 10.1 and 10.2) ○ The parties, PM, and supervisor shall act as stated in the contract ○ The parties, PM and supervisor shall act in a spirit of mutual trust and cooperation – Works information – now called as Scope – Employer – now called Client – Contractor allowed to claim for payment for producing a quote that PM decide not to instruct. – Risk register-now called Early warning register

Answer 29

Activity Schedule (A & C) – Consists of milestones which the contractor has to complete to obtain payment for each stage.

Answer 30

– PM notifies contractor of compensation event and contractor instructed to submit a quote – Contractors quote (costs and programme) within **3 weeks** – PM replies within **2 weeks** (revised quotation request or accepted) – If revised quote needed then contractor has **2 weeks** then process restarts – If the PM does not reply within **2 weeks** then the contractor gives notice – If the PM does not reply within a further **2 weeks** then the quotation is accepted

Answer 31

Insurances: NEC under clause 8 states liabilities and insurances for the contractor and client. It also states the minimum amount of insurance to cover (4 types). X18 limits specific elements, or all of, the contractors liability.

Answer 32

Advanced Payment: Procedure for advanced payment to the contractor, which is usually made at the initial stage of a project. AKA: down payment, mobilisation fee, upfront payment or loan payment. In NEC4 contracts it is achieved through secondary option X14. There are numerous reasons why an advanced payment may be made, including: assisting with cash flow, procuring critical mobilisation resources, ensuring commitment to a project, and assisting an ‘emerging’ supplier.

Answer 33

Material on/off site: Clause 7 Title Materials which are outside the working area passes to the client if the Supervisor has marked them as for the contract. Whatever title the contractor has to plant and materials passes to the client if they have been brought within the working area. The supervisor marks the equipment if the contract identifies them for payment and contractor has prepared them for marking.

Answer 34

Retention – is a sum of money deducted at each monthly interim payment notice, to provide the client with some security that the contractor will return to rectify defects during DLP. If he does not return, the held money is used to fund the payments of other parties to correct the defect. Option X16: Retention - must be included in contract in order to deduct from payment. Retention is a percentage of contract works including variations and changes. * Half retention is issued back when a Practical Certificate / Certificate for Sectional Completion has been issued * Second half is issued back when the certificate of completion of making good has been issued.

Answer 35

Named/Nominated Subcontractors Under certain circumstances, the client may wish to select (nominate) a subcontractor themselves, rather than allowing the contractor to select them. This is referred to as a nominated subcontractor. Named S/C - The client names a short-list of subcontractors that would be acceptable to them in the tender documents for the main construction contract. The NEC contracts make no such provisions for nominations, but the client may in practice stating nominations in the Works Information.

Answer 36

Through sectional completion, partial completion. On NEC ECC the relevant clause is Clause 35 Take Over (Contractor can refuse for several reasons stated in the clause. - take over occurs when the Client starts to use either part, or the whole, of the works. Liability, loss or damage to the works taken over, transfers from the Contractor to the Client, apart from the stated exceptions in [80.1] additional liabilities stated in the Contract Data

Answer 37

**Section Completion** – provision within construction contracts allowing different completion dates for different sections of the works. **Partial Possession** – the client may wish to take possession of part of a building or site, even if the works are ongoing. This can be programmed within the original contract documents.

Answer 38

Contractor's design portion – associated with JCT contracts. It is an agreement for the contractor to design specific parts of the work.

Answer 39

A performance specification is a document that provides details about functionality and other important technical information. This is produced before construction is undertaken.

Answer 40

Completion – is when the Contractor has done all the works which the scope states to be done by the Completion Date and corrected notified Defects which would have prevented the Client from using the works of Others to do their work. The Completion Date is the completion date defined in the contract data part 1. PM decides the date of Completion and certifies within a week of the date (30.2)

Answer 41

NEC ECC has an optional X clause X7 - Delay Damages (liquidated damages). This can be selected in part 1 of the contract data, and the level of damages payable can be defined (e.g. a rate per day or is sectional completion X5 then section, description and amount per day). If option X7 is selected, and the contractor does not achieve the completion date then delay damages will be due from the contractor.

Answer 42

Under NEC ECC Clause 4 Quality Management defines defect in clause 11.2 (6) “a part of the works which is not in accordance with the scope” and further clarifies in Clause 41.4 that “if a test or inspection shows that any work has a Defect, the Contractor corrects the Defect and the test or inspection is repeated”. The Supervisor issues the Defect Certificate at the defects date if there are no notified Defects, or otherwise at the earlier of the end of the last defect correction period and the date when all notified defects have been corrected. Defect Certificate triggers release of the remaining retention (although if any remaining defects listed on the Defects Certificate a withholding notice may be served). The defect date period (usually 52 weeks) and defect correction period (usually 3 weeks) is defined in the contract data part 1 defect date is the last date on which the supervisor or contractor can notify of a defect and last date on which a CE can be notified.

Answer 43

Completion – is when the Contractor has done all the works which the scope states to be done by the Completion Date and corrected notified Defects which would have prevented the Client from using the works of Others to do their work. The Completion Date is the completion date defined in the contract data part 1. PM decides the date of Completion and certifies within a week of the date (30.2)

Answer 44

PM makes an assessment of the final amount due and certifies a final payment no later than 4 weeks after the supervisor issues a Defects Certificate or 13 weeks after the PM issues a termination certificate. PM gives Contractor details of how the amount has been assessed and final payment is made within 3 weeks of the assessment, or different period stated in the Contract Data. Alternatively, if the PM does not make this assessment within the time allowed, the Contractor may issue to the Client an assessment of the final amount due, if the Client agrees with this assessment, a final payment is made with 3 weeks of the assessment, or different period stated in the Contract Data.

Answer 45

For NEC the parties are the Client and the Contractor. Wheras the PM and the Supervisor act in accordance with the contract but are not the 'parties'. For PSC

Answer 46

Pros: Customised and adjustable - handy for unique requirements of the projects. Flexible and more control of T&Cs. Cons: Time consuming, more legal fees to write up, risk of ambiguity leading to disputes and without a history of case law, Contractor may simply decline the works because use of bespoke or embed more risk in the tender submission. More details: A bespoke contract is a custom-made contract specifically tailored to suit the unique requirements of a particular project. When would you use a bespoke contract? Complex projects when standard forms do not cover all the intricacies. For niche requirements. However… Its time consuming due to need for customization. Lacks case law, disputes difficult to defend. Need to ensure not inadvertently increasing their liability.

Answer 47

Compensation events are client owned risks entitling the contractor to addiitonal time and money, unless the fault is due to the contractor.

Answer 48

The Fee The Fee is relevant in each of the payment options. In Options C, D and E (each cost plus) the Fee is part of the calculation of the Price for Work Done to Date to be paid to the Contractor. In Options A and B, the Fee is only relevant to the assessment of the cost consequences of a compensation event. Across each of the contracts the Fee is calculated by the application of an agreed percentage against Defined Cost. The fee percentage needs to cover all costs of the Contractor not covered by Defined Cost, and also provides the Contractor its profit and an allowance for risk. The parties agree two separate fee percentages: one for subcontracted work; and one for other work. This reflects the possibility that the risk and profit for (and the work required in managing) direct work as against subcontracted work may well be different. Often the percentages will be agreed at the same figure, but if there is a difference, the percentage for sub-contracted work is likely to be higher.

Contract Practice Flashcards

(75 cards)