Contract Practice Flashcards

Question

What is the importance of a relevant event?

Answer 1

A relevant event is one that impacts the programme of the works by the MC. For example a variation or instructions, or deferment of possession of the site.

Answer 2

A delay to the works and therefore an extension of time could be granted.

Answer 3

The purpose of an EOT is when the delay is caused by events that are the employer’s responsibility: 1. to allow the contractor to recover delay costs; and/or 2. to avoid liability for LADS.

Answer 4

Variations * Instructions (e.g. discrepancies, expenditure of provisional sums, opening-up for inspection or testing). * Deferment of the possession of the site * Suspension by the Contractor of the performance of any or all of his obligations under the contract * Works by Statutory Undertakers * Delay in receipt of any necessary permission or approval for the purposes of development control requirements * Any impediment, prevention or default, whether by act or omission, by the Employer or any of the Employer’s Persons, except to the extent caused or contributed to by any default, whether by act or omission, of the Contract or of any of the Contractor’s persons. * Exceptionally adverse weather conditions * Loss or damage occasioned by any Specified Peril * Civil commotion or the use or threat of Terrorism * Force Majeure

Answer 5

Contractor is entitled to claim additional costs or losses it suffers as a result of a ‘Relevant Matter’ under the contract. A RM is a breach of contract that comes with damages for delay or disruption to the regular progress of the works. ‘Relevant Matters’: Events which are either the fault of the Employer, or which the employer bears the risk contractually, which cause delay. Clause 4.22 deals with Relevant Matters: * Variations (excluding those where the amount of loss and/or expense has been agreed by Confirmed Acceptance of a Variation Quotation or Acceleration Quotation) * Instructions (e.g. discrepancies, expenditure of provisional sums, opening-up for inspection or testing). * Instruction relating to the insolvency of a Named Specialist * Delay to works as a result of Antiquities * Any impediment, prevention or default, whether by act or omission, by the Employer or any of the Employer’s Persons, except to the extent caused or contributed to by any default, whether by act or omission, of the Contract or of any of the Contractor’s persons. * Exceptionally adverse weather conditions * Loss or damage occasioned by any Specified Peril * Civil commotion or the use or threat of Terrorism * Force Majeure

Answer 6

Delay Notices: Clause 2.27 of the JCT contract requires the contractor to give notice if and whenever it becomes reasonably apparent that the progress of the works is being or is likely to be delayed. The notice must set out ‘the material circumstances’, including the cause or causes of the delay, and must specifically identify any event that is considered to be a Relevant Event. The contractor must also give particulars (showing cause and effect) of the expected effects of the delay upon the completion date, either in the original notice or in writing as soon as possible thereafter.

Answer 7

Can incur prelims costs but just because an EOT has been granted does not automatically incur prelims, may incur partial prelims.

Answer 8

* a predefined sum to be payable in the event of delay and are thus recoverable without proof of loss. * must be a genuine pre-estimate of the loss at the time of entering the sum within the contract documents. * Usually expressed per week or part thereof and identified in the contract. * Damages must not be construed as a penalty.

Answer 9

* Loss of rent or income * Additional professional fees * Additional finance costs * Storage costs * Fees and fines imposed by third parties * Any other justifiable costs

Answer 10

1. Nil means there are no damages and the client is not entitled to deduct if the contract overrun. 2. Blank means the client would still be able to deduct damages but would need to do so through the courts.

Answer 11

Loss and expense is the direct loss and expense which would not be reimbursed by a payment under other contract provisions. These are additional costs or losses the contractor suffers as a result of an employer-driven event, act, omission or default. The contractor is entitled to recover that loss and expense in order to put him or herself back in the financial position that he or she would otherwise have been in.

Answer 12

Termination by the Employer: 1. Default by Contractor * Suspension without cause/abandonment of the works * Fails to proceed regularly and diligently * Refusal to comply with an instruction requiring removing works/goods not in accordance with the contract/failure to remedy defects * Assigns rights under the contract or sub-contracting without the consent of the Employer * Failure to comply with the CDM Regulations The Contractor may also have a right to suspend works as implied by statute: see s.112 of the Housing Grants, Construction and Regeneration Act 1996 as amended. 2. Insolvency of Contractor * If the Contractor is insolvent, the Employer may at any time give notice to terminate their Employment. * As from the date the Contractor becomes insolvent, whether or not the Employer has given such notice of termination: o The consequences of termination apply, such as no further sum becoming due to the Contractor, as if such notice has been given. o The contractor’s obligations under Article 1 and these conditions to carry out and complete the works and the design of the CDP shall be suspended o The employer may take reasonable steps to ensure that the site, the Works, the Site Materials are adequately protected, and such site materials are retained on site; the contractor shall not allow or not hinder the delay the taking of those measures. 3. Corruption and regulation 73(1)(b) of the PC Regulations (where should have been excluded on mandatory exclusion grounds before contract award) * The Employer shall be entitled by notice to the Contractor to terminate the Contractor’s employment under this or other contract with the Employer if, in relation to this or any other such contract, the Contractor or any person employed by him or acting on his behalf shall have committed an offence under the Bribery Act 2010, or where the Employer is a Local or Public Authority, shall have given any fee or reward the receipt of which is an offence under sub-section (2) of section 117 of the Local Government Act 1972, or where this contract is one to which regulation 73(1) of the PC Regulations applies, the circumstances set out in regulation 73(1)(b) of the PC Regulations apply.

Answer 13

1. Default by Employer * Non-payment and/or any VAT properly chargeable on that amount; * Interferes with or obstructs the issue of any certificate. * Assigns rights under the contract without the consent of the Contractor * Failure to comply with the CDM Regulations * If the works are suspended for a continuous specified length of time (2 months unless otherwise stated) caused by: − Discrepancies between documents − Instructions requiring variations − Postponement of work by the CA − Any act of prevention by the Employer. (but in either case excluding instructions required as a result of the negligence or default of a statutory undertaker) then unless in either case that is caused by the negligence or default of the Contractor, the contractor may give notice specifying the event or events (a ‘specified’ suspension event or events). If a specified default of specified suspension event continues for 14 days from the receipt of notice, the contractor may on or within 21 days of the expiry of that 14-day period by a further notice to the Employer terminate their employment under the contract. 2. Insolvency of Employer * If the Employer is insolvent, the contractor may by notice to the Employer terminate their employment under the contract. * As from the date the Employer becomes insolvent, the contractor’s obligations under Article 1 and these conditions to carry out and complete the Works and the design of the CDP shall be suspended.

Answer 14

Information stated within contract explicitly for each section: * First recital – description and section addresses * Contract sum is the whole sum * Description of sections – e.g. section 1, 1A, 2A, 2B with descriptions of the address and areas e.g. basement * Dates for completion of sections by section * Dates for possession of section by section * Deferment of possession of section by section * Rates of liquidated damages (LD’s) for each section * Section Sums * Rectification periods for each section

Answer 15

CA - Contract Administrator

Answer 16

The sections are applied for separately. The sections have their own retention amounts and section sums.

Answer 17

Differences between Partial Possession and Sectional Completion 1. Sectional Completion is LISTED in the contract, whereas PP is INFORMAL 2. Contractor’s Consent is required (although must not be unreasonably withheld) 3. Effects of SC are more certain than PP as parties have already agreed the practical consequences: ▪ LADs are agreed so no arguments over the proportionate reduction ▪ Section Sums are agreed so there are no arguments over retention release 4. A section must have achieved completion in SC; no such target date exists in the contract and the relevant part just needs to be ‘Deemed’ to be complete. Effect of PP 1. The LADs are reduced to the proportionate value of that part. 2. The rectification period is deemed to have begun, for the part taken into possession, on the date in the written statement. 3. Half the retention for the part must be released. 4. The contractor’s obligation to insure the part ceases (this is crucial because the responsibility becomes the employer’s).

Answer 18

1. No provision for sectional completion or partial possession 2. No provision for collateral warranties 3. Loss and expense not expressly provided for in MW (within each assessment of change) 4. No list of relevant events in MW (just beyond the control of the contractor) 5. MW doesn’t detailed rules for valuation of changes (fair and reasonable assessment) 6. MW doesn’t have provision for sub-letting to named specialists 7. MW doesn’t have provision for advance payment 8. MW doesn’t have detailed provision for new buildings insured by the Employer 9. MW has no provision for testing and opening up of the works 10. No requirement for a QS

Answer 19

* Where the work is of ‘similar’ character to work in the original contract documents then the valuation shall be consistent with the rates and prices in the Priced Document * Shall include a fair allowance to reflect any change in conditions under which the work is carried out and/or significant change in the quantity of work. * Where the work is not of similar character to the work set out in the contract documents, it shall be valued at fair rates and prices. * Allowance shall be made in such Valuations for the addition or omission of the relevant design work. * o Allowance where appropriate shall be made to any addition or reduction of preliminary items of the type referred to in the Measurement Rules

Answer 20

This is a method of valuing additional or substituted work which cannot properly be valued by measurement (it basically cannot be quantified!). Employer’s dislike dayworks as invariably it will be far more expensive than the measure and value alternatives. It is seen as a valuation method as a last resort in most standard forms of contract when all other approaches have been ruled impossible. It is intended for short-duration, limited scope activities. E.g: − Minor additions of quantity to completed works − Opening-up works for inspection − Repair and reinstatement of damage − Emergency works immediately proceeding loss or damage to the work

Answer 21

- A non completion certificate - A withholding notice

Answer 22

- It doesn't matter - The damages can still be deducted at the value stated in the contract

Answer 23

- There is no set completion date - The contractor only has the obligation to complete the works in a reasonable time - Liquidated damages cannot be claimed as there is no date to take them from - The employer would have to try and prove that the contractor had not completed in a reasonable time.

Answer 24

JCT contract Employers Requirements CSA Insurances Existing building information Survey information

Answer 25

Because it was a variation to the contract works issued as an instruction.

Answer 26

Relevant Event: Entitles the contractor to claim an extension of time. Relevant Matter: Entitles the contractor to claim direct loss or expense.

Answer 27

For many years, the only option available to third parties was to secure collateral warranties from the contractor and each member of the professional team, but with the introduction of the Contracts (Rights of Third Parties) Act 1999 (the Act) over fifteen years ago, those who were not party to a contract could potentially benefit directly from its terms. This led to hope in the industry that collateral warranties would become redundant as purchasers, tenants, funds and other potential beneficiaries could start to use the Act to benefit directly from the terms of a building contract or professional appointment, rather than needing protection under a separate collateral warranty.

Answer 28

Benefits of using the Act 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. Ability of a developer to comply with its primary obligations: Even with the support of a diligent project manager and legal team, a developer will often find itself in the position of having to agree to procure and deliver collateral warranties before they have actually been returned by a contractor or consultant. The risk of the warranties never materialising means the developer faces being in breach of its own undertaking. Under the Act (assuming that the building contract or appointment is already in place), the developer simply issues a notice to a contractor or consultant confirming the identity of the third party upon whom the third party rights are being conferred, thereby retaining control of the process. Sub-contractors: The third party rights process can also be extended into sub-contracts, so that (provided the relevant building contract and sub-contract are drafted accordingly) an employer can confer third party rights in relation to work done by sub-contractors unilaterally. Again, this avoids the need to chase large numbers of individual warranties.

Answer 29

Disadvantages of using the Act 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. Enforceability of step-in rights: Concerns have been expressed that the Act does not allow funders or forward purchasers to invoke step-in rights as it does not permit third parties to assume obligations (in particular, the obligation to pay) under an underlying building contract or appointment. The general view is that this argument is misconceived, as the third party rights schedule can be drafted to deal with this. Our experience is that a number of funders, forward purchasers etc will now accept third party rights in place of warranties and those who have not traditionally accepted third party rights are becoming more willing to consider them. 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.

Answer 30

A legal technique where the insurer steps into the shoes of the insured in order to take benefit of any legal rights or remedies they may have against the third party responsible for the loss.

Answer 31

1. Option A: Priced contract with activity schedule. 2. Option B: Priced contract with bill of quantities. 3. Option C: Target contract with activity schedule. 4. Option D: Target contract with bill of quantities. 5. Option E: Cost reimbursable contract. 6. Option F: Management contract. 7. Option G: Term contract (for the appointment of a consultant based on a priced schedule of tasks).

Answer 32

Activity Schedule – A list of activities (prepared by the contractor), which they expect to carry out while providing the works. Each activity is linked to a price (prepared by the contractor) to be paid by the client.

Answer 33

Bill of Quantities (BoQ) – A document that lists specific measured items of work identified by the drawings and specifications. Each item will be allocated a price.

Answer 34

- There is no set completion date - The contractor only has the obligation to complete the works in a "reasonable time" - Liquidated damages cannot be claimed as there is no date to take them from - The employer would have to try and prove that the contractor had not completed in a reasonable time

Answer 35

They are events that entitle the contractor to an Extension of Time

Answer 36

There are 13 Relevant Events: - Variations - Instructions - Execution of an approx. quantity that is not a reasonably accurate forecast - Deferment of possession of site - Suspension by the contractor for non-payment - The carrying out of work by statutory authorities - Impediment, prevention or default by the employer - Loss or damage occasioned by the Specified Perils - Exceptionally adverse weather conditions - Strike or Lock out - Civil commotion or terrorism - The exercise of any statutory power after the base date by the UK Gov. - Force Majuere

Answer 37

- Preliminaries - Measured Work - Variations - Materials on site - Materials off site - Loss and Expense - Retention

Answer 38

- The materials should be for the works - They should be adequately protected - Delivered to programme - In a reasonable quantity

Answer 39

- Proof that ownership will transfer to the employer upon payment (vesting certificate) - Insurance until materials arrive at site - Materials are clearly labelled as for the site and set apart from other materials - A materials off site bond has been provided if required

Answer 40

- Where the subcontractor or supplier retains ownership of materials until they are paid for them by the contractor - This highlights the importance of vesting certificates as the employer may subsequently pay for materials that are not owned by the contractor - The legal principle can lead to disputes in the even of insolvency

Contract Practice Flashcards

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