Contract Practice

Question 1

What is a contract?

Answer 1

A legally binding agreement between two or more parties, enforceable by law, outlining obligations, rights, and responsibilities.

Question 2

Why do you need a contract?

Answer 2

To manage and allocate risk

Due to the complex and long-term nature of construction

Defines roles and responsibilities

Establishes legal recourse in disputes

Clarifies payment, timelines, quality, and performance expectations

Question 3

Why is it important for the construction industry?

Answer 3

Complex projects with many parties involved

High value and long duration increase legal and financial risk

Prevents misunderstandings and disputes

Ensures legal enforceability of performance and payment

Question 4

What forms a contract?

Answer 4

Offer

Acceptance

Consideration (something of value exchanged)

Intention to create legal relations

Capacity to enter a contract

Legality of the contract’s subject matter

Question 5

Who drafts a contract?

Answer 5

Legal professionals draft contracts

As surveyors/project managers, we advise on suitability and risk but do not draft contracts

Question 6

What if a client asks you to draft a contract?

Answer 6

You must not draft it

You can advise on:

Suitable contract forms

Key clauses (e.g. delays, variations, bonds, guarantees)

Direct the client to legal counsel for drafting

Question 7

What are the ways a contract can be executed?

Answer 7

Orally (rare and not recommended in construction)

Under hand (simple written contract)

Under deed (signed, witnessed, and sealed – more formal)

Question 8

What is the difference between under hand and under deed?

Answer 8

Under hand: signed only by parties, 6-year limitation period

Under deed: signed and witnessed, 12-year limitation period, no consideration required

Question 9

What is the limitation period?

Answer 9

6 years for contracts under hand

12 years for contracts executed as deeds
Time limit to bring legal claims (e.g. breach of contract)

Question 10

Other than limitation, what is a key difference?

Answer 10

Witnesses are required for a deed

Consideration is not required for a deed

Question 11

What are the consequences of breaching a contract?

Answer 11

Damages/compensation

Termination of the contract

Dispute resolution (adjudication, arbitration, litigation)

Reputational and financial loss

Question 12

What factors influence contract selection?

Answer 12

Project size and complexity (large or small, simple or complex)

Design responsibility (who designs – client, contractor, or jointly)

Procurement route (traditional, design and build, management contracting)

Risk allocation preferences (how risks are shared or transferred)

Programme and delivery timelines (fixed, flexible, fast-track)

Client’s experience and familiarity with contract types

Funding and financial arrangements (public sector, private sector)

Level of collaboration required (traditional or partnering/collaborative)

Question 13

What suites of contract are you familiar with?

Answer 13

JCT – Joint Contracts Tribunal

NEC – New Engineering Contract

FIDIC – International Federation of Consulting Engineers

Question 14

Difference between JCT and NEC (consolidated)?

Answer 14

JCT
Traditional, adversarial
Emphasises legal clarity
Certainty through clear roles
Common in buildings
Slower to adapt to change

NEC
Collaborative, proactive
Emphasises project management
Flexibility with risk-sharing
Common in infrastructure/public
Regularly updated

Question 15

Pros/cons of standard form contracts:

Answer 15

✅ Pros:

Familiar across the industry

Cost-effective

Legally tested

Written by experts

❌ Cons:

May not suit bespoke needs

Can be ambiguous if heavily amended

Question 16

Pros/cons of bespoke contracts:

Answer 16

✅ Pros:

Tailored to specific project needs

More flexibility

❌ Cons:

Not legally tested

Less familiar to parties

More costly to draft legally

Question 17

Main structure of a JCT contract:

Answer 17

1. Agreement
2. Recitals
3. Articles of agreement
4. Contract particulars
5. Attestation
6. Conditions (Sections 1–9)
7. chedules (e.g. insurance, CDP, warranties)

Question 18

What are the different types of contract?

Answer 18

Lump Sum

Target Cost

Cost Reimbursement

Remeasurement

Question 19

What is a Lump Sum Contract?

Answer 19

Fixed price for defined works

Contractor takes design and quantity risk

Used when scope is clear

Question 20

What is Remeasurement Contract?

Answer 20

Final price based on actual quantities measured

Common where scope is not fully defined at contract stage

Question 21

What is a Target Cost Contract?

Answer 21

Parties share cost savings/overruns against a target price

Encourages collaboration and cost control

Question 22

What is a Cost Reimbursement Contract?

Answer 22

Contractor is reimbursed for actual costs plus a fee

Suitable for emergency works or unknown scopes

Question 23

What JCT contracts are you familiar with?

Answer 23

JCT Design & Build (D&B)

JCT Standard Building Contract (SBC)

JCT Intermediate Building Contract (IC)

JCT Minor Works

Question 24

Difference between JCT Minor Works and JCT Design & Build?

Answer 24

JCT Minor Works
Simple, low-value projects
Employer provides full design
Minimal admin

JCT D&B
Complex, larger projects
Contractor takes on design responsibility
High contractor risk, less employer control

Question 25

When would you use JCT Intermediate Building Contract?

Answer 25

Medium-sized projects Some design complexity Employer-led design When Minor Works is too basic, but SBC is too complex

Question 26

What NEC contracts are you aware of?

Answer 26

NEC4 Engineering and Construction Contract (ECC) NEC4 Professional Services Contract (PSC) NEC4 Term Service Contract (TSC) NEC4 Framework Contract

Question 27

How is an NEC contract formed?

Answer 27

Core Clauses Main Options (A to F) Secondary Options (X-clauses) Contract Data, Scope, Site Information Optional Z-clauses (amendments)

Question 28

Talk through NEC Main Options:

Answer 28

Option Type A Priced contract with activity schedule (lump sum) B Priced contract with bill of quantities (re-measured) C Target contract with activity schedule D Target contract with bill of quantities E Cost reimbursable F Management contract

Question 29

Example of NEC Main Option?

Answer 29

Option C – Used for complex, collaborative projects with cost transparency and shared risk

Question 30

Example of NEC Secondary Options (X-clauses)?

Answer 30

Option Purpose X1 Price adjustment for inflation X2 Changes in law X7 Delay damages X16 Retention X18 Limitation of liability X20 Key performance indicators (KPIs)

Question 31

What is a Performance Bond?

Answer 31

A Performance Bond is a security provided by the contractor’s bank or insurer guaranteeing that the contractor will perform the contract according to its terms. If the contractor defaults, the bond can be called upon to compensate the employer.

Question 32

What is a Parent Company Guarantee (PCG)?

Answer 32

A PCG is a guarantee from the contractor’s parent company ensuring that the contractor’s obligations will be fulfilled. It provides the employer additional security, especially if the contractor is a subsidiary.

Question 33

What are warranties in construction contracts?

Answer 33

Warranties are contractual promises about the quality or performance of works, materials, or services. They may be given by contractors, suppliers, or designers and often provide remedies if defects or failures occur.

Question 34

What types of insurance are commonly required?

Answer 34

Typical insurances include: Contractors’ All Risks (CAR) Insurance – Covers loss or damage to works during construction. Public Liability Insurance – Protects against injury or damage claims from third parties. Employer’s Liability Insurance – Covers injury to employees. Professional Indemnity Insurance – For designers/consultants against design errors. Decennial Liability Insurance – In some countries, covers defects over a 10-year period.

Question 35

Why are these securities and insurances important?

Answer 35

They provide financial protection against risks such as contractor default, defects, accidents, or damage during construction, safeguarding the employer’s interests.

Question 36

What is a collateral warranty?

Answer 36

A collateral warranty is a separate legal agreement given by a contractor, consultant, or subcontractor to a third party (often the employer’s funder, tenant, or purchaser) that extends the original contract’s rights and obligations to that third party.

Question 37

Why are collateral warranties used?

Answer 37

They provide third parties who are not part of the original contract direct rights to enforce the contractor’s or consultant’s obligations, especially regarding defects, performance, and liability. This is important when the employer has transferred the building or when financiers or tenants want contractual protection.

Question 38

How does a collateral warranty differ from the main contract?

Answer 38

While the main contract is between the employer and the contractor/consultant, the collateral warranty creates a separate, parallel contract between the contractor/consultant and the third party, often mirroring key terms of the main contract.

Question 39

Why is a collateral warranty important in practice?

Answer 39

It allows third parties to have direct recourse against designers, contractors, or consultants if there are defects or failures, without needing to rely on claims through the employer, thus providing greater protection and certainty.

Question 40

What are Pre-Construction Services Agreements?

Answer 40

Pre-Construction Services Agreements (PCSAs), sometimes referred to as Pre-Contract Services Agreements, enable clients to employ contractors before the main contract for the construction of the works has been awarded. Typically they are part of a two-stage tender process, used in the first stage to procure contractor involvement in the design process, where the second stage procures the construction of the project.

Question 41

Early appointment of the contractor under a Pre-Construction Services Agreement can allow them to?

Answer 41

Contribute to the design process. Advise on the buildability, sequencing, and risk of the construction works. Advise on the packaging of the works for sub-contractors and suppliers (and the risks of interfaces between packages). Advise on the selection of specialist contractors. Help develop the cost plan and construction programme. Help develop the method of construction. Obtain prices for work packages from sub-contractors or suppliers on an open book basis. Prepare a site layout plan for the construction stage showing temporary facilities. Draft the preliminaries for specialist and trade contractor bid documents. Assist with any planning application on matters concerning the build phase, such as; waste disposal proposals, construction traffic movements, tree preservation protection, etc.