What is a contract?
A legally binding agreement between two or more parties to fulfil an obligation to another party in return for consideration.
What are the 6 parts that make up a contract?
- Offer
- Acceptance
- Intention
- Consideration
- Capacity
- Legality
Define express terms
Terms of the agreement which are expressly agreed between the parties, ideally written into a contract but if verbally agreed then it is what was discussed and agreed verbally.
Define implied terms
A contractual term that has not been expressly agreed between the parties but has been implied into contract either by common law or statute.
What’s the difference between statutory provisions and contract provisions?
- Statutory: set out by law and must be complied with regardless
- Contract: relate to contract in question and therefore only apply to a specific project
Explain what an oral contract is?
It is legally binding, but it is difficult to explain the specific terms and conditions of the agreement. Written is always preferred.
What is a breach of contract?
An act of breaking the terms agreed in the Contract.
What is the key legislation that established rights for payments in the construction industry?
The Housing Grants, Construction and Regeneration Act 1996.
What is the Local Democracy, Economic Development and Construction (LDEDC) Act 2009?
- Amended the Housing Grants Act
- Abolished the requirement for construction contracts to be in writing
- Introduced a more robust payment notice procedure (5 days after the due date)
- The right to suspend work for non-payment (Contractor right)
What is a parent company guarantee?
It offers a form of security for the employer if the contract defaults, breaches the contract or fails to complete the works, ensuring the project can still be finished or losses are recovered.
What are the different construction bonds available?
- Performance bond
- Retention bond
- Advance payment bond
- Off-site materials bond
- Adjudication bond
What are the two different terms of a bond?
- On demand: Not required to provide evidence the Contractor has not performed their obligations
- Conditional: Evidence is required
What is a performance bond?
A means of insuring a client against the risk of a contractor failing to fulfil their contractual obligations to the Client.
What is an advance payment bond?
Used when advance payment is required for construction goods or services.
Why did you request the Contractor to use a PCG on the Manchester Arndale project?
It offered a means of protection for my Client in the event the Contractor failed to meet the terms in the Contract and was unable to complete the works.
What were the advantages and disadvantages of using a PCG?
- Advantages: No extra cost compared to a bond
- Disadvantages: If the parent company became insolvent, financial stability was reviewed by the FRM team
Did you consider a bond as opposed to a PCG?
A performance bond would have provided protection against non-performance but would have been at extra cost and hard to take out due to market conditions.
Are performance bonds easily accessible in the current market?
Case by case basis; current market turbulence has tightened the surety bond market.
What financial checks were taken on the Contractor for the escalator replacement works?
- Request financial statements
- Previous 3 years of company financial accounts
- Credit reports
- Company Watch score
- Other software solutions like Dunn & Bradstreet and Credit Safe
What is insolvency?
Insolvency is the company’s inability to pay its debts when they are due.
What are the initial signs of a Contractor going insolvent?
- Delayed payments
- Attempt to renegotiate terms
- Cash-flow issues
- Higher than usual staff turnover
- Deteriorated service performance
- Early invoicing
- Frequent change in suppliers or delays in obtaining parts/materials
What’s the first thing you should do if a Contractor goes insolvent?
- Inform the client immediately
- Notify their insurers
- Secure the site and any materials on site
- Withhold any payments
Do you know any legislation in the UK that sets the standards for insolvency?
The Insolvency Act 1986.
What are the types of insolvency procedures?
- Administration
- Liquidation
- Company voluntary arrangement
- Receivership
