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Contract Practice Flashcards

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1
Q

What is a collateral warranty ?

A

A contractual relationship between a party of the main contract and an external third party. This relationship would not otherwise exist due to privity of contract

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2
Q

Provide an example of when a collateral warranty may be used ?

A

Between an employer and a subcontractor for if the main con goes insolvent, the employer still has contractual agreements with the sub contractors to fulfill their obligations

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3
Q

What are the common clauses in a collateral warranty ?

A

The collateral warranty should mirror the main contract agreement. Common terms include limitation of liability, requirements for PI insurance, Novation and assignment rights

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4
Q

What are the standard forms of collateral warranties?

A

JCT standard form of collateral warranty for a funder
JCT standard from of collateral warranty for a future purchaser or tenant
Sub contractor warranty

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5
Q

Are you aware of any case law associated with collateral warranties ?

A

Abbey Healthcare v Simply Construct 2024 that established collateral warranties are not construction contracts under the act as their purpose is not to carry out construction works

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6
Q

What are third-party rights ?

A

Allows third parties to enforce terms of a contract that they are not a party to but which may benefit them in some way.

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7
Q

What legislation governs third party rights?

A

Contracts (rights of third parties) Act 1999

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8
Q

What are some advantages of third party rights ?

A

No separate documentation so no associated time and cost implications, unlike collateral warranties

They can be extended to sub contractors, avoiding the need to chase multiple warranties

They provide a level of certainty as once the rights have been negotiated and agreed, there is limited room to revisit the wording

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9
Q

What are some disadvantages of third party rights ?

A

Lack of flexibility - limited room for negotiation once the rights had been agreed
Require careful drafting to ensure all necessary rights are conferred on the third party e.g the right to commence adjudication

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10
Q

What is assignment ?

A

Transfers the benefits of the contract to a third party, but the burden remains with the original party to the contract

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11
Q

What are the typical clauses of assignment ?

A

It is standard to allow assignment of rights twice without consent
The assignment should be notified in writing to the other party

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12
Q

What is novation ?

A

New contract to transfer the rights and obligations of one contractural party to a new third party

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13
Q

What is an example of novation?

A

Employers designer may be novated to work with the contractors design team under design and build contract

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14
Q

How does novation affect the employers rights?

A

They lose all contractual relationships with the novated party and therefore the right to take action for a breach.
A collateral warranty may be drawn between the employer and the novated party

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15
Q

What are the advantages of novation ?

A

By the employers designer being novated to the contractors design team, they can provide an insightful understanding of the employers expectations and requirements

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16
Q

What are the disadvantages of novation?

A

A collateral warranty may have to be drawn, which can take time, so that the novated party still have a contractual relationship with the employer in case of breach

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17
Q

What is a Pre Construction Services Agreement?

A

A contract between the employer and the contractor for pre construction services. The contractor is to perform these services prior to signing the building contract

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18
Q

When would you use a PCSA?

A

During a two stage tender to facilitate early contractor engagement

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19
Q

What activities can a PCSA be used for ?

A

Contributing to the design process
Advising on buildability, sequencing and construction risk
Assist with any planning application matters
Advise on selection of specialist contractors

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20
Q

What should be considered when drafting a PCSA?

A

That the arrangements do not commit the employer to entering into contract with the contractor. The employer should have means of securing another bid if the second stage negotiations fail.

The scope of service is clearly defined and unambiguous for the contractor

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21
Q

What happens at practical completion?

A

The works are substantially complete with minor defects
Half of the retention is released to the employer
Employer surrenders the rights to apply liquidated damages
Employer is responsible for insuring the building works
Employer is able to gain beneficial occupancy of the development

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22
Q

What is sectional completion?

A

The completion and handover of works is agreed in stages. It is a contractractual obligation to hand back the section

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23
Q

What is partial possession?

A

Employer requests to take possession of part of the works from the contractor and the contractor has to give consent.

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24
Q

What is a non- completion certificate ?

A

The architect issues this certificate to certify the works have not been complete by the relevant completion date. The employer then has the right to withhold liquidated damages as long so the withholding notice has been given.

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25
From producing the PCSA on the 15 colmore row project, what did you include in the PCSA?
In the PCSA we included services for the contractor to : provide buildability input in terms of the selection, availability and price of materials. Identifying materials that may require advanced ordering and processing Provide RIBA stage 4 design information Once the design work had been completed, the document included provisions that stated RLB would have ownership of the design
26
What are stage payments ?
Stage payments are when payments are made to the contractor upon their completion of a stage or milestone within the project. These stages are agreed upon entering the contract and for example: on completion of foundations
27
What is the difference between named and domestic subcontractors ?
Domestic are chosen by the contractor Names is when the employer presents the contractor with a list of their preferred/ approved subcontractors for them to choose off.
28
What is contractors design portion?
Typically used on traditionally procured projects, design responsibility for specific elements of the building is transferred to the contractor
29
What is the difference between contractors design portion and D&B?
Traditional procurement with CDP is when the employer is responsible for the design apart from certain elements that are transferred under CPD. D&B is when all the design responsibility lies with the contractor
30
How are contractors design portion elements executed?
A performance spec is provided at tender stage and the contractor provides the design proposals in response. These proposals are then reviewed by the design team and either accepted, commented on or rejected.
31
What elements are typically transferred via contractors design portion ?
Steelwork connections, cladding, roofing, MEP elements
32
How might assignment be applied?
A party to a contract want to assign the benefits under that contract to a third party. Banks or funders to a project may want to take an assignment of the benefits of a suite of construction documents in respect to a development as an additional security measure. They would want to acquire the benefits of such documents to be able to assume the position of the employer under them in the event of the employer defaulting on its financial obligations during the works
33
What is a letter of intent?
A letter from an employer to a contractor indicating the employers intention to enter into a formal written contract. Typically asks the contractor to fulfill works prior to the execution of the formal contract
34
What information is included in the letter of intent?
- detailed description of the works - date of possession and completion - insurance provisions required - method of payment - expiry date of letter - employers right to not award the main contracts - ADR method
35
What are the advantages of a letter of intent?
- allows for works to start on site prior to the signing of the main building contract - allow a for early procurement of materials that have a long lead time to aid
36
Disadvantages of letter of intent?
- may lead to complacency for the both parties to enter into the main contract - contractually less robust that the main contact - the precise terms of the parties contract may not have been fully agreed up to that point, meaning the terms governing the works undertaken under the letter of intent are open to debate
37
Are you aware of any case law relating to letters of intent?
Abbey trust Vs Turner and Townsend - the trust procured all works under a letter of intent. Due to the project delay, the trust was therefore unable to claim LAD’s. The trust was found to be negligent due to them failing to enter into the formal building contract
38
What are the different types of letter of intent?
Comfort letter- expressing a party’s intention to act in a way at some point in the future Instruction to proceed with consent to spend- allows works to proceed up to a certain value while the main contract itself is being finalised. Recognition of contract- used by some forms of contract (FIDIC) to formally execute the contract itself. Generally issued once the contract has been substantially agreed and marks the completion of a negotiation.
39
What is the difference between a PCSA and a LOI?
PCSA - is a ‘stand alone’ agreement typically used during the first stage of a two stage tender where the preferred contractor joins the employers design team. The PCSA outlines a defined scope of works with no obligation to enter into the main building contract. LOI - temporary measure that is used until the outstanding elements of the building contract are agreed. Typically the LOI is used in a situation where the employer has already identified the contractor to undertake the work.
40
What is a bond?
Protection for the owner of the bond against non-payment, lack of performance and company default
41
What is a performance bond?
Bond provider provides a payment to the employer in circumstances where the contractor has defaulted/ cannot compete works under the contract
42
Why might an employer want a performance bond?
If the contractor is new or unapproved If they have concern over the contractors finances
43
What is the value of a performance bond?
Typically 10% of the contract sum
44
What are the types of performance bonds and how do they work?
On demand bond- money set out in the bind is immediately available without having to satisfy any pre conditions Conditional- requires the employer to provide evidence that the contractor has not performed their obligations under the contract and that they have suffered a loss consequently
45
What is the risk of not having a performance bond?
The contract will bear the cost of dealing with the originally appointed contractor insolvency to compete the works. Meaning they will have to find a new contractor and pay the premium for the new contractor to absorb the risk of the previous works that have been completed so far.
46
What is an alternative to a performance bond ?
A parent company guarantee - if the smaller company breaches the contract, the parent company is obliged to step in and remedy the breach
47
What is a tender bond?
Provides security in the event the successful tenderer fails to enter into the contract. It helps prevent idle tendering
48
What is a retention bond?
Instead of the employer withholding retention when paying the contractor, the bond provider will provide the employer with the full amount of the retention they would of withheld, in the event that the contractor fails to perform their obligations or remedy defects.
49
What is an advantage of a retention bond?
It can aid contractor cashflow in difficult market conditions
50
What is a disadvantage of a retention bond?
Employer will have to pay the premium for taking out the bond via the contract sum May reduce the contractors incentive to complete works to the desired standard
51
What is a materials off site bond?
Covers the employer against the risk of paying the contractor for materials that are being manufactured off site and in the event the contractor becomes insolvent, the employer can claim on the bond for the goods paid for.
52
What is an advanced payment bond?
Protects an employer by ensuring they can recover an advanced payment if the contractor defaults on a contract
53
How did you assess the contractor was eligible for the 90% valuation on the Harvester Slough project?
- reviewed the contractors submitted rolling account prior to visiting site - attended site and checked that the works were completed, materials on site and materials off site - liaised with designer to ensure works completed - value the agreed variations - send the recommendation to the CA to issue the payment certificate
54
What are the main elements of an interim valuation?
- preliminaries - measured work - variations - materials on and off site - adjusted provisional sums - retention
55
What are the implications of over or under valuing the works?
An interim valuation must be a realistic assessment. A low valuation creates unreasonable financial problems for the contractor, whereas a high valuation creates a risk of the employer paying for sums and not seeing the benefit.
56
What are the valuation rules under JCT?
- similar nature and quantity = use schedule of rates - similar nature but a different quantity or condition = use schedule of rates as a basis but allow a fair allowance to account for the difference - not similar nature = fair and reasonable rates and prices, aka star rate. Utilise market rates, day works
57
Can you explain the payment timeline for JCT D&B Contract?
- contractor makes application for payment 7 days prior to due date - contract administrator must issue payment notice within 5 days of the due date - there is then 14 days between the due date and the final date for payment - If the employer wishes to issue a pay less notice, this must be issued 5 days prior to the final date for payment
58
What is typically shown on a payment certificate / notice?
- date of certificate - contract date - key payment timeline - employer, contractor and CA details - site address and project number - contract sum - gross value - certificate number - retention - cumulative value of previous payments - amount due - employer and CA signature
59
What is a Payless notice ?
Give the client the right to withhold the notified sum from the contractor
60
What happens if the client fails to issue the Payless notice?
The client will be obliged to pay the notified sum without deduction, regardless of whether they have a valid challenge to the sum
61
What is a final account?
The conclusion of the contract sum and signifies the agreed amount the employer will pay the contractor
62
What are the usual components of a final account?
Summary Variations Adjusted provisional/ prime cost sums Total of interim certificates Retention Original contract sum Final account sum
63
When should the final account be agreed in JCT standard building contract?
Contractor must submit the final account within 3 months of Practical Completion. The contract administrator/ architect then has to review the submission. There is no set timeline, but it should happen reasonably soon after submission.
64
When should the final account be agreed in JCT standard building contract?
Contractor must submit the final account within 3 months of Practical Completion. The contract administrator/ architect then has to review the submission. There is no set timeline, but it should happen reasonably soon after submission.
65
What clause in JCT contracts outlines the final account timeline?
4.21
66
What is a notional final account ?
A final account prepared when the contractor is facing insolvency. Typically this will be greater then the original forecast final account value due to the costs incurred by the client to appoint a new contractor
67
What key elements should a binding contract consist of?
- offer - acceptable - consideration - intent to create legal relations
68
What did the housing grants construction and regeneration act 1996 provide?
- allow parties to go to adjudication - adequate payment mechanism, removing pay when paid certified clauses - suspension of performance for non payment
69
What is the difference between a bond and a collateral warranty
A bond is a financial commitment backed up by third party, collateral warranty passes on contractual obligations
70
Why are step in rights for a collateral warranty?
Allows a third party beneficiary (Subbie) to step into the shoes of the employer or main contractor to ensure project completion. The collateral warranty will include provisions for notice periods
71
What are some different contract suites?
JCT NEC FIDIC- international federation of consulting engineers
72
What is the difference between minor works and intermediate building contract?
- Minor works doesn’t have named subcontractors - 7 sections in minor works, 9 in intermediate - Intermediate includes sections for assignment, performance bonds and collateral warranties - Intermediate includes section for Variations - No partial possession in minor works - no relevant events in minor works
73
What are the typical implications of partial possession?
- half retention is released proportionate to the area of possession - the client is responsible for insuring that part of the works - contractors liability for liquidated damages ends in proportion to the area of possession - the defect rectification period commences
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