Contract Practice Flashcards

Question

What is a cost-plus contract?

Answer 1

The contractor is reimbursed for actual costs plus an agreed fee or percentage for overhead and profit.

Answer 2

Direct losses flow naturally from a breach (e.g. repair costs); indirect losses are consequential, such as loss of profit.

Answer 3

Only the parties to a contract have rights and obligations under it.

Answer 4

To provide fair payment provisions and a statutory right to adjudication for all construction contracts.

Answer 5

A payment notice must state the amount due and the basis of its calculation; pay less notices must be served before the prescribed deadline.

Answer 6

A deed doesn’t require consideration and usually has a 12-year limitation period; a simple contract requires consideration and has a 6-year limitation period.

Answer 7

A legally binding promise by one party to fulfil an obligation to another party in exchange for consideration

Answer 8

Term that have been expressly discussed and agreed between the parties. Ideally they will be written down in a contract.

Answer 9

Terms that have not been expressly discussed and agreed between the parties but have been implied into the contract either by common law or by statute.

Answer 10

A civil wrong that causes loss or harm to the claimant.

Answer 11

Statutory provisions are set out by law and must be complied with regardless. Contract provisions relate to the contract in question and therefore only apply to the specific project.

Answer 12

when a party in a binding contract fails to deliver according to the terms of the agreement.

Answer 13

The Local Democracy, Economic development and Construction Act 2009

Answer 14

The act amended the 1996 Construction act

Answer 15

1. Repeals the requirement for construction contract to be in writing 2. Pay-when-certified clauses cant be used 3. Must specify that either the payer or the payee will issue the payment certificate 4. contractor right to suspend the work in the event of non-payment

Answer 16

A letter from the employer to a contractor stating their intentions to enter into a formal written contract for the works.

Answer 17

1. Description of the work (scope) 2. Contract sum (if agreed) 3. Date for possession 4. Date for completion 5. Insurance provision required 6. Expiration date for the letter.

Answer 18

Allows work to begin before the main contract is agreed and signed

Answer 19

1. May lead to complacency and disincentivise both parties from signing the contract 2. Less robust that a contract 3. Employer's regotiation strength is usually reduced.

Answer 20

the employer/client

Answer 21

- when employer needs to start work on site before a certain date - where materials have long lead periods and early procurement would aid the programme - starting construction might trigger external founding

Answer 22

client and contractor

Answer 23

It can be a legally binding document therefore it should be written by a legal or contract professional.

Answer 24

- Comfort: expresses a party's intention to act in particular way at some point in the future - Instruction to proceed with consent to spend: allows work to commence up to certain value - recognition of contract: used usually in FIDIC to mark the completion of negotiations

Answer 25

Ampleforth Abbey Trust v Turner & Townsend -T&t worked as PMs for the Trust. -The contractor never signed the building contract and the whole of the works was procured using letters of intent. -The works finished late and the Trust was not able to claim for liquidated damages - The case was awarded in favour of the Trust as T&T had been negligent in filing to take the steps reasonably required of a competent project manager to finalise the building contract.

Answer 26

A parent company guarantee (PCG) is a form of security that may be required by clients to protect them in the evento of default on a contract by a contractor that is controlled by a parent company (or holding company). Typically, such a default might be caused by the insolvency of the contractor.

Answer 27

Parent company guarantee can be particularly useful where a small contractor is part of a large financially stable group of companies. The guarantee is given by the parent company to the client and in the event the contractor defaults on their obligations, the parent company is required to remedy the breach, meeting all the contractor´s obligations under the contract (and/or covering loss and expense incurred by the client.

Answer 28

Contracts (Rights of the Third Parties) Act 1999.

Answer 29

The Act allows third parties to enforce terms of contracts that they are not party to, but that benefit them in some way, or which the contract allows them to enforce. It also gives parties access to various remedies if those contract terms are breached.

Answer 30

-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 ares 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. -Subcontractors The third-party rights process can also be extended to subcontracts, so that (provided the relevant building contract and subcontract are drafted accordingly) and employer can unilaterally confer third party rights in relation to work done by subcontractors. This avoids the need to chase large number individual warranties.

Answer 31

-Lack of flexibility Once the schedule of third-party rights conferred has been agreed, there is limited room for negotiation. While this can be an advantage as it will help to keep cost down, in some circumstances the inflexibility could cause a problem if a specific provision is required for a particular party, such as an incomiong tenant or purchaser. -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 32

If a lot of collateral warranties are required, it can involve a lot of administration and cost. Third-party rights are easier to get in place because there is no separate document required.

Answer 33

A collateral warranty is a formal contractual agreement which runs alongside another contractual agreement; its purpose is to create a contractual relationship between two parties (e.g. companies or individuals) where one would not otherwise exist.

Answer 34

The employer places a contract with a contractor, the contractor then places several subcontracts with its suppliers to undertake the work. The employer has a direct contractual relationship with the contractor, but has no contractual relationship with any of the subcontractors (this is known as "privity" of contract". In these circumstances the employer may wish to have a direct contractual relationship with the subcontractor so that it can enforce the obligations that the subcontractor owes directly, or to create other obligations and rights between them. This might be considered a security measure if the contractor should become insolvent or if its empliyment were to be terminated for any reason.

Answer 35

Any third party with a financial or inherent interest in the project but is not party to the main contract. E.g. funding institution, future tenants, purchasers, etc. The employer may want a collateral warranty with key subcontractors or suppliers, if the contractor were to go into liquidation, otherwise they would have no contractual link with them for redress in case of defective workmanship, etc.

Answer 36

-A bond is usually a financial commitment backed up by a third party, a collateral warrantly passes on contractual obligations. -Bonds are contained within the contract. -Collateral warranties are a side agreement to the contract.

Answer 37

An alternative method to confer such rights is provided by the Contrcts (Rights of Third Parties) Act 1999 which allows third parties to obtain benefits from contracts, which are entered into by others.

Answer 38

-Collateral warranties. -Third party rights. -Assignment.

Answer 39

Parkwood Leisure v Laing O´Rourke

Answer 40

In light of the particular wording used in the collateral warranty, there was no doubt that it should be treated as a construction contract under Section 104 of the Housing Grants, Construction and Regeneration Act 1996.

Answer 41

The design team typically sit below the contractor under a D&B contract; therefore, the employer will need to retain a contractual link with the design team (using a collateral warranty).

Answer 42

Assignment is the process whereby the benefit of a contract is transferred from one party to another, but the burden of the contract remains with the original party to the contract.

Answer 43

- XYZ Contractors assigned the benefit of a subcontractor’s performance bond to a client as part of their risk management strategy. This ensured that in case of subcontractor default, the client would directly benefit from the bond. -Assignment can arise where one party wants to assign a benefit of the building contract to a third party, such as a purchaser or tenant. -Banks and other funders will frequently take and assignment as an additional part of the security package for their loan to finance the development in the event of the employer defaulting on its financial obligations during the works.

Answer 44

-It is standard to allow assignment of rights twice without consent. -The assignment should be notified in writing.

Answer 45

Construction bonds are protection for the owner against non-payment, lack of performance, company default and warranty issues. An arrangement where a contractual duty owed by one party to another us backed up by a third party.

Answer 46

-Performance bond -Retention bond -Off-site material bond -Advance payment bond -Tender bond

Answer 47

-A Performance Bond is a form of security provided by a contractor or employer. -It consists of an undertaking by a bank or insurance company to make a payment to the employer in circumstances where the contractor has defaulted under the contract.

Answer 48

-If the contractor is new or unapproved -If there is concern over the contractor´s finances/ commercial standing -The economy might be heading into recession -The employer simply wants to protect their commercial exposure

Answer 49

-On demand bonds: money set out in the bond is immediately available on demand without needing to satisfy any preconditions whatsoever (including establishing the crontractor´s liability), unless the demand is fraudalent. -Conditional bonds: require the employer to provide evidence that the contractor has not performed their obligations under the contract and that they have sufered a loss consequently.

Answer 50

Usually, 10% of the contract sum.

Answer 51

The cost largely depends on the financial stability of the contractor and the number of previous claims (if any).

Answer 52

-In the event a contractor goes into insolvency and there is no bond in place, the employer will be liable to pay all costs to deal with the insolvency. -Costs include sourcing a new contractor to complete the works and any premium that will attract. -The employer will nor be able to pursue the contractor as the company will be in the process of liquidation.

Answer 53

If the contractor is part of a group of companies, then the employer may wish to consider a Parent Company Guarantee (PCG). If the smaller company breaches the contract, the parent company is obligated to step in and remedy the breach.

Answer 54

Requested by the employer when inviting contractors to tender for a contract. A tender bond provides security against the risk of the successfukl bidder failing to enter the contract. It should help prevent idle tendering

Answer 55

Covers an employer against the risk of paying the contractor for materials being manufactured off-site. If the contractor or subcontractor becomes insolvent, the employer can claim on the bond for goods paid for (in the event they are not delivered to site).

Answer 56

A retention bond is a type of performance bond. Like all surety bonds, it involves three parties: -contractor -employer -bond provider (surety company) In the bond agreement, the surety will act as a guarantor between the two parties. The surety will pay the employer up to the full amount (like they would have in place of cash retention) if the contractor fails to perform the obligations or remedy defects immediately after contract completion.

Answer 57

The employer will ultimately have to pay the premium for taking out the bond (usually through the contract sum). May reduce the contractor´s incentive to complete the work promptly and to the desired standard.

Answer 58

May be used in difficult market conditions to aid the contractor´s cash flow.

Answer 59

An advanced payment bond is required to protect and support payments to contractors by the employer in advanced of work being done. Some contracts require the purchase of materials in advance of the contract commencing. There is always a risk to the employer in advancing money to a contractor, particularly if it´s a new relationship. An advanced payment bond protects the payment being advanced in exchange for a bond underpinned by a suitable guarantor to give peace of mind to both parties.

Answer 60

Items as: -Historical artefacts, pottery and coins. -Bones or fossils. -Something of historical interest or value. -Archaeology.

Answer 61

-Cease work and seek advice prior to proceeding. -Take the necesaary measures to preserve in the existing location and condition. -Inform the contract administrator or project manager of the discovery and the location.

Answer 62

This depends on how the risk is allocated within the contract. Significant delays and costs can arise, which can be a serious event for the employer and/or contractor.

Answer 63

Broadly defined as a defect in workmanshipm design, material, or systems used. The result is a failure of the building project or structure that causes damage to people or property. This, in turn, leads to financial losses or harm to the owner. The NEC contract defines a defect as: -A part of the work which is not in accordance with the scope or, -A part of the work designed by the contractor which is not in accordance with the applicable law ir the contractor´s design wich the project manager has accepted.

Answer 64

Patent defects are those which can be discovered by reasonable inspection. Patent defects would include wall cracks, sagging gutters, broken windows, missing tiles, etc.

Answer 65

Latent defects are those which cannot be discovered by reasonable inspection. For example, problems with foundations may not become apparent for several years after completion when settlement causes cracking in the building.

Answer 66

12 months will allow the building to go through all seasons of the year; therefore, most defects (with exception of latent defects) will become apparent within this period.

Answer 67

Under a design & build contract, novation normally refers to the process by which design consultants are initially contracted to the client, but are then "novated" to the contractor. The contractor will then go on to manage the remaining design process with the existing design team, rather than bring their own consultants onboard.

Answer 68

Not usually; this is because the designers are typically retained by the employer.

Answer 69

-Reduced learning curve - by working with the client at an early stage, the design team can gain a strong understanding of the project requirements. If the design team are not novated, this learning is potentially lost, and parts of the process will need to be replicated with a new design team. -Reduced contractual risk for employer - the process of novation and the transfer of responsability to the contractor means the employer assumes minimum risk contractually.

Answer 70

-Following novation of consultants, the employer will generally require collateral warranties. -The client may need to employ a shadow team for compliance purposes. -There is potential for conflict-of-interest, particularly in relation to services that remain to be performed.

Answer 71

A percentage of the sums certified for payment under the construction contract, typically 3-5%, are held by the employer during the construction phase.

Answer 72

Retention - 1st edition 2012.

Answer 73

It is used as an assurance of project completion and is intended as a safeguard against subsequent defects that the contractor may fail to remedy.

Answer 74

If the contractor does not return to correct the defects, then the retention may be used to fund the payment of others to correct the defects. The project manager/ contract administrator will need to check the contract for the ability to do this and the relevant notices that should be given to the contractor prior to appointing others to undertake the works.

Answer 75

Typically, retention monies are released in 2 stages: -At the time of issuing the completion/ practical completion statement, the first gall of the retention monies will be certified and released. -The second half of the retention monies will be certified and released upon expiration of the rectification period.

Answer 76

Usually, the employer.

Answer 77

It is possible to procure a retention bond to cover the retention that would otherwise have been deducted.

Answer 78

Professional negligence occurs when a professional fails to perform their responsabilities to the required standard or breaches a duty of care. This poor conduct subsequently results in financial loss, physical damage or injury to their client or customer.

Answer 79

Make a claim on their professional indemnity insurance (PII)

Answer 80

Manufacturers and/or suppliers of products incorporated in construction work are at risk of claims being made against them for damages if defects in those products result in damage or injury. Product liability insurance protects the policyholder against liability resulting from these defects.

Answer 81

Public liability insurance protects against liabilities for injury to third parties or their property. For example, a member of the public could make a claim if a fallen brick damaged their car or if a supplier tripped over an unsecured cable.

Answer 82

Employers´liability insurance can pay the compensation amount and legal costs if an employee claims compensation for a work-related illness or injury.

Answer 83

Typically used on traditionally procured projects, design responsibility for specific elements of the building is transferred to the contractor.

Answer 84

Traditional procurement with CDP - the design responsibility lies with the employer except for certain elements that are transferred under CDP. Design & build - all responsibility for the design rests with the contractor.

Answer 85

A performance specification is provided at tender stage, the contractor then provides design proposals in response. These proposals are then reviewed by the design team and either accepted, commented upon or rejected.

Answer 86

-Steelwork connections. -Cladding. -Roofing. -Temporary works. -MEP elements.

Answer 87

Domestic subcontractors are chosen by the contractor to execute a package of work. Neither the employer´s consultants (e.g. architect, PM, QS, etc,) nor the employer themselves influence the appointment or the conditions.

Answer 88

The employer provides a list of named subcontractors that are pre-approved. The contractor selects one from the list through the tendering process. Once appointed by the contractor, they then become a domestic subcontractor.

Answer 89

Naming a subcontractor provides the employer with more control to the selection of a subcontractor by the contractor, while still leaving them with the element of choice and the responsibility of monitoring their performance.

Answer 90

A nominated subcontractor is selected by the employer to carry out an element of the work (still employed by the contractor). Nominated subcontractors are usually imposed on the contractor.

Answer 91

As the subcontractor is being imposed on the contractor, the contractor will generally be allowed the right to object under certain conditions (safety reasons, for example). The contractor and subcontractor may have conflicting procedures, ethics, attitudes, etc.

Answer 92

On the basis that the employer has nominated them in the first instance, their work should be of high quality and acceptable to the employer.

Answer 93

Subcontracting, 1st Edition, April 2021.

Answer 94

Insolvency is concerned with the inability to pay debts.

Answer 95

-Thoroughly check financial accounts for stability. -Check for front loading of the tender submission. -Bank references. -Use credit checking agencies (Dun & Bradstreet Report). -Previous references (from consultants and employers). -Request a bond and/ or parent company guarantee - this will not prevent insolvency but will give the employer comfort in the event of default.

Answer 96

the legal ending of an agreement before all parties have fulfilled their obligations, releasing them from future duties. When a contract is terminated, the parties are no longer ibliged to perform their obligations under the contract.

Answer 97

If the notified sum id not paid by the final date for payment, the Construction Act 2009 puts the payee in a stronger position than before. The contractor can now suspend the performance of any or all of its obligations, not just the work. The contractor can stop insuring the works, postpone applying for a necessary consent, or refuse to implement a variation instruction. -The payee will be entitled to a "reasonable amount" for its re-mobilisation costs, as well as an extension of time.

Answer 98

A genuine pre-estimate of loss suffered by the employer because of late completion of the works. The damages are inserted into the contract prior to signing by the contracting parties Key points: -LDs should not be a penalty. -Quick remedy to avoid having to prove actual loss due to the breach. -The contractor knows their liability. -The employer should calculate the figure (consultants should not do this on their behalf).

Answer 99

-Loss of rent or other income. -Additional professional fees. -Expected costs incurred by other parties. -Cost of not having a facility (storage, rent, abortive costs, etc.). -Capital salaries. -Associated legal costs. The figure should not be construed as a penalty; thus, the employer needs to be realistic when identifying potential costs.

Answer 100

-Exercise due dilligence - check that they do believe 100,000 pounds per week is a genuine pre-estimate of likely loss. -If there is a concern - explain that the damages might be construed to be a penalty (they may not be enforceable).

Answer 101

A non-completion notice/certificate is in place. The contractor is formally notified that the employer intends to levy liquidated damages. A pay-less notice is served.

Answer 102

This is essentially just a grace period during which the contractor has no commerical liability for delay. For example, if the contractor has a two-week LDs holiday, LDs will only begin accruing after the delay has continued for two weeks.

Answer 103

Placing "nil" or 0 pounds against the damage clause effectively means there are no loquidated damages. This action may also prevent the employer from pursuing the contractor for unliquidated damages.

Answer 104

If the clause is left blank, then the employer can pursue the contractor for unliquidated damages if they choose to do so.

Answer 105

Contracting parties might agree to pay a certain amount on breach of the contract (usually due to a completion delay). When such provisions are created in the contract, they are known as liquidated damages. Unliquidated damages are granted by the courts based on assesment of the loss or injury caused to the party suffering a breach of contract.

Answer 106

Damages cannot be deducted from the original date; damages are levied from the revised practical completion/ completion date.

Answer 107

In essence, yes, provided that: -The damages levied are not deemed to be a penalty on the contractor. -The original calculation is a genuine pre-estimate of loss.

Answer 108

A contract between the employer and contractor for pre-comstruction services. The PCSA documents the services that the contractor is to perform before signing the building contract and identifies the terms and conditions under which these services are to be performed.

Answer 109

In a two-stage tender approach to facilitate early contractor involvement.

Answer 110

Early involvement of the contractor should improve the buildability and cost certainty of the designm as well as creating a better integrated project team and reducing the likelihood of disputes.

Answer 111

-Contribute to the design process. -Advise on buildability, sequencing and construction risk. -Advise on the selection of specialist subcontractors. -Help develop the cost plan and construction programme. -Help develop the method of construction. -Assist with any planning application matters or other approvals.

Answer 112

Arragements do not commit the employer ton entering into the building contract. It is important that the employer have a means of securing an alternative bid if second.stage negotiations fall. The scope of service for the contractor is clearly defined and unambiguous. The usual programme and delay damage clauses are carefully drafted by the legal team.

Answer 113

JCT (Joint Contracts Tribunal). NEC (New Engineering Contract). FIDIC (International Federation of Consulting Engineers). Bespoke contracts are also used.

Answer 114

Nature of the client. Priorities - cost, time, quality and risk allocation. Procurement choice. Value of work. Type/ nature of work. Public or private employer. Complexity of work. Size and location of work.

Answer 115

Bespoke contracts are contracts that are tailored to fit the specific requirements of a project. Bespoke contracts are often used when standard forms are not suitable.

Answer 116

Written by legal experts. The rights and obligations of each party are clearly set our to the required level of details. Parties should be familiar with the provision in the form, resulting in greater consistency in application and fewer unforeseen anomalies.

Answer 117

Familiarity decreases as they are rarely used. Expensive to draft (legal fees). May be poorly drafted and lead to ambiguity. Not familiar to the party administering the contract. Clauses of provisions might be untested in court. This type of contract could be unappeling to the contractor.

Answer 118

A bespoke (or tailor-made) contract is appropriate when a project's unique requirements, risks, or complexity cannot be adequately managed by standard form contracts (such as JCT, NEC, or FIDIC) When amending a standard contract will not do, the most efficient means of achievieng a client´s requirements might be to create a bespoke contract.

Answer 119

As consultants, we do not have legal training, so we do not amend the contract ourselves. All amendments should be drafted by the legal team.

Answer 120

Amendments can spoil the delicate balance os risk allocation. Can create legal uncertainty. Can attract cost premium to tenders. Amendments must be reasonable and comply with legislation. Courts can strike out amendments if they are contrary to good faith.

Answer 121

Join Contracts Tribunal.

Answer 122

Standard Building Contract Intermediate Building Contract Minor Works Building Contract Major Project Construction Contract Design & Build Contract Management Building Contract Construction Management Contract Measured Term Contract Prime Cost Building Contract Repair & Maintenance Contract Homeowner Contract

Answer 123

The contract is designed for smaller, basic construction projects where the work is of a simple nature. Minor Works Building Contracts are suitable for projects procured via the traditional method. JCT Minor Works contracts are designed for projects that take a year or less to complete, and have a contract value of under £500,000.

Answer 124

The employer is responsible for the design. The employer (through its advisers) will need to provide drawings, a specification, or work schedules to specify the quantity and quality of work at tender stage. If the appointed contractor is to be responsible for designing specific parts of the works, then a Minor Works Building Contract with contractor´s design must be used. The Minor Works Building Contract is not suitable where the project is complex enough to require bills of quantities, detailed control procedures, or provisions to govern work carried out by named specialists. Minor Works Building Contracts are normally administered by the architect or a contract administrator.

Answer 125

The contract is designed for construction projects involving all the recognised trades and skills of the industry, where fairly detailed contract provisions ared needed, but without complex building service installations or other specialist work. Intermediate Building Contracts are suitable for projects procured via the traditional method.

Answer 126

Designed for large or complex construction projects where detailed contract provisions are needed, it is suitable for projects procured via the traditional method. The employer is responsible for the design. However, Standard Building Contracts also have an optional provision for a "Contractor´s Designed Portion" if the appointed contractor is to be responsible dor the design of specific parts of the works. Works can be carried out in sections.

Answer 127

Designed for large-scale construction projects where major works is involved. It is used by employers who regularly procure large-scale construction work and the work is carried out by contractors with the experience and ability to take greater risk than would arise under other JCT contracts. Major Project Construction Contracts are suitable for projects procured via the design & build method.

Answer 128

Often un Major Projects, a "novation" agreement is put in place so that the architect or designer who initially worked with the employer continues to complete the design under the responsibility of the contractor. The employer usually employs a representative to exercise their powers and functions under the contract. The project can be carried out in sections. The employer and contractor have their own detailed in-house procedures, so only limited procedures need to be set out in the contract conditions. The contractor is responsible for the design, as well as completing the works. The scale of design work to be carried out by the contractor can vary.

Answer 129

The JCT Design & Build Contract is designed for construction projects where the contractor carries out both the design and the construction work. Design & Build projects can vary in scale, but the Design & Build Contract is generally suitable where detailed provisions are needed.

Answer 130

The scale of design work needed to be carried out by the contractor can vary greatly on design & build projects. The contractor will complete a design based on a concept provided by the employer´s advisers or will be responsible for producing and completing the design right from the outset. The design requirements and responsibility of the contractor in design & build projects go beyond tohose covered in a traditional contract with a contractor´s designed portion. The employer normally uses an agent to administer the contract. Works can be carried out in sections.

Answer 131

Designed for projects that require and early start on site, often for alterations or urgent repair work (such as fire damage). Usually, the exact nature and extent of the work are not known until the project is underway, so full design documents are not completed until work has commenced. Suitable for projects procured via the traditional method, using a cost reimbursement or cost-plus payment structure.

Answer 132

Designed for use by employers who have a regular flow of maintenance, minor works and improvement projects that they would like carried out by a single contractor over a specified period. Measured Term Contracts are suitable for projects procured via the traditional method, using a measurement payment structure.

Answer 133

For use on construction projects where the employer appoints separate trade contracts to carry out the works and a construction manager to oversee the completion of the works for a fee. Construction Management Contract are suitable for projects procured via the management method.

Answer 134

Works can be carried out in sections. The contract is used where separate contractual responsibility for design, management and construction of the project is desired. The employer provides the design and enters into separate direct trade contracts with suppliers to carry out the construction of the works. The construction manager is appointed by the employer to manage the project and act as an agent on the employer´s behalf. The construction manager also administers the conditions of the trade contract.

Answer 135

Management Building Contract are suitable for large, complex projects, where flexibility and an early start on site are required. Construction is completed under a series of separate works contracts, which the management contractor appoints and manages for a fee. The management contractor employs works contractors to carry out the construction and the works contractors are directly and contractually accountable to the management contractor. Works can be completed in sections. The employer is responsible for the design which is usually supplied to the management contractor by the architect or design team working on the employer´s behalf.

Answer 136

A relevant event is an event on or off site that causes a delay to the completion date of the works. For example, a relevant event could be something that happens during the design and manufacture process to delay progress, or a site event that prolongs the installation works. - Exceptionally adverse weather - Force majeure (e.g., war, epidemic) - Changes in statutory requirements

Answer 137

-Variations and instructions. -Deferment of possession of the site. -Suspension by the contractor for non-payment. -The carrying out of work by statuory undertakers. -Impediment, prevention, or default by the employer. -Loss or damages occasioned by a Specified Peril (fire, flood, etc.). -Exceptionally adverse weather conditions. -Strike or lockout. -Civil commotion or terrorism. -The exercise of any statutory power after the base date by the UK Government or public authority. -Force majeure.

Answer 138

Force majeure events are usually defined as certain acts, events or circumstances beyond the control of the parties, for example, natural disasters or the outbreak of hostilities.

Answer 139

-War, hostilities, invasion, acts of foreign enemies. -Rebellion, revolution, insurrection and civil war. -Contamination by radioactivity. -Riot, commotion, strikes, go slows, lockouts or disorder. -Acts or threats of terrorism.

Answer 140

-Upon it becoming reasonably apparent that a delay will occur, the contractor notifies the contract administrator in writing, stating the particulars and extent. -The contractor must state one of the relevant events and provide details of how and why the delay is occurring or is likerly to occur. -The contractor should give an estimate of the delay in the notice so that the contract administrator can complete their assesment. -The contract administrator responds within 12 weeks, stating wether a relevent event has or has not occurred. -If the event has occurred, the contractor administrators assesses the delay. -A new completion date is then fixed (an extension of time).

Answer 141

Relevant events entitle the contractor to claim an extension of time only. The contractor will need to demonstrate a relevant matter has occurred to claim loss and expense.

Answer 142

A matter for which the employer is responsible that materially affects the progress of the works. A relevant matter will usually entitle the contractor to submit a loss & expense claim.

Answer 143

Failure to give the contractor possession of the site. Failure to give the contractor access to and from the site. Delays in receiving instructions. Disruption caused by work carried out by the employer.

Answer 144

Relevant events entitle the contractor to claim additional time. Relevant matters entitle the contractor to claim additional costs (loss and expense).

Answer 145

Loss and expense claims are often associated with delays but can be for any event where the Contractor incurs loss due to the failure of the employer (relevant matter).

Answer 146

It should be the actual loss incurred by the contractor. The prices in the contract bill of quantities, contract schedule of rates or prliminaries should not be used (actual costs may be more or less than these).

Answer 147

-Prolongation (extra site preliminaries). -Thickening of preliminaries (extra site supervision). -Disruption (causing plant and labour to be underutilised or unproductive). -Increases in labour and material costs during the period of delay. -Finance charges (i.e. interest).

Answer 148

-Prolongation costs are a type of financial claim made by contractors due to project delays (usually outside of their control). -They typically include claims for the cost of time related resources such as site management, site accommodation and key items of plant and machinery.

Answer 149

A building contract may allow the employer to take partial possession of part of the works before they have been formally completed. partial possession often requires the agreement of the contractor but allows the employer to use part of the works for its intended purpose (prior to completion of the whole of the works).

Answer 150

Not agreed in advance (prior to signing the building contract). Usually, completion is deemed to have occurred for that section. A voluntary agreement between employer and contractor. The contractor must give consent.

Answer 151

-Partial possession can only be taken with the consent of the contractor, but that consent may not be unreasonably withheld. -The contractor would be entitled to withhold if occupation of completed areas would hinder their ability to complete the remaining areas.

Answer 152

-Half retention is released (proportionate to the area of possession). -The contractor´s responsibility for insuring the works (for the relevant part) ends. -The contractor´s liability for liquidated damages ends (proportionate to the area of possesion). -The employer becomes responsible for any damages to the works. -The defect rectification period commences.

Answer 153

Sectional completion refers to a provision within the building contract which allows different completion dates to be set for different sections of the works. } Once it is in the contract, the contractor has an obligation to achieve the sectional completion date. Liquidated damages are agreed in advance should the section be delivered late.

Answer 154

Sectional completion differs from partial possession in that it is pre-planned and defined in the contract documents.

Answer 155

Sectional completion leaves less to chance, because the parties have agreed to many of the practical consequences of that completion in advance. If something does go wrong (a delay to practical completion, for example), it is easier for the contract administrator to deal with delays, changes or even acceleration with sections in place.

Answer 156

Option A: The contractor takes out and mantains joint name all riks insurance of the works for new buildings. Option B: The employer takes out and mantains joint name all risk insurance of the works for new buildings. Option C: The only option referring to refurbishment and alterations to existing structures. This is where the employer takes out and mantains a joint name all risk insurance policy for the works.

Answer 157

The essence of the contractor´s "all risk" cover is protection against physical loss or damage to the works being undertaken. Sometimes referred to as "CAR insurance" The policy will pay for the repair or replacement of the insured works following damae caused by an insured event.

Answer 158

Specified perils tend to be significant events that would cause very significant damage to the works. Including but not limited to: Fire Explosions Earthquakes Flooding, etc.

Answer 159

Subrogation is a concept that allows an insurance company that has paid a loss to step into the shoes of its insured and then sue a party that may be responsible for causing the loss. Working example: If a contractor´s crane drops a steel beam, causing damage, the owner´s builder´s risk insurer pays the loss, the owner´s insurer can step into the shoes of the owner and sue the contractor for the loss it caused.

Answer 160

Policy in the names of two or more parties (i.e. contractor and employer). Under a joint names policy, the insurer will have no right of subrogation against any of the insured parties, even where an insured party has caused the loss for which the insurer has had to pay out.

Answer 161

NEC is drafted in plain English. NEC attempts to eliminate the use of legal terms and instead provides for simple language and gives words their natural meaning. NEC operates an "early warning"process where both the project manager and contractor are required to notify each other of any matter that could affect time, cost, or quality. JCT splits up the components of time and cost, dealing with them and their subparts independently at various stages after a change arises. NEC deals with the effects of time and cost together. JCT: variations - NEC: compensation events. Each has an allotted person to act on behalf of the employer (contract administrator in JCT, project manager in NEC) NEC uses 6 main options and various secondary options, JCT uses separate contracts (for example minor Works, Standard Building Contract, Design and Build). The QS is not mentioned in NEC, only the project manager. NEC is considered to have a more collaborative approach to working. Parties are required to work in the spirit of "mutual trust and cooperation". Under NEC, the programme is a contract document. If no programme is identified in the contract data, one quarter of the price for work done to date is retained in assessments, until the contractor has submitted a firsrt programme for acceptance. NEC has "periods of reply" (which incentivises the parties to respond to each other in a timely matter); however, the contract is heavy on administration. JCT allows for provisional sums; NEC does not.

Answer 162

1. adoption of gender neutral language 2. New relevant events will be introduced to include epidemics. 3. The time available to the Employer to asses interim extensions of time will be reduced from 12 weeks to 8 weeks from receipt of the Contract´s Particulars. 4. Incorporation of the new JCT Fluctuations Hub launched in 2023, a resource to help the construction sector respond to growing economic uncertainty and volatility in the market and how to correctly apply the options available under the JCT suite. 5. introduction of a new contract family, JCT Target Cost Contract (TCC) comprising main contract, sub-contract, and guide, which will likely be a alternative to the NEC option C ECC form of contract.

Answer 163

NEC4 has introduced two new contracts into its suite: -Design Build and Operate (DBO) Contract - The DBO contract combines the functions of design, construction, operation and/ or maintenance to enable it to be procured from a single supplier. -Alliance Contract (ALC) - This contract is for clients who wish to enter into a single contract with several participants to deliver a project or programme of work. The focus of the contract is on collaborative working, encouraging all parties to work together to achieve client objectives. The "Risk Register " has been renamed the "Early Warning Register" to distinguish it from the project risk register often used for wider project management purposes. "Employer" becomes "Client" and "Works Information" becomes "Scope". A 4 week period of escalation and negotiation of a dispute has been introduced, which takes place prior to commencing any formal proceedings. This requires nominated senior representatives of each party to meet and try to reach a negotiated solution. In secondary option X12, "Partnering" has been changed to "Collaboration". There is now only one fee percentage, with no separate fee percentage for subcontracted works. Payments - Contractors must submit applications for payments, rather than the project manager being obliged to asses if they fall to do so. Language - All contracts are written gender neutrally (no more he/his).

Answer 164

New Engineering Contract.

Answer 165

It is suitable for any sector of the industry, including civil, building, nuclear, oil and gas. It was developed by the Institution of Civil Engineers (ICE) in the UK and is known for its collaborative and flexible approach to project management. The NEC ECC contract aims to promote cooperation, clarity and fair risk allocation between the parties involved. There are six main options to choose form (Options A-F) Key points: -There are no references to the quantity surveyor in the contract. -The project manager assumes full authority on behalf of the employer. -The project manager controls time and cost as an administrative function. It is widely accepted that the contract generates a large volume of paperwork and administration. The programme is a contract document. Requirement for parties to issue early warnings where appropriate. 22 X clauses

Answer 166

1. Clarity and simplicity NEC4 ECC is known for its clear and straightforward language, which reduces ambiguity and helps in better understanding of the contract terms. It uses plain English and provides extensive guidance in its accompanying documents, making it easier for parties involved ro comprehend their obligations and rights. 2. Flexibility and adaptability NEC4 ECC emphasises flexibility and allows for effective project management. It includes provisions for early warning systems, compensation events, and the implementarion of risk and change management processes. This flexibility enables parties to respond promptly to unforseen circumstances and make adjustments as necessary, reducinf the likelihood of disputes. 3. Collaboration and communication NEC4 ECC promotes collaborative working relationships between the parties involved in a consruction project. It encourages open communication and cooperation, aiming to achieve mutually beneficial outcomes. The contract promotes a proactive approach to managing issues and encourages parties to work together to find solutions rather than resorting to adversarial positions. The contract also requires the parties, the project manager and the supervisor to act in a spirit of mutual trust and cooperation. 4. Risk allocation and management NEC4 ECC places a strong emphasis on risk management and risk allocation. It provides mechanisms for identifying, assesing, and managing risks throughout the project lifecycle. 5. Dispute avoidance and resolution NEC4 ECC incorporates mechanisms for dispute avoidance and early resolution. It encourages parties to engage in open dialogue and resolve issues collaboratively.

Answer 167

-Option A: Priced contract with activity schedule. -Option B: Priced contract with bill of quantities. -Option C: Target contract with activity schedule. -Option D: Target contract with bill of quantities. -Option E: Cost-reimbursable contract. -Option F: Management contract.

Answer 168

Option A under the NEC4 ECC is a pricing option that involves the use of and activity schedule. Option A is suitable when the scope of the work is well-defined, and it is possible to accurately estimate the quantities and prices for the activities involved. It provides transparency in pricing and allows for effective monitoring of progress and payments based on completed activities. Key points: -Option A requires the contractor to submit a priced activity schedule. The activity schedule includes a list of activities or work items required for the project, along with their corresponding prices and quantities. -Payments are based on completed activities as specified in the activity schedule, the contractor is paid for the completed activities at the agreed prices. -Risk and Responsibility: The contractor takes on the risk and responsibility for delivering the completed activities at the agreed prices. -NEC ECC Option A is a lump sum contract.

Answer 169

Option B is a priced contract with a bill of quantities (BoQ). The main difference between Option A and Option B lies in the pricing mechanism. Key points: -Option B uses a bill of quantities, which quantifies the different items of work with specified quantities and prices. The contractor is paid for the completed quantities at the agreed prices. -Option B is suitable when the project scope can be accurately quantified and when a detailed and specific pricing structure is desired. It may be preferable for projects with well-defined and stable requirements.

Answer 170

Option C under the NEC ECC is a target contract with an activity schedule. It can include any level of design and is ideal for more complex or larger projects where the client and contractor are willing to share project financial risk in a full collaborative way. Key points: -The Option C contract allows the financial risks to be shared between the parties (client and contractor), which motivates the contractor to deliver the works in the most cost-efficient way. -The target cost is agreed between the parties, it is made up of the contractor´s estimate of the "Defined Costs" plus a fee which is to cover the contractor´s costs, overheads and profit. -Once the works are completed, the final "Defined Cost" plus fee and the Target Cost are compared. The difference between the two (savings or additional cost) is then shared between the contractor and the client. This is known as the "pain/gain" mechanism and the method by which the split is calculated will vary from project to project.

Answer 171

Option D is a target cost contract with a bill of quantities. The contract operates in a similar way to Option C (using the pain/gain mechanism); however, a BoQ is used instead of an activity schedule. The choice between Option D and Option C depends on factors such as the level of pricing detail required, the complexity of the project, and the risk allocation preferences of the parties involved.

Answer 172

Option E is a cost-reimbursable contract, which can include any level of design. It is ideal for projects where the scope cannot be properly defined at the outset, such as urgent or emergency works, and the client is prepared to carry most of the financial risk. The contractor is paid the actual cost it incurs plus an agreed fee.

Answer 173

Option F is a cost-reimbursable management contract, which can include any level of design. It is intended for projecs where thw contractor acts as a management contractor, and the works are entirely delivered by various suppliers engaged by the contractor. The financial risk is taken largely by the client, which pays the contractor the actual amounts paid to its suppliers plus an agreed fee.

Answer 174

Option A, this is because it is a fixed price contract.

Answer 175

Option E, this is because the contractor is reimbursed for the actual costs they incur in carrying out the work, plus and additional fee.

Answer 176

Formal dispute resolution is a key feature of the contract and is dealt with under options W1, W2 and W3. Multi-tier dispute resolution: Option W1 and W2 require the initial referral of all disputes to the parties senior representatives specified in the contract data: -Under Option W1 (used where the Construction Act does not apply), this initial referral process is mandatory before you can escalate a dispute further. -Option W2 also envisages that the parties shoukld refer a dispute to the senior representatives in the first instance, but confirms that the parties can still refer a dispute to adjudication at any time. W3 - This is a new option to NEC and can be used where the Housing Grants Construction and Regeneration Act does not apply but the parties choose a Dispute Avoidance Board (DAB) rather than adjudication. The DAB must be followed referring to court or arbitration.

Answer 177

Z clauses can be used and inserted into NEC contracts to allow the parties to agree on additional terms and conditions to cater for specific needs relating to a project and the terms of its delivery. Z clauses are bespoke contract amendments.

Answer 178

Poorly drafted Z clauses can be problematic if they do not work effectively with the core clauses in the standard contract. For example, a Z clause that amends one clause may unintentionally impact another. Z clauses should therefore be drafted by individuals with good knowledge of NEC and understand how amendments will affect the wider contract.

Answer 179

The term "scope" refers to the extent and boundaries of the works that is required to be performed under the contract. It defines the specific activities, deliverables and requirements that the contractor is responsible for in order to fulfill their obligations. The Scope is likely to include drawings, specifications, reports and other relevant information to define the contractor´s obligations. The Scope should be a complete and precise statement of the client´s requirements. If it is not, there is a risk that the contractor will interpret it differentuly from the client´s intentions; therefore, subjective terms should be avoided.

Answer 180

The NEC ECC contract is intended to be suitable whether the contractor has no design responsibility, responsibility for the whole design, or design responsibility in part. Design responsibility will be set out in the "scope"; therefore, if a design and build arrengement is required, the scope should state all works are to be designed by the contractor.

Answer 181

“Site information” describes the past and present conditions of the site, and may include information such as: -Subsoil investigation, borehole records and test results. -Survey information. -Information about pipes, services and other object below the ground. -Information about above ground services within own adjacent to the site.

Answer 182

Compensation events are events which are usually not the fault of the contractor and change the cost of the work, or the time needed to complete it. As a result, the prices, key dates or the completion date may be reassessed, and in many cases, the contractor will be entitled to more time or money.

Answer 183

No, NEC contracts deal with these issues under the single heading - compensation events. Compensation events deal with both time and money.

Answer 184

Compensation events are dealt with under clause 60.1. Examples: -The PM gives the instruction to change the scope. -The client does not allow access to the site. -The project manager or the supervisor does not reply to a communication from the contractor within the period required by the contract. -The project manager gives an instruction for dealing with an object of value, historical or other interest found within the site. -The project manager certifies take over of a part of the works before both completion and the completion date.

Answer 185

-The contractor is not entitled to a change in the prices, the completion date, or a key date. Clause 61.3 requires the contractor to notify a compensation event within eight weeks of becoming aware of the event. -There are exceptions to this; if the event arises from the project manager or the supervisor giving an instruction or notification, issuing a certificate, or changing an earlier decision; then the 8-week rule does not apply.

Answer 186

-Total float. -Time risk allowance. -Terminal float.

Answer 187

The time an activity can be delayed without delaying planned, completion (or critical path). Available to the client or contractor to use on a first-come, first-served basis. In the example below (pagina 111 pregunta 567), activity F could be delayed by 3 weeks prior to effecting the planned completion milestone: the total float for this activity is therefore 3 weeks.

Answer 188

This is the float added to activities to allow for the risk of delays arising or non-productive time occurring. It is “owned” by the contractor and cannot be used to mitigate the effect of a compensation event. For example, an activity may take 3 weeks and 2 days to complete assuming optimal circumstances and conditions. Time risk allowance is added to the activity to allow for events such as downtime or poor weather; therefore, the activity might be programmed as 4 weeks (time risk allowance is therefore 3 days).

Answer 189

The duration between planned completion and the contractual completion date. This is also “owned” by the contractor and cannot be used to mitigate the effect of a compensation event.

Answer 190

By a compensation event or acceleration.

Answer 191

Anything can change it. For example, the contractor could be delayed in completing activities, or the works could be going faster than originally anticipated.

Answer 192

The program is not a contract document under JCT; under NEC it is. The programme plays a significant role in the NEC contract; one of its key functions is to assist with the compensation event assessment process.

Answer 193

The early warning process is a mechanism for both parties to identify potential problems with the project. The contract emphasises that both parties (contractor and project manager) are obliged to notify the other as soon as they become aware of a matter which could: -Increase the total of the prices. -Delay completion. -Delay meeting a key date. -Impair the performance of the work in use. The early warning process is detailed under clause 15.

Answer 194

14.3 Contractor submits Statement to the Employer 28 days later 14.6 Employer gives Contractor notice of amount considered due 28 days later (56 from contractors submission) 14.7 Employer makes the payment to the Contractor

Answer 195

| Variation | Claim | | --------------------------- | --------------------------------------- | | Employer changes the scope | Party seeks entitlement due to an event | | Initiated by Employer | Initiated by either party | | Adjusts the contract | Seeks relief under existing contract | | Governed by Clause 13 | Governed by Clause 20 | | Not necessarily contentious | Often contentious |

Contract Practice Flashcards

(219 cards)