Contract Practice

Question 1

What is a contract?

Answer 1

• A legally binding promise by one party to another to fulfil an obligation to another party in return for consideration.
• Offer, acceptance, consideration, intent to create legal relations

Question 2

What are express terms and implied terms?

Answer 2

• Express terms: written in the contract
• Implied terms: common law or statute

Express terms are explicitly stated, while implied terms are understood to be part of the contract.

Question 3

What are the payment terms under a JCT D&B 2016 contract?

Answer 3

• 21 days total process
• 7 days for contractor application
• 14 days from due date to final date for payment
• Payment notice within 5 days from due date
• Pay less notice within 5 days before final date for payment

This outlines the timeline and requirements for payment under the contract.

Question 4

What information is shown on a payment certificate?

Answer 4

• Amount due
• Final date for payment
• Contract sum
• Retention

Payment certificates summarize the financial obligations under the contract.

Question 5

What are stage, interim, and milestone payments?

Answer 5

• Interim: paid for works progressed
• Stage: paid at agreed stages regardless of progress
• Milestone: paid for completed work packages

These payment types reflect different methods of compensating contractors based on project progress.

Question 6

Why is half retention released at PC?

Answer 6

Ensures contractors have funds to address defects and provides security for correcting identified defects during the defects liability period

This practice balances contractor cash flow with the need to ensure quality.

Question 7

How long is the defects liability period?

Answer 7

Typically 12 months

This period allows the building to undergo all seasons and address any defects.

Question 8

What are the different types of defects?

Answer 8

• Patent defects: discoverable by reasonable inspection
• Latent defects: not discoverable by reasonable inspection

Understanding these types helps in assessing liability and responsibility.

Question 9

What happens after the defects liability period?

Answer 9

Final certificate is issued

This signifies the completion of the contract obligations.

Question 10

How do you deal with inflation during the construction stage?

Answer 10

Fluctuation Provisions

They allow for the contract sum to be adjusted during the construction period for inflation to labour and materials.

Can be split into A, B and C.

A - contribution and tax fluctuations.
B - fluctuations in labour and material costs.
C - a formula used to adjust.

Question 11

What is the role of the QS under the D&B contract?

Answer 11

QS is not named; supports the Employer’s Agent

This reflects the collaborative nature of the contract structure.

Question 12

What is the purpose of a collateral warranty?

Answer 12

Forms a contractual agreement which runs alongside another contractual agreement to create a relationship between two parties that would not otherwise exist.

Example: client having collateral warranty with key subcontractors in case the event of an employer insolvency

Question 13

Are there any alternatives to a collateral warranty?

Answer 13

Third Party Rights - Allows third parties to enforce terms of contract which they are not party to but benefit them, or in which the contract allows them to enforce.

Third party must be named in the contract.

Question 14

What is Novation?

Answer 14

Transfer of rights and obligations, typically from client to contractor under D&B

Involves transferring the design team to the contractor.

Question 15

What is Assignment?

Answer 15

Transfer of right

The benefit of the contract is transferred from one party to another.

Question 16

What are the different types of performance security available to a client?

Answer 16

• Performance Bond - provided by a contractor to client to make a payment from a third party in the event of non-performance
• Parent Company Guarantee - parent company agrees to take responsibility if a company defaults

Performance bonds can be on demand (no conditions needed to be met) or default (needs evidence of default)

Question 17

What are the provisions under the contract in which an EoT can be claimed?

Answer 17

Contractor notifies delay with reasons and identifies Relevant Event

This ensures proper documentation and justification for extensions of time.

Question 18

What are the timescales involved in reviewing an EoT and a Loss & Expense claim?

Answer 18

• EoT: 12 weeks or asap if exceeding PC date. Period commences once CA is satisfied with information received
• L&E: 28 days from receipt of information. 14 days following receipt of any additional information

Timely review is crucial for project management.

Question 19

What is a Relevant Event?

Answer 19

An event causing delay outside contractor and client control. Entitled to time only.

Examples: delays to statutory authorities, adverse weather, acts of god

Question 20

What is a Relevant Matter?

Answer 20

A matter for which the client is responsible for delaying site progress. Entitled to loss and expense.

Examples: delay of issuing instructions or information and client obstructing access to site

Question 21

Are Loss & Expense sums subject to retention?

Answer 21

No, retention should not be applied

This ensures that contractors are compensated fully for incurred losses.

Question 22

How are LADs calculated for inclusion in the contract?

Answer 22

• Damages inserted into the contract for non-completion.
• Must issue a non-completion certificate and provide a genuine estimate of potential losses.

Question 23

What happens if there is no rate included for LADs in the contract?

Answer 23

If £0, no liquidated damages; if blank, client can pursue unliquidated damages

Unliquidated damages are assessed by courts based on incurred losses.

Question 24

What information would you expect to be contained within the Contract Documents?

Answer 24

• Contract and amendments
• Prelims & General Conditions
• Employer’s Requirements
• Contract Sum Analysis
• Contractor Proposals
• Health & Safety documents

These documents outline the terms and conditions of the contract.

Question 25

What other contracts are you aware of and what do you need to consider in regards to advising one?

Answer 25

* JCT * NEC * Bespoke * FIDIC ## Footnote Consider objectives in terms of time, cost, and quality.

Question 26

Can you give some examples of different **JCT Contracts**?

Answer 26

* Standard - large projects using traditional procurement * Intermediate - most skilled trades used but no complex issues * Design & Build - where design and build procurement is used * Minor Works - small projects where client provides design * Major Works - large scale projects where major works are required ## Footnote Each type serves different project scales and complexities.

Question 27

What 6 things are needed for a **contract** to be formed?

Answer 27

* Capacity * Intent * Offer * Consideration * Acceptance * Legality ## Footnote These elements are essential for a valid contract.

Question 28

Can you give an overview of the structure of **NEC**?

Answer 28

Main Options - Option A Priced with Activity Schedule - Option B Priced with BoQ - Option C Target with Activity Schedule - Option D Target with BoQ - Option E Cost Reimbursable - Option F Management Contract Dispute Clauses X Clauses (performance bond, sectional completion, retention) Y Clauses (National Legislation) Z Clauses (bespoke amendments) ## Footnote NEC contracts are structured to promote clarity and collaboration.

Question 29

Can you list some of the differences between **NEC** and **JCT**?

Answer 29

* NEC is simpler English * NEC adopts a collaborative approach * NEC has CE's, JCT has Variations * JCT has provisional sums, NEC does not ## Footnote These differences affect how contracts are managed and executed.

Question 30

What are the key changes from **JCT 2016** to **JCT 2024**?

Answer 30

* Adoption of gender neutral language * Time for employer to assess EoT reduced from 12 weeks to 8 weeks * New relevant events and relevant matters ## Footnote These changes reflect evolving standards in contract language and timelines.

Question 31

What types of **pricing options** are there?

Answer 31

* Lump sum - fixed price * Target - over/underspend is split between client and contractor * Cost Plus - actual cost plus contractor OH&P * Remeasurement - SoR agreed and used * Guaranteed Max Price - fixed price where contractor takes risk on overspend and savings ## Footnote Each pricing option has different implications for project budgeting and risk.

Question 32

How does a **GMP** work?

Answer 32

Anything over is contractor cost; any saving is contractor cost ## Footnote Pain/Gain mechanism can be used to split costs between contractor and client.

Question 33

What is a **Letter of Intent** and what are the 3 types?

Answer 33

Letters of Intent are issued from client to contractor and indicate intention to enter into a contract. They allow work to commence before the main contract is executed. * Comfort Letter * Consent to Spend * Recognition of Contract

Question 34

What would you typically find in a **letter of intent**?

Answer 34

* Description of the works * Sum for main contract or duration * Date of letter * Insurances required * Method of payment * Dispute resolution method ## Footnote This document outlines preliminary agreements before formal contracts.

Question 35

What are the **advantages** and **disadvantages** of letters of intent?

Answer 35

* Advantages: work can commence early * Disadvantages: may lead to complacency, less robust ## Footnote Weighing these factors is crucial for project management.

Question 36

If the contractor becomes **insolvent**, what actions do you need to take?

Answer 36

* Secure the site * Inform client/insurers/legal team * Produce schedule of materials * Value works done * Look for other contractors ## Footnote These steps are essential for managing project continuity.

Question 37

What is the difference between **partial possession** and **sectional completion**?

Answer 37

* Partial possession: not pre-agreed, contractor consent needed * Sectional completion: pre-planned with separate completion date

Question 38

Who is responsible for drafting a letter of intent?

Answer 38

Legal professional

Question 39

What legislation governs third party rights?

Answer 39

Contracts (Rights of Third Parties) Act 1999

Question 40

What are Third Party Rights?

Answer 40

Allows third parties to enforce terms of contracts they are not party to, but benefit from.

Question 41

What are the advantages of third party rights?

Answer 41

* Time and cost - no collateral warranty required * Certainty - once third party rights agreed, limited room to revisit wording * Subcontractors - third party rights can be extended to subcontracts

Question 42

What are the disadvantages of third party rights?

Answer 42

* Lack of flexibility - hard to amend once agreed * Need for careful drafting - ensure necessary rights are agreed for third party

Question 43

Why might third party rights be used over collateral warranties?

Answer 43

* Lower administration and cost * No separate document required

Question 44

What are the types of bond?

Answer 44

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

Question 45

What is Contractor Design Portion?

Answer 45

Typically used on Traditional projects, design responsibility for specific elements is transferred to the contractor

Question 46

What are the types of subcontractors?

Answer 46

* Domestic * Named * Nominated

Question 47

What are liquidated damages?

Answer 47

Genuine estimate of loss suffered by the client because of late completion of the works

Question 48

What is a PCSA?

Answer 48

Pre-Construction Services Agreement * Contract between employer and contractor for pre-construction services. Typically used in a two-stage tender

Question 49

What is a bespoke contract?

Answer 49

Contract tailored to fit specific requirements of a project

Question 50

What is the disadvantages of bespoke contracts?

Answer 50

* Unattractive to contractor * Could be ambiguous * Contract administrator may be unfamiliar

Question 51

Would you amend a standard contract?

Answer 51

No - all amendments done by a legal professional

Question 52

What is a final account?

Answer 52

Conclusion of the contract sum and signifies the agreed amount the employer will pay the contractor.