Contract Practice (L3)

Question 1

What is a contract?

Answer 1

A contract is an agreement enforceable by law, which establishes the rights and obligations of two parties.

Question 2

What are the requirements of a valid contract?

Answer 2

For a contract to be valid, there must be:

1) An offer - a clear proposal by one party to enter into an agreement.
2) Acceptance of the offer - agreement to the terms of the offer.
3) Consideration of the offer - something of value must be exchanged (usually money)
4) Intention to create legally binding relations
5) Capacity to form a legal agreement - i.e. over 18, sound of mind
6) Authority to form a legal agreement

Question 3

What are the key differences between NEC & JCT

Answer 3

There are a variety of differences between the JCT and the NEC, including:

1) Approach / Risk: JCT assigns risk more clearly, whereas the NEC encourages a more collaborative approach.

2) Programme: The programme is not a contractual document under the JCT, whereas it is under the NEC. Under an NEC, the Contractor must keep the programme current, outline early warnings and update on progress. The programme must also be issued on a monthly basis for approval.

3) Administration: The contract is administered by a Contract Administrator or Employers Agent, whereas it is administed by a Project Manager in an NEC/

4) Cost: JCT is typically a lump sum contract, whereas an NEC offers a more flexible cost mechanism with six different pricing options.

5) Time / Delay: Under a JCT there are relevant events which can entitle the contractor to more time, whereas in an NEC there are 20 compensation events. JCT also deals with time and money separately (under relevant events and relevant matters). NEC treats them together as compensation events.

Question 4

What factors influence the selection of the most appropriate form?

Answer 4

1) Size and nature of works (complexity, value, type) e.g. NEC more appropriate for infrastructure.

2) Experience of the client e.g. JCT minor works appropriate for inexperienced client

3) Familiarity / market being worked in – in UK, JCT very popular and well known

4) Risk allocation and design responsibility

5) Procurement Route

Question 5

What is a loss and expense claim?

Answer 5

• A claim by the contractor for costs incurred due to a Relevant Matter under the contract e.g. Failure to give possession

Question 6

What are LADs?

Answer 6

• Liquid and Ascertained Damages – costs payable by the contractor if the project runs past the agreed completion date

Question 7

What is the benefit of using standard forms of contract?

Answer 7

There are a variety of benefits of using a standard form of contract, including:

1) Time Saving - These contracts are ready made, reducing requirement to draft from scratch.

2) Proven and Tested - They are widely used in the industry, reducing uncertainty and errors.

3) Cost Savings - Due to not having to draft from scratch.

4) Familiarity - Administration is smoother.

Question 8

What would you consider when selecting a contract?

Answer 8

1. Type and Nature of the works
2. The specific procurement route undertaken
3. Value of the works
4. Experience of the client

Question 9

What insurances are you aware of that can relate to contracts?

Answer 9

1) Professional Indemnity Insurance (PI)
2) Public Liability Insurance (PLI)
3) Construction All Risk Insurance (CAR)
4) Latent Defects Insurance (LDI)
5) Employers Liability Insurance

Question 10

What is a bond?

Answer 10

• A bond is a form of financial guarantee provided by a third-party surety (such as an insurance company or a bank) to protect the project owner (also known as the obligee) from financial loss in case the contractor (also known as the principal) fails to meet the obligations outlined in the contract.

Question 11

What is a Parent Company Guarantee?

Answer 11

• A contractual agreement in which a parent company agrees to take responsibility for the performance of a subsidiary company’s obligations under a specific contract.
• If the subsidiary (the principal) fails to meet its contractual duties, the parent company (the guarantor) steps in to fulfill those obligations or compensate the other party (the beneficiary or obligee) for any losses

Question 12

What is an Employers Agent?

Answer 12

• A professional or organization appointed by the employer (the client or project owner) to act on their behalf and manage the contract, particularly under Design and Build (D&B) contracts.
• Manages the day to day administration of the contract and ensures that each party is fulfilling their contractual obligations

Question 13

What are Third Party Rights?

Answer 13

Legal entitlements that individuals or entities who are not directly involved in the contract (third parties) may have to enforce certain rights or benefits under that contract.

Question 14

What are the differences between collateral warranties and TPRs

Answer 14

A collateral warranty is a seperate contract that gives a third party direct rights against a contractor or consultant, which provides direct enforceable obligations.

A third party warranty is a statutory or contractual mechanism that allows a third party to enforce specific rights under the main contract without being a signatory.

Question 15

Give me an example of a collateral warranty?

Answer 15

For example, under a JCT D&B contract, a collateral warranty is often agreed between the Client and Subcontractors which means that the Client can directly enforce contractual terms with the subcontractor.

These can be different to the terms established under the main contract, for example a third party can have a collateral warranty with a subcontractor with an extended liability period than the main contract.

Question 16

Give me an example of a third party right?

Answer 16

For example, affording a tenant for a future building to enforce the standards under the existing contract. For example, directly calling for defects to be rectified.

However, they are limited to what the contract or statute allows. E.g. they can not call for a contractor to resolve defects over and above the defects liability period under the main contract.

Question 17

What examples of contract are you aware of?

Answer 17

1) Construction Contracts
2) Consultant Appointmnets
3) Lease Agreements
4) Third Party Agreements (Party Wall Agreements)
5) Planning Obligations

Question 18

What are the standard forms of construction contract in the UK?

Answer 18

1) Joint Contracts Tribunal (JCT)
2) New Engineering Contract (NEC)

Question 19

What is the JCT?

Answer 19

The Joints Contract Tribunal are a company who produce standard forms of construction contracts and guidance notes.

Question 20

What are the key features of JCT Contracts?

Answer 20

1) Clarity and Consistency: Includes standardised clauses to avoid reinventing contracts for each project.

2) Risk Allocation: Clearly sets out responsibilities for time, cost, quality, risk etc.

3) Dispute Resolution: Provides mechanisms for dispute resolution (such as adjudication, arbitration, mediation etc.)

4) Different forms of JCT available to suit different procurement routes adopted.

Question 21

What types of JCT contract are there?

Answer 21

There are a variety, however the main forms are:

1) JCT Standard Building Contract

2) JCT Design & Build Contract

3) JCT Intermediate Build Contract

4) JCT Minor Works Contract

5) JCT Major Project Construction Contract

Question 22

What is a JCT Standard Building Contract?

Answer 22

A JCT Standard Building Contract is used for large, complex project where the employer provides the full design.

Question 23

What is a JCT Design and Build Contract?

Answer 23

Used for medium to large projects. The client sets out the Employers Requirements, and the contractor responds with their Contractor Proposals on how they will design and deliver the works.

Question 24

What is a JCT Intermediate Build Contract?

Answer 24

Suitable for medium sized projects with straightforward construction, however the project would require more administration than Minor Works.

Question 25

What is a JCT Minor Works Contract?

Answer 25

Suitable for small or straightfoward construction projects (such as repair works). Projects with a short duration, simple scope and limited risk.

Question 26

What is a JCT Major Project Construction Contract?

Answer 26

The largest and most sophisticiated form of JCT, for very large, complex construction projects. Offers flexibility to amend risk allocation and administrative procedures.

Question 27

What is the NEC?

Answer 27

The New Engineering Contract are a suite of contracts published by the Institution of Civil Engineers. For example, the NEC Engineering and Construction Contract, or the NEC Professional Services Contract.

Question 28

What are the key features of the New Engineering Contracts?

Answer 28

1) Flexibility - Can be used for different procurement methods 2) Collaboration - Designed to encourage good project management and collaboration 3) Purpose - Commonly used in infrastructure, civil engineering and large commercial projects

Question 29

What types of NEC Contract are there?

Answer 29

There are six main variants to the NEC Contract: Option A - Lump Sum (Fixed Price) Option B - Priced Contract with Bills of Quantities Option C - Target Contract with Activity Schedule Option D - Target Contract with BOQ Option E - Cost Reimbursable Contract Option F - Management Contract

Question 30

What is the NEC Contract Option A?

Answer 30

Option A - Lump Sum (Fixed Price) The Contractor is paid a fixed price for defined activities in a lump sum. The contractor bears the cost risk.

Question 31

What is the NEC Contract Option B?

Answer 31

Option B - Priced Contractor with BOQ The Contractor is paid for actual quantities exectued at agreed rates. The risk is shared.

Question 32

What is the NEC Contract Option C?

Answer 32

Option C - Target Contract with Activity Schedule Both parties agree a target cost; the actual costs are measured; the contractor is compensated for over/under target as per the agreed form. Ie. if the final cost is below the target, savings are shared between the employer and the contractor. Equally, if the final cost is above the target, the overrun is shared.

Question 33

What is NEC Contract Option D?

Answer 33

Option D - Target Contract with BOQ Same as option C, but using a bill of quantities for measuring work

Question 34

What is NEC Contract Option E?

Answer 34

Option E - Cost Reimbursable Contract Contractor is reminbursed for actual costs + a fee

Question 35

What is NEC Contract Option F?

Answer 35

Option F - Management Contract Contractor manages subcontracts for works packages, like in a construction management procurement route.

Question 36

What is PI?

Answer 36

Professional Indemnity Insurance protects professionals against claims arising from negiligence, errors or omissions in their professional services.

Question 37

What is CAR?

Answer 37

Construction All Risk is a comprehensive insurance policy covering physical loss or damage to a construction project during the construction period.

Question 38

What is Employers Liability Insurance?

Answer 38

Insurance that protects an employer against claims made by employees who suffer injury, illness or death as a result of their work. It is legally required for most employers in the UK.

Question 39

What is public liability insurance?

Answer 39

Public Liability Insurance – Insurance against claims made by third parties for injuries or property damage that occur as a result of the business's activities or operations

Question 40

What is Latent Defects Insurance?

Answer 40

Latent Defects Insurance - provides protection for property owners and developers against defects in the design, workmanship, or materials that may not be immediately visible after the completion of a construction project but become apparent over tim

Question 41

What is a warranty?

Answer 41

A warranty is a formal guarentee given by a contractor, supplier or manufacturer that a product will meet specified standards, quality and performance for a defined period.

Question 42

What forms of warranties are you aware of?

Answer 42

1) Contractor Warranty 2) Manufacturer Warranty 3) Latent Defects Warranty 4) Collateral Warranty

Question 43

What is a Contractor Warranty?

Answer 43

A contractual guarentee given by the contractor that the works will be carried out in accordance with the contract documents. A contractor warranty provides the client with legal recourse if the contractor fails to deliver the works to an agreed standard.

Question 44

What is a Manufacturer Warranty?

Answer 44

A guarentee that the materials, equipment or product will meet specified performance and quality standards

Question 45

What is a Latent Defects Warranty?

Answer 45

A warranty provided by the contractor covering hidden or structural defects in the completed works that become apparent after practical completion and were not detectable at handover.

Question 46

What is a collateral warranty?

Answer 46

A separate legal agreement that extends the rights and obligations of a contractor, consultant or subcontractor to a third party. In essence, it provides direct contractual rights to a third party who is not the original employer. I.e. Between a client and a subcontractor.

Question 47

What is a Third Party right?

Answer 47

A legal mechanism established under the Contracts Act 1999 that allows a person or entity (i.e. lenders, tenants, funders) who is not a party to a contract to enforce specific terms of that contract.

Question 48

What is the difference between a collateral warranty and a third party right?

Answer 48

A collateral warranty is a separate, new agreement with a third party. A third party right arises from the main contract, with no new agreement needed.

Question 49

What documents are usually included in a JCT D&B Contract?

Answer 49

Volume 1: Contract Agreement and Conditions of the Contract (e.g. design responsibilities, variations, completion, payment etc.) Volume 2: Employers Requirements (e.g. ETRs, Planning Obligations, PC Checklist, Employer Policies) Volume 3: Contractors Proposals (Design Submissions, Technical Proposals, CSA, Programme)

Question 50

What are Employer's Technical Requirements?

Answer 50

The detailed technical and functional requirements that the employer expects the contractor to meet under a design and build contract.

Question 51

What would usually be included in ETRs?

Answer 51

1) Performance requirements - e.g. acoustic performance, fire resistance, structural capacity 2) Materials standards 3) Sustainability / Environmental requirements 4) Testing / commissioning and handover requirements.

Question 52

Why did you recommend a JCT Minor Works Contract for the drainage repair works?

Answer 52

1) The works were an emergency with leaks impacting a third party. Therefore a standard form of contract needed to be chosen. 2) The works were simple, and required replacing a section of pipework. There was no design required. 3) It was a short programme with all works to be completed in one go.

Question 53

Why did you recommend a JCT D&B contract on the 1 Finsbury Avenue project?

Answer 53

I recommended a JCT D&B contract due to the clients requirements on cost, programme and risk. 1) The project was to deliver a floor of CAT A onto a now vacant floorplate. The clients key drivers was to reduce the void and return to market asap, whilst also reducing risk and establishing cost certainty. 2) JCT D&B allowed a: 1) reduced procurement timescales for a design team and a contractor - contractor does both 2) programme efficiency - allowed the contractor to commence strip-out works whilst also commencing design 3)

Question 54

What is sectional completion?

Answer 54

When a contractor completes different parts or sections of a project at different times, rather than waiting for the entire project to be finished.

Question 55

What were the contractual obligations undertaken during the sectional completion process?

Answer 55

1) Contractor notification of sectional completion 2) Site visits with professional team to establish whether works have been completed 3) Establishment of any outstanding works / snags, and rectification time scale 4) Compliance statements by the design team 5) Handover of key information (inc. O&Ms and HSF)

Question 56

What is defects rectification?

Answer 56

Defects rectification is the process by which a contractor remedies faults, deficiencies, or non compliance issues during the defects liability period.

Question 57

What is the purpose of a contract?

Answer 57

- Set out the rights and obligations of parties - Set out rules and procedures - Transfer risk

Question 58

What is a standard form of contract with variations?

Answer 58

When a standard form of contract is taken but some key provisions are amended and documented under the schedule of amendments (e.g. LADs, retention, payment periods)

Question 59

What is an extension of time?

Answer 59

A formal adjustment to a contractual completion date granted to the contractor when delays occur outside of their control (Relevant Event)

Question 60

What are the benefits of granting an extension of time?

Answer 60

1) Relieves the contractor's liability for LDs 2) Enables another completion date to be set, which maintains the employer's ability to deduct LDs if another delay occurs.

Question 61

What needs to be in place before LD's can be deducted?

Answer 61

A non-completion ceritificate ; a witholding notice

Question 62

What is retention?

Answer 62

A portion of the contract payment witheld by the employer to ensure that the contractor properly completes the works and rectifies defects. Usually 5 - 10%.

Question 63

When is retention released to a contractor?

Answer 63

Half is issued at practical completion, the other half is isssued at the completion of the defects liability period.

Question 64

What is Practical Completion?

Answer 64

The stage in the construction project where the works are substantially complete, allowing the employer to take possession and use the building for its intended purpose. Administered by the Contractor Administrator. Minor defects or omissions can persist.

Question 65

What is a Non Completion Certificate

Answer 65

A certificate issued by the contract administrator when the works have not reached practical completion by the agreed completion date. May trigger contractual remedies such as liquidated damages.

Question 66

What are the time periods for dealing with EOT claims under construction contracts?

Answer 66

JCT - The Contractor should inform of a Relevant Event when a delay becomes reasonably apparent. The administrator must provide notice of a decision within 12 weeks of evidence receipt. NEC - The Contractor must give notice within 8 weeks of the event that a delay has been caused. The PM has 1 week to make a decision.

Question 67

When can a contract be terminated?

Answer 67

1) Contractor fails to comply with obligations and has not corrected them within 4 weeks. 2) The Contractor has assigned or changed any rights and benefits of the contract. 3) Legal ownership of the Contractor has changed.

Question 68

What different types of bond are you aware of?

Answer 68

1) Performance Bond 2) Advanced Payment Bond 3) Retention Bond

Question 69

What is a performance bond?

Answer 69

A third party (typically a bank or insurer) takes responsibility for the performance of a contractor. If the contractor does not meet their contractual obligations, the surety pays the client compensation (typically 10% of the contract value)

Question 70

What is an advanced payment bond?

Answer 70

If the client agrees to pay the contractor in advance (e.g. for site set up costs incurred befored the contact begins), an advanced payment bond is held by the surety in case the contractor fails to meet their contractual obligations, and the client needs to be reimbursed.

Question 71

What is a retention bond?

Answer 71

Instead of agreeing to retention, the client pays the retention upfront. If the contractor does not fulfil their contractual obligations, the surety pays the retention value to the client.

Question 72

What is a Net Contribution Clause?

Answer 72

A contractual clause which limits the liability apportioned to each contracting party. The apportionment is limited to the fair and reasonable amount that a court would apportion against it. For example: A significant defect occurs on site. The total loss to the developer is £100k. Without a net contribution clause, the Client would only be able to recover the costs from the main contracting party. With a net contribution clause, each party is only liable for the loss they have caused (i.e. 70% structural engineer, 20% architect, 10% contractor).

Question 73

What is assignment?

Answer 73

The transfer of interest or benefit from one person to another. Note: the burden or obligations, cannot be transferred. I.e. a Developer sells a building following completion, but wants to assign its rights under the contract to the new owner.

Question 74

What is novation?

Answer 74

A contractual mechanism by which a new contract is entered into which transfers both the rights and obligations of one contractual party to a new third party. E.g. in a design and build contract, where the contractor takes on the design responsibility, the existing appointments (including rights and obligations) are transferred over to the contractor.

Question 75

What legislation is relevant to contracts?

Answer 75

The Local Democracy, Economic Development and Construction Act 2009.

Question 76

What is the Construction Act 2009?

Answer 76

A piece of UK legislation that brought in important changes to the payment and adjudication process in construction contracts. The aim of the act is to improve the cashflow process in construction contracts and ensuring a swift resolution for resolving disputes. Key principles include: 1) Prompt Payment - Requires that construction contracts include provisions for regular and timely payments. 2) Adjudication - Establishment of a statutory right to adjudication in construction contracts. 3) Payment Notices - Act introduces the concept of payment notices - this requires the payer to issue payment notices indicating the sum due. If there is a dispute, the payee can issue a notice of intention to refer the dispute to adjudication. 4) Prohibition of "Pay when Certified" Clauses - act prohibits contractual clauses that make payment dependent on the issurnace of a certificate.

Question 77

What is the relationship between the HGCRA 1996 Act and the Construction Act 2009.

Answer 77

The Housing Grants, Construction and Regeneration Act 1996 introduced the: 1) Statutory Right to adjudication 2) Statutory Payment Regime 3) Right to Suspend Works for non-payment The Construction Act 2009, was the amending act which updated some of the key provisions, including: 1) Contracts no longer have to be in writing. 2) Tighter payment provisions - introduced the default payment notice (if the payer fails to serve a payment notice, the payee's application stands) 3) Improved right to suspend for non-payment - contractors can suspend part, but not all, of the works, and now have the right to recover reasonable costs and expenses of suspension.

Question 78

What are the key changes between JCT 2016 and 2024

Answer 78

(1) Use of gender neutral language throughout (replacement of pronoun "him" when referring to a Contractor. (2) Inclusion of Epidemics as a standard Relevant Event. (3) Reduction in the amount of time a Client has to review an respond to a Notice of Delay, from 12 weeks to 8 weeks.

Question 79

What are secondary X clauses in the NEC?

Answer 79

* Secondary X clauses are optional provisions that allow parties to tailor the contract to suit the project's commercial, legal or procedural needs. Examples include: X1: Price adjustment for inflation X5: Sectional Completion X16: Retention

Question 80

How does the NEC encourage collaboration.

Answer 80

Core Clause (10.2) is a specific clause which states that the NEC is based on a "spirit of mutual trust and co-operation" Early Warning Mechanisms - both parties must give Early Warning Notices as soon as they become aware of any matter that could increase cost, delay completion or affect performance. Programme Management - Requires the Contractor to maintain and update the programme.

Question 81

What is the Change Control process on One Exchange Square?

Question 82

What is an Easement?

Answer 82

A legal right enjoyed by one piece of land over another piece of land. For example a Right of Way.

Question 83

What is an Options Agreement?

Answer 83

A legal agreement giving one party the right to buy or take a lease of land from the landowner within a specified period, and on pre-agreed terms.

Question 84

How is a Contract executed?

Answer 84

Two main ways: (1) Under Hand - Agreements signed by an authorised individual. No witness required. Limitation period of 6-years. (2) Executed as a Deed - A more formal legal agreement, expressed clearly as a deed, and must be signed by 2 authorised signatories, or by a single director in the presence of a witness. Limitation period of 12-years.

Question 85

What is a Compensation Event under the NEC?

Answer 85

An event that changes the Contractor's cost, time or both and for which the Client accepts contractual responsibility. There are 21 in total, including: (1) Late Possession of Site (2) Unexpected Physical Conditions (3) Additional Scope.

Question 86

What is an amendment to a JCT?

Answer 86

A change or modification to the standard form of drafting under the JCT. These can be undertaken via a bespoke Schedule of Amendments document, or by embedding amendments into the JCT Drafting.

Question 87

What amendments were undertaken to the JCT on a project you have worked on?

Answer 87

(1) Inclusion of proscriptive LAD's in the Contract. (2) Clarification of existing structure risk - provision that the Contractor takes responsibility for all above ground risk, below ground stays with the Client. (3) Payment Durations - from 14 to 28 days from the due date.

Question 88

What are the different insurance options under a JCT?

Answer 88

Insurance Option A - Contractor Arranged Insurance - Contractor is responsible for taking out and maintaining insurance on the works during construction Insurance Option B - Employer - Arranged Insurance - Employer arranges and maintains insurance Insurance Option C - Joint Insurance