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CONTRACT PRACTICE Sos Flashcards

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1
Q

What is a contract?

A

A Legally binding agreement between two parties whereby one party is to fulfill an obligation for another in return for consideration.

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2
Q

What needs to be in place for a contract to be valid?

A

Offer
Acceptance
Consideration
Intent
Legality
Capacity

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3
Q

Why do we use contracts in construction?

A

Construction projects are often bespoke and require risk management and allocation which contracts support.

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4
Q

What are the NEC options?

A

NEC – Option A Priced contract with activity schedule
NEC – Option B Priced contract with Bill of quantities
NEC – Option C Target cost with activity schedule
NEC – Option D Target cost with BOQ
NEC – Option E Cost reimbursable
NEC – Option F Management contract

NEC – ECC Short Contract

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5
Q

What other suites of contract are available?

A

JCT & FIDIC

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6
Q

What Does JCT Stand for?

A

Joint Contracts Tribunal

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7
Q

What is the payment mechanism under the NEC Option A?

A

Paid for full completed activity schedule activities.

Price for the works done plus any additional amounts due to the contract i.e CEs minus retention.

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8
Q

You mention the construction act 1996, what is the purpose of it and what did it introduce

A

To ensure that contractors and sub-contractors could enforce payment of amounts due without having to take expensive court proceedings

Interim payments

Suspension

Adjudication

Abolished Pay when paid

Applies to verbal contracts

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9
Q

What are the standard timescales for payment in the NEC?

A

The first assessment date is decided by the PM

Contractor must submit application on or before the assessment date

PM certifies payment within 7 of the assessment date.

Due date 7 days after assessment date

Final date for payment 14 days after due date

Pay less 7 days before final date of payment

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10
Q

What is the risk to a client if the doesn’t pay by the final date for payment?

A

If the failure continues for 7days after notice to the employer of intention to suspend has been issued they can suspend performance

It also entitled the contractor to Relevant Event

And will be reimbursed for reasonable costs for suspension

If the default continues for 14 days following notice the contractor can on or within 21 days from expiry of the 14 days terminate the contract

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11
Q

What impact can the non submittal of the first programme have on the payment to the contractor?

A

25% can be withheld from the contractor until the first programme is submitted

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12
Q

What are the steps you take through the valuation process?

A

Planning - Understand the contract and the requirements of dates and co-ordinate with all parties

Pre-Valuation - Desk top review of the valuation submitted

Valuation - Review the works on site discuss and agree wit the contractor the position of the valuation (DOSENT HAVE TO HAVE AGREEMENT)

Validation docs - Carry out final review of val and correct all items within the val that are erroneous

Issue Val - Complete payment certificates and issue to all parties

Post Val - Record the val and payments and manage discrepancies

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13
Q

What is a compensation event?

A

An event that doesn’t arise from the fault of the contractor but they are due the additional cost and or time in which the event has caused.

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14
Q

How many CEs are there?

A

19

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15
Q

What are the two ways a CE can be notified?

A

By the contractor by CE or PM via PMI

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16
Q

What is the CE process?

A

Notification
Quote
Assessment
Implementation

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17
Q

Under what circumstances can the PM make an assessment on a compensation event

A

Contractor has not submitted a quotation

Pm decides the contractor has not assessed it correctly

When the Contractor submitted the CE he didn’t include a Programme

when the Contractor submits the CE but the Programme hasn’t been accepted

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18
Q

CE Timeline

A

Contractor notifies within 8 weeks of knowing about the issue and submits a EWN.

1 Week period for PM to submit a PMI or 3 weeks for contractor to submit a quote.

PM accepts or in 2 weeks the CE is automatically accepted after the contractor has issued a reminder notice.

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19
Q

NEC3 VS NEC4

A

-new contracts - Design, build and operate contracts & Alliance contracts
-Simpler language
- Works info v Scope
-Employer v client
-Introduction of new X clauses - X8
-Dispute Resolution - Senior representatives and Dispute Avoidance boards

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20
Q

NEC VS JCT

A

-PM vs EA
-Proactive Collaborative vs liabilities and risk
-Clear and non legal jargon vs can be confusing

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21
Q

What is a collateral warranty and why is it beneficial?

A

A collateral warranty is a side agreement between the employer and a third party usually a subcontractor in order to make a contractual link.

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22
Q

What is a performance bond and why is it beneficial?

A

An insurance back surety usually 10% of the contract price. It allow the employer to recover cost when the contractor fails to construct as per the works information.

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23
Q

What is Third Party rights?

A

-It is an alternative use of a collateral warranty
-Remove privy from a contract
-Allows third parties like investor to enforce terms
-Only beneficial terms

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24
Q

What are the dispute resolution clauses under NEC?

A
  • W1 - Adjudication (no HGCRA)& W2 - Adjudication (w HGCRA)

Provides a timeline for dispute resolution so it is completed quickly.

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25
What is included within contract documents?
-Form of agreement -Contract conditions -Contract Data -Pricing Document -Works info -Site info -programme -risk reg
26
What changes were made in the 2009 construction act?
-Clearer payment notice regime - both payee and payer -Suspension adjustment - allowed contractor to claim cost and time -Increased transparency, -Reduce disputes -Payments straight forward
27
What is contact data part 1 ?
Data provided by the employer -Scope -Parties responsibilities -Time - Quality -Payment
28
What is contact data part 2 ?
Data provided by the consultant\Contractor -Name -address -key personal - Value of works
29
Name the contracts under JCT
Minor Works Standard Design & Build Major Management
30
What is on demand bond?
-An on-demand bond is an unconditional obligation to pay when a client demands it -Client doesn't need to prove contractor default - Used in high risk projects
31
Name 3 Letters of intent
-letter of comfort -authority to spend -recognition of a contract
32
What is a letter of comfort
A letter which extends the tender period
33
What is authority to spend ?
Allows works to progress on site prior to being in contract
34
What is recognition of a contract?
Allows works to start on site while contract terms are fully agreed.
35
Why cant QS' write a letter on intent for a client?
QS cant provide legal guidance and this is a legal ordeal and as such should be dealt with by a lawyer.
36
What is Y(UK) 2 & 3?
Y (UK) 2 - ensures that the contract's payment provisions comply with the Housing Grants, Construction and Regeneration Act 1996. Y (UK) 3 - allows a third party to a contract to enforce terms of the contract in certain circumstances under the Contracts (Rights of Third Parties) Act 1999.
37
What is conditional bond?
-When an obligation must be met prior to payment of the bond. - Only triggered when the contractor has breached the contract
38
What is Professional indemnity insurance?
Liability insurance which protects business due to negligence, error, omission or breach of duty.
39
Types of PI insurance
- Each and every claim means that each individual claim has its own limit of indemnity, though multiple claims arising from the same cause will be treated as a single claim -Aggregate means that the limit of indemnity applies to the total of all claims made against you during the period of insurance
40
What contracts would you use for each value of works?
-Minor Works up to £250k -Standard up to £1mil -Major above £1mil
41
What is the payment mechanism under the NEC Option B?
Paid for percentage of works done on a % basis +CE - Retention
42
What is a PCSA?
- Pre contract service agreement - The period of the first stage tender up the second tender.
43
Please expand on the PCSA Period?
- It is designed for appointing a contractor to carry out pre contract services as part of a two stage tender -Agreement of cost items such as OH&P, Prelims and fixity of construction items - Allows early contractor engagement with the design team. -CDP
44
Advantages of Target Price Contracts
- Contractor and employ has an incentive to reduce cost -Encourages risk sharing between all parties
45
Disadvantages of Target Price Contracts
- Pain and gain mechanism which exposes client to more risk -Pain and gain is a hard mechanism to understand
46
GMP Contract
-Guaranteed Max price contract -Sets limit of contract despite actual cost incurred
47
Two important terms associated with Variations in the JCT contract
Relevant Matters & Relevant Events
48
What is a relevant matter?
- cost of delay -A relevant matter is where the client is responsible for affecting the progress of the works. -Contractor can claim direct loss and expense incurred
49
Examples of Relevant Matters
-Failure to give possession of site -Failure to give access -Discrepancies in the contract documents -Disruption caused by client
50
What is a relevant event?
- time delay -An events that cause a delay to the completion date, which is caused by the client, or a neutral event not caused by either party. -Contractor is allowed extension of time
51
Examples of Relevant event
-Variations. -Exceptionally adverse weather. -Civil commotion or terrorism. -Failure to provide information
52
What is a BoQ?
Breaking down a project into exact quantities
53
Disadvantages of BOQ?
-Expensive -Time consuming
54
Advantages of BOQ?
-Ideal for post contract cost control -Simplified tender analysis -Detailed and comprehensive
55
What are advanced payments
-Early payment to the contractor in advance of completing works or procuring materials -Assists with contractor cashflow
56
Disadvantages of advanced payment
-Commercial risk - liquidation prior to supply of goods -Effect employer cashflow
57
Measures put in place to protect the employer - advanced payment
-Advanced payment bond (financial guarantee to fulfill obligation) -Vesting certificate (evidence of ownership)
58
JCT 2016 Payment Timeline/
-Interim valuation date - 7 Days later -due date -within 5 days payment notice - Payless 5 days prior to final date -2 weeks form due date - Final date for payment
59
Name a number of X clauses
-X7 Delay Damages -X14 Advance Payments -X16 Retention
60
X7 - Damages - how are they levied
Pre-agreed amounts for of actually loss, client must demonstrate expected loss QS should not calculate this Loss of rent in office scheme
61
What is the real name for the Construction Act 1996?
Housing Grants, Construction and Regeneration Act 1996
62
What is retention and what X clauses
-X16 -Withholding money at a agreed rate usually 3 or 5%
63
Why is retention used?
-Provides security to the client by withholding payment for defective works -Ensures completion of works - Defect rectification if the contractor doesn't complete
64
What is vesting certificate?
Confirms ownership of goods has transferred to the client
65
Why use vesting?
- Vesting protects their investment -Avoids delays -Insolvency protection
66
Why use a bond?
- Financial safeguard to protect one party against the risk of the other party
67
What is the main risk with Target contracts?
-The pain and gain mechanism - usually pain or gain is split between contractor and client
68
What Is an Early Warning Notice?
-Formal notification of an event which may affect cost and programme - Contractor or PM notifies
69
Why do we use EWNs?
- Improved Risk Management -Better communication -Cost and time savings
70
What is the role of secondary clauses in NEC3 contracts?
-They are X, Y & Z clauses -Use to customise the contract based on clients requirement
71
What is Clause 60.1 in NEC3?
Compensation Event Mechanism
72
Under the NEC3 what clause allows the project manager to delegate authority?
14.2
73
How does a PM delegate authority under the contract?
-A formal communication must be issued to all parties - Not a verbal instruction
74
How do you compile NEC3 option A contracts for the client?
-Tailor secondary clauses to the client - X,Y&Z -Complete contract data 1 & 2 -Prepare Activity schedule based on Works information -Issue all supporting documents - works info,site info, risk register
75
Main clauses surrounding payment?
Clause 50.1 – Assessment of the amount due Clause 50.2 – Payment based on completed activities Clause 51.1 – Payment timing Clause 11.2 – Defines the “Price for Work Done to Date”
76
How did you handle a compensation event related to design changes?
- 61.1 Notify contractor of the design change -PMI - 61.4 Acknowledge the Notification - 62 - contractor submits a quote -64 - Assessment -65 -Implement
77
Does the NEC3 have a vesting clauses
No has to be included within Z clauses
78
How did you advise the client on off-site material payments?
- include as Z clause -List within activity schedule or the defined cost - Clearly contract amendments for payment, storage and ownership transfer - Assess materials stored to date
79
How did you explain the absence of retention in a demolition contract?
-Low risk and short programme -Little to no ongoing liabilities once the works are complete -Nothing that will be defective or requires monitoring -Minimal Latent defects
80
What are some alternative ways to protect the client if retention isn't used?
-Retention bonds (e.g. 5–10% of contract value) -Milestone-based payments -Final payment holdback until site clearance is verified
81
How did you tailor contract clauses to suit project needs?
- Included client specified Z clauses - Changed X16 on demo project to 0% typically 5% -X13 Performance bond
82
How did you manage risk under NEC3 contracts?
- Maintain Risk Register based on EWNs and updated info -EWNs
83
How did you advise on contractor insolvency risk?
-Financial checks of accounts -Capacity assessment -Performance bond X13 -PCG X4 -91.1 Termination clauses -Contractor to have insolvency insurance
84
How did you advise a client on selecting the appropriate NEC3 main option for a project?
-Identified each options - Reviewed the scope and complexity of the project -Clients Risk appetite -Is the design complete? -Does the client want cost certainty or flexibility -Preferred payment mechanism
85
How would you support a client in resolving a dispute under the NEC3 contract?
-Understand the dispute -Review Clause 6 -Review contract and records -Encourage informal resolution -Follow W1 or w2
86
How did you ensure compliance with payment terms under NEC3 on a live project?
-Understand payment terms under clause 5 -Maintain payment schedule -Monitor applications and CEs
87
What is the purpose of retention in construction contracts?
To ensure the contractor completes the works satisfactorily and to cover the cost of any defects during the defects liability period.
88
What is the change mechanism under NEC3?
PMI and CE mech
89
What happens if payment assessment in month is less than previous
Valuation is a deductive value or Nil
90
What is the payless/ Withholding notice?
If either party intends to pa less than the notified sum the party not later than 7 days before the final date for payment notifies of its intent to pay less (Y2.3)
91
What risks are associated with valuing materials off-site, and how are they typically mitigated?
Risks - Ownership, storage & insolvency Mitigation - Vesting, Advance payment bonds, securing the area
92
List a number of bonds?
-advance payment -performance bond -on demand bond -conditional bond -Payment bond
93
You note that you understand the importance of Collateral Warranties, and 3rd Party Rights, why would you recommend using CWs’ over 3rd Party Rights to the Client?
-CWs - direct contract - clear and flexible - full access and clear TPR - Statutory rights only
94
What is a pay less notice
To notify the payee that the payer intends to pay less than the amount previously notified or applied for.
95
What does a pay less notice need to contain
-Specify the sum the payer considers due at the date of the notice. -Set out the basis on which that sum is calculated.
96
When does a pay less notice need to be issued contractually
The Pay Less Notice must be served at least 7 days before the final date for payment
97
If the Client asked you what Form of Contract they should use on a new project they’re conceiving, NEC or JCT, what type of questions would you ask them to determine the most suitable Form of Contract?
-Key objectives -Familiarity of contract -Size and complexity -Full design? -Procurement rout
98
Are there any alternatives to withholding retention that you’re aware of?
-Retention Bonds - guarantees performance
99
What Are Disallowed Costs?
Costs that the contractor cannot recover from the client. -Cost due to error -Costs not supported by records
100
What does FIDIC stands for, and when FIDIC Contracts are generally used?
Fédération Internationale Des Ingénieurs-Conseils, -Red book -Yellow -Silver -Green -Gold
101
How did you assess the PQQ, and what advice did you give to the Client once your assessment was complete?
-Compliance Check -Scoring Against Criteria -Risk Identification
102
If tender prices come back significantly higher than your PTE, how would you handle it and what would you advise the client to do
-Investigate the Cause -Benchmark and Validate - Advise the Client on VE and scope reduction
103
What is Tort?
A civil wrong doing
104
How did you demonstrate your valuation assessment to the client?
-Make assessment to contractor -Substantiation from contractor -Certification
105
How does the NEC3 deal with materials off site?
-Must be identified in the contract through AS and Z clause for vesting cert etc - Storage area has to be added to the works area via clause 15 to ensure payment
106
What parties should a vesting cert be with?
Contractor and Client Not Client and subby
107
Retention Bond?
-Financial safeguard which replaces retention. -Ensure contract completes the work as per scope and completes defects.
108
Why use 3rd party rights over CW?
-Lower legal cost as built into contract -Time efficient as built into contract
109
Why use CW over 3rd party rights?
-Perceived stronger enforceability as doesn't rely on the contract -More direct
110
On the Car Park Adaptation project, you mention you were responsible for preparing the Contract documents under the NEC Form of Contract, could you please confirm some of the documents that form a Contract?
-FOT - Contract data 1 & 2 -X,Y,Z Clauses -Works info -Site info -Pricing document -Risk register -Programme
111
If the Client asked you what Form of Contract they should use, NEC or JCT, what type of questions would you ask them to determine the most suitable Form of Contract?
-Project objectives -Level of design development -Risk appetite -Procurement Strategy -Familiarity
112
Why is a Retention Bond Used?
-Improves cashflow -Supply chain stability -Reduce disputes over retention release
113
How a Retention Bond Is Implemented in an NEC3 Contract
Via a Z clause
114
What Are Contract Particulars in a JCT Contract?
- Set out project‑specific information, tailoring the standard JCT form to the actual job -Start date -Retention -LADS
115
How Materials Should Be Stored on a Construction Site?
-Safe and securely -Protected from weather -Labelled -in line with H&S
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