1
Q
What is a contract sum?
A
The contract sum is the amount (or consideration) that the employer agrees to pay the contractor for carry out the works. Found in Article 2
2
Q
What items are able to adjust a contract sum?
A
- Variations (To design / Specification of work, additions or reductions in scope)
- Acceleration Quotations
- Loss and Expenses incurred by the contractor
- Provisional Sums adjustments
- Approximate quantity adjustments
- Fluctuations (labour, materials, tax’s, levis, gov contributions)
3
Q
When would you NOT make an adjustment to the Contract Sum?
A
- When there was an error in the Contractors Proposal then they bear the cost and there is no addition to the Contract Sum
- When opening up works they are NOT in accordance with the contract
4
Q
What is provisional sum?
A
A Provisional Sum is an allowance for a specific element of works that has not been defined in the tender documents.
5
Q
What are the 2 types of provisional sums?
A
2 types of Provisional Sum in the JCT contract:
- Defined Provisional Sum
a. Details about activity. Nature, location of the work, the method used and quantity to indicate scope and extent.
b. The works have been allowed for in the Contractors programme and Prelims - Undefined Provisional Sum
a. The works have been NOT been allowed for in the Contractors programme and Prelims
b. Lacks detail
6
Q
What is VAT?
A
Value added tax, or VAT, is the tax you have to pay when you buy goods or services.
7
Q
Is VAT included in the Contract Sum?
A
NO, the Contract Sum is VAT-exclusive. The Employer shall in additional to each monthly interim payment pay the amount of any VAT properly chargeable.
8
Q
What is the Construction Industry Scheme (CIS)?
A
- The Construction Industry Scheme (CIS) sets out a series of rules for how contractors should make payments to subcontractors.
- If the Employer is down as a Contractor, instead of paying all the money to the Contractor direct, the Employer pay HMRC direct a portion of the Tax due.
- Purpose of the scheme was to ensure Contractors are paying the right amount of Tax.
- If not signed up to the scheme Contractors have to pay a higher rate of tax.
9
Q
What is retention?
A
- Retention is a percentage of money deducted from each interim payment certificate to the contractor and retained by the employer
- It acts to safeguard the Employer against latent defects and Contractors possible failure to complete the works
- Also incentivize the Contractor to ensure works are completed on time and not defective.
- The amount of retention to be held is stated within the Contract Particulars (3% SBC/D&B; 5%)
10
Q
When is retention released?
A
Half retention is released to the Contractor when practical completion or partial possession is achieved, and the other half is released when the certificate of making good defects is issued at the end of the rectification period.
11
Q
What are the rules on treatment of retention?
A
Statement of the amount of retention to be deducted from each Gross Valuation is required to be sent to the contractor prior to issue of Interim Certificate.
12
Q
What is a retention bond?
A
A retention bond is financial security provided by an insurer company / bank to secure the amount that would have been held as retention. The value of the bond will reduce by half after practical completion has been certified.
13
Q
What is the typical value of a retention bond?
A
3 or 5 % of the contract sum
14
Q
How are bonds paid for?
A
Bonds are paid for by the Contractor but the costs for doings so may be included within Contractors tenders
15
Q
What is the purpose of retention?
A
To safeguard the Employer against latent defects and incentivize the Contractor to ensure works are completed on time and not defective.
16
Q
What are Fluctuations?
A
Provisions in Construction Contracts to provide a mechanism for dealing with the effects of inflation – if large projects lasts a few years this is very crucial. They allow for: • Changes in taxation • Costs of labour • Materials • Admin Costs
17
Q
Hoes does JCT deal with fluctuations?
A
Under Schedule 7 – Fluctuation Option A, B, C
• Option A: contribution, levy and tax fluctuations
• Option B: Labour and material cost and tax fluctuations
• Option C: formula adjustments
Chosen option is stated in the Contract Particulars
18
Q
What are the Advance Payments?
A
- Advanced payment is an upfront sum of money paid by the Employer to the Contractor (‘down payment’) to cover the contractor’s setting up costs or costs for a particular part of the project.
- It shall be paid to the Contractor on the date stated in the Contract Particulars and reimbursed to the Employer on the terms stated in the Contract Particulars (stated dates and amounts).
- Advanced payment bonds can be used as an alternative.
19
Q
When can payment on an advanced payment bond be made under JCT?
A
Payment shall only be made when the Contractor provides the Employer a bond in the terms set out in Schedule 6.
20
Q
When may you use an advance payment notice?
A
- Contractor incurring large costs early in the project (plant, equipment, materials)
- Prefabrication works/costs.
- Specialist supplier works/costs.
21
Q
Where are the details for advance payment stated?
A
Contract Particulars and Section 5 (JCT) or Contract Data and Option X14 (NEC)
22
Q
What does the Construct Act say about payment provisions?
A
The Construction Act (HGCRA96) states that every contract must provide for interim payments if the contract period is greater than 45 days and, for every payment, a mechanism for calculating the sum due, the due and the final date for payment.
23
Q
How can Interim Payment calculations be calculated?
A
The way interim payments are calculated will be stated within the Contract Particulars. (Contract Data NEC)
• Periodic (Interim) Payments
o Most used method of payment.
o Assessment of works to date, against the submitted pricing document (i.e. BQ/Schedule of Works/Contract Sum Analysis).
o 1st interim payment normally due 1 month after the date of possession.
o Aids client cash flow instead of lump payments for stages/milestones.
• Stage Payments
o Stages are typically related to the completion of significant elements of works (i.e. substructure).
o Typically used when no QS is involved.
• Milestone Payments
o A variant of Stage Payments, whereby the Contractor is paid for completion of milestones.
o this may be a particular element (substructure, frame, façade)
o will be set against a pre-agreed Programme dates.
• Activity Schedule
o commonly used in lump sum contracts and NEC Option A&C.
o works priced to be undertaken in completing the works.
o can only be certified once 100% of activity is complete.
24
Q
What are preliminaries?
A
- Preliminaries provide a description of a project which allows the contractor to assess costs associated with administering the project.
- They do not sit under a specific package of works to be completed.
- These include things like storage of materials, site security, site welfare, hoarding. List of preliminaries provided as part of the tender pack.
25
When are materials included within a valuation?
• Materials On Site
o they must be included within in a payment application, the QS must inspect the amount certified on the payment request and visually inspect the quantity on site.
o Most contractors will prepare a list of materials on site and assign a figure next to each item. All materials on site must be properly protected (they are kept on site at the contractors risk).
• Materials Off Site
o Can be claimed but they must be supported by an invoice, vesting certificate (stating that the employer owns the materials), intended for use on site, correctly insured and safely stored (always try to visit the materials off site if possible to check they are stored correctly).
26
What is a vesting certificate?
A ‘vesting certificate’ or ‘certificate of vesting’ may be required from the contractor (sub-contractors / suppliers), certifying that ownership of goods, plant or materials listed in a schedule will transfer from one party to the other upon payment and confirming that they will be properly identified, separately stored, insured and are free from encumbrances (such as retention of title).
27
Which dates are fixed by statute and which dates are fixed by the contract?
Dates fixed by statue are:
• Payment notice within 5 days after the due date
Dates fixed by contract and can be changed:
• Due date is 7 days after the assessment date
• Final date for payment 14 days after due date. Frequently changed by Employers
• Pay less notice 5 days before final date for payment
28
385. If no adequate provisions for payment terms are provided for the contract, what are the payment terms to be based on?
The Scheme for Construction Contracts
29
What are the time frames under The Scheme for Construction Contract?
If a construction contract fails to provide an adequate mechanism for determining when a payment becomes due, the payment shall become payable on the later of 7 days after the assessment date or the making of a claim by the payee.
The final date for payment is 17 days after the date that payment became due.
30
Where is the due date specified?
The Due date is 7 days after the Interim Valuation Date JCT SBC and D&B (Assessment Date NEC)
31
What must be provided in a pay less notice?
The sum the Employer believes is due and the details that support the calculation
32
What is the JCT SBC payment timeline?
1. Contractor submits his application to the QS 7 days prior to the due date.
2. QS carries out his assessment of the contactors application and issues recommendation to Architect/CA.
3. Architect/CA then has 5 days from the due date to issue the Interim Payment Notice even if no amount is due, setting out the sum that the payer considers to be or to have been due at the payment due date, and the basis on which that sum is calculated
4. The final date for payment is 14 days from the due date (date by which employer must pay contractor).
5. If the Employer whishes' to pay less then what has been certified, he must notify the contractor 5 days before the final date for payment.
33
Can the payment notice be £0/nil?
Yes under JCT SBC, the A/CA must submit a payment notice on the interim payment date
34
What is the Contractors Interim Payment Application?
The Contractors Interim valuation states the sum of money that the Contractor believes is due to him within the payment notice.
35
What happens if the Contractor fails to provide an application before the due date? (JCT SBC)
* Should the contractor not issue his application before the due date, the QS is entitled to undertake his own assessment and issue his recommendation to the Architect/CA.
* Should the contractor submit his application within 5 days after the due date, the timeline resets from that date becoming the due date.
* After this time Contractor has no input. Missed opportunity.
36
What is the role of the QS during interim valuations (JCT SBC)
The QS assesses the Contractors monthly application for payment, ensuring that what is being claimed for is based on the works carried out.
This not only protects the client but also ensures that the Contractor is paid what is due as the QS is empowered to make a fair and reasonable assessment
37
What is the evaluations procedure for a QS? (JCT SBC)
1. Once in receipt of contractor application, go to site and visually inspect works complete.
2. Check materials on site (off site if applicable).
3. Value preliminaries agreed variations and any claims.
4. Valuation amount is gross valuation, less retention, less previous payment.
5. Issue recommendation to Architect/CA
38
What is the Due Date?
The due date is the date on which the payment is due. It is NOT the date the Contractor receives the money but is a key date in connection with particular payment from which other events in the payment process can be calculated.
39
What is the Interim Payment Certificate/Payment Notice?
The payment notice/certificate is issued by the A/CA stating the amount due to the Contractor in month. The payment notice is required to be issued regardless of whether the CA is in receipt of a contractor’s application
40
What is a Pay Less Notice?
A pay less notice is notice given by the Employer (or A/CA on their behalf) notifying the Contractor of their intention to pay less than the amount set out in the payment notice, setting out the basis for its calculation.
41
What is the Final Payment Notice / Final Date for Payment?
Final date for payment is that date in which the Employer should pay the Contractor the Interim payment.
The final date for payment is 14 days from the due date.
Subject to a pay les notice the Employer shall pay the Contractor the sum stated in the Payment Notice.
42
What happens if the A/CA fails to issue a notice or payment is not made? (JCT SBC)
* If the Architect/CA fails to issue the Interim Payment Notice 5 days after the due date, the Contractor is entitled to payment of his application in full (plus any interest that he may have accumulated).
* If after 7 days from the final date for payment (7 days after the 14th day) the Contractor hasn’t received payment, he can give notice to suspend works (and be entitled to any loss/expense incurred).
43
What are the main elements of a Valuation? (JCT)
• Preliminaries
o Fixed and time related costs.
• Measured Works
o Based on pricing document (contract bills/works packages).
• Materials On/Off Site
o On site – in accordance with specification, intended for use on project, safely and securely stored, property of the contractor (proof of invoice/delivery)
o Off Site – proof of ownership transfer (vesting certificate), labelled with relevant project/client details, stored safely and securely, pre-agreed and listed within contract.
• Variations
o Agreed CAI/EAI/PMI’s that have been undertaken/completed.
o Site instructions awaiting formal CAI/EAI/PMI valued fair and reasonably.
• Advanced Payment (deduction)
o If mechanism for advanced payment utilised within contract, a deduction sum would have been agreed at tender stage and subsequently deducted from interim valuation.
• Loss and Expense Claims (deduction)
o Any contractual claims for loss and expense (note – not subject to retention).
• Retention (deduction)
o Percentage withheld of gross valuation pre-agreed and included within contract.
44
What happens if the Employer fails to pay by the final date for payment? (JCT)
If the fail to pay by the final date for payment, in addition to the amount due the Employer will pay an amount at the interest rate for the period from the final date of payment until payment is made
45
What is the difference between the JCT SBC and D&B payment mechanisms?
* Under JCT Design and Build it is the Contractor’s obligation to apply for payment. Without an application, the due date and subsequent time frame does not become triggered, therefore there’s no obligation on the EA to prepare a payment notice in line with the contract.
* Under the JCT Standard Building Contract, the Contract Administrator “SHALL” submit a payment notice within the prescribed time frames from the interim valuation date every month.
46
What are the 2 alternatives for payment in the D&B contract?
Alternative A Stage Payments
| Alternative B Period Payments
47
Which is the default Gross Valuation alternative if an alternative is not selected?
Alternative B Period Payments (Interim Valuations)
48
Can you tell me about the payment terms on a project you have worked on?
For NatWest the payment terms were for JCT SBC. Valuation date was stated in the contract. Due date 7 days after. Interim payment notice 5 days after due date. Final date for payment 14 days from due date
49
What is the JCT D&B payment timeline?
1. Contractor shall submit an Interim Payment Application to the Employer stating the sum the contractor considers to be due to him and basis of calculation on the Interim Valuation Date stated in the Contract Particulars.
2. Employer / EA then has 5 days from the due date to issue the Interim Payment Notice stating the sum that they consider due to the Contractor and the basis on which that sum is calculated
3. The final date for payment is 14 days from the due date (date by which employer must pay contractor).
4. If the Employer wishes' to pay less then what has been certified, he must notify the contractor 5 days before the final date for payment.
50
What happens if the Contractor submits their interim payment application after the Interim Valuation Date?
If the Contractor submits the Interim payment application late (after the interim valuation date) the due date will be 7 days after the receipt of the application by the Employer. The payment timeline will be SHIFTED by the number of days it is delayed.
51
What happens if the Interim Valuation Date is not stated in the contract?
If the Interim Valuation Date is not stated in the contract, the first Interim Valuation Date is one month after the Date of Possession.
52
Using the JCT SBC if the contractor submits an application but the A/CA does not submit his interim certificate what happens?
The interim application shall become an interim payment notice if an interim certificate has not been issued within 5 days of the due date
53
If neither the contractor submits his interim application and the A/CA does not produce an interim certificate what is the process?
* Where the contractor has not made an interim application by the due date and the A/CA has failed to issue an interim certificate, The contractor may at any time after the 5 day period following the due date issue an interim payment notice to the QS.
* The contractor’s interim payment notice must not only show the ‘gross valuation’, but also show the relevant deductions and the ‘net’ amount considered to be due, together with details showing how the sum applied for has been calculated.
54
What Section of the NEC contract is payment stated?
Core Clause 5 and legal clause Y2
55
What is the NEC payment timeline?
1. The Contractor submits an application for payment to the Project Manager before each assessment date setting out the amount the Contractor considers is due and the details of how the amount has been calculated and is in the form stated in the Scope.
2. The due date is 7 days after the assessment date.
3. The final date for payment is 14 days after the due date or a different period for payment stated in the Contract Data.
4. If either Party intends to pay less than the sum notified, 7 days before the final date for payment they shall issue a pay less notice stating the amount they consider due
5. The Project Manager certifies a payment within 1 week of each assessment date. The Project Manager's certificate includes details of how the amount due has been assessed.
6. Each certified payment is made within three weeks of the assessment date or, if a different period is stated in the Contract Data, within the period stated.
56
How much is the amount due at the assessment date? (NEC4)
* The price of the work done to date
* (plus) + other amounts to be paid to the Contractor
* (minus) – amounts to be paid by or retained from the Contractor
57
What happens if the Contractor does not submit an application for payment before the assessment date?
* If the contractor has already made an application for payment specifying the sum the payee considers to be due and the basis on which that sum is calculated, the sum applied for will become due
* If the contractor has NOT already made an application for payment, the contractor can issue a default notice specifying the sum the payee considers to be due and the basis on which that sum is calculated
58
What happens if the certified payment is late?
Interest is paid from the date the late payment should have been made until the date payment is made.
Contractor entitled to suspend works until the matter is resolved.
59
What happens if no programme is identified in the Contract Data?
25% of the Price for Work Done to Date is retained in assessments of the amount due UNTIL the Contractor has submitted a first Programme to the Project Manager for acceptance showing the information which the contract requires.
60
What is Final Account?
A final account is an agreed statement stating the amount of money to be paid at the end of a building contract by the employer to the contractor.
61
Who prepared the final account?
* Employers responsibility. Employers Quantity Surveyor will review.
* The best approach is for both the employer's quantity surveyor and the contractor’s quantity surveyor to work together to produce an agreed account.
62
Who signs the final account?
Employer and Contractor to signify that the final account figure represents the full and final settlement of all claims
63
What does the final account statement trigger?
A final account statement enables the Contract Administrator or Employer Agent to issue the final certificate.
64
What if the final statement is not issued?
If the Contractor does not submit the final statement within 3 months of practical completion of the works, the Employer on or after the expiry date gives the Contractor notice that unless the statement is submitted in 2 months from the date of notice the Employer himself issues the final statement.
65
When is the due date for final payment?
The due date for final payment shall be the date 1 month after however occurs last:
• End of Rectification Period
• The date stated in the Notice if Completion of Making Good
• The date of issue of the final statement.
66
How long does the JCT SBC give you to settle a Final Account?
6 months
67
When does the Contractor provide the finial statement?
• No later than 6 months after the issue of the Practical Completion Certificate or last Sectional Completion Certificate, the contractor shall provide the Architect/CA or QS with all documents necessary for the adjustment of the Contract Sum (his final statement).
• The contract sum may need to be adjusted for:
1. variations.
2. fluctuations.
3. provisional sums.
4. loss and expense claims
5. liquidated damages
Contract Practice
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