Contract practice
| Question | Answer |
|---|---|
| What is the benefit of use of standard form construction contracts? | 1. These are construction contracts that are typically drafted by construction industry bodies or trade associations, with the intention of providing a set of standardised terms and conditions for employers and contractors to contract upon. 2. It should save parties time and money because they are not drafting and negotiating bespoke contracts for each new project. 3. to create a known set of terms and conditions that the construction industry (or a particular sector of it) can become familiar with over time. 4. By using the same types of contract on similar projects, parties can come to understand the risk allocation within those contracts and respond accordingly. Most standard form construction contracts seek to allocate risk to the party that is most able to manage that risk. |
| What are the different publishing bodies of forms of construction contract? | 1. The Joint Contracts Tribunal (JCT) 2. The New Engineering Contract (NEC) by the UK Institution of Civil Engineers 3. GC Works (Government Contract) 4. The Infrastructure Conditions of Contract (ICC) 5. Institution of Chemical Engineers (IChemE) 6. FIDIC – ‘Fédération Internationale des Ingénieurs – Conseils’ (International Federation of Consulting Engineers) |
| What is JCT and what are the different forms of construction contract offered by them? | The JCT is an affiliation of interest groups in the UK construction industry. It operates as a forum for discussing and determining the content of the standard form construction contracts that it produces. 1. The Standard Building Contract • the Standard Building Contract with Quantities (SBC/Q) • the Standard Building Contract without Quantities (SBC/XQ), and • the Standard Building Contract with Approximate Quantities (SBC/AQ). The Standard Building Contract is designed for use when the traditional procurement route has been chosen. The ‘with Quantities’ and ‘without Quantities’ versions are both fixed price lump-sum contracts with monthly interim payments to the contractor. The only difference between the two being whether bills of quantities are used to define the quantity and quality of work. The ‘with Approximate Quantities’ version is a re-measurement contract, as an approximate bill of quantities is used to define the quantity and quality of work which is then remeasured. 2. The Intermediate Building Contract The JCT’s Intermediate Building Contract (IC) is designed for use when the traditional procurement route has been chosen. The contract was developed to help fill the gap between the detailed and lengthy provisions of the SBC and the relative simplicity of the Minor Works Building Contract. As such, it is designed to be a very versatile form of contract. The IC is a fixed price lump-sum contract with interim monthly payments to the contractor. 3. The Minor Works Building Contract The JCT’s Minor Works Building Contract (MW) is designed for use when the traditional procurement route has been chosen. It is designed for use on smaller, lower value, more basic construction projects where the work involved is simple in character. The MW is a fixed price lump-sum contract with interim monthly payments to the contractor. 4. The Design and Build Contract 5. Major Project Construction Contract It is also designed for use where the design and build procurement route has been chosen. However, unlike the DB, the MP is stated to be for use on large scale construction projects where major works are involved. The MP is also shorter and simpler than the DB because the parties are assumed to have their own in-house contractual and administrative procedures to carry out the contract. 6. Management Building contracts 7. Construction Management contracts 8. JCT – Constructing Excellence Contract The JCT has collaborated with Constructing Excellence to develop the JCT – Constructing Excellence Contract (CE). The JCT – Constructing Excellence Contract (CE) can be used to procure a range of construction services and is specifically tailored for use in partnering and where participants wish to engender collaborative and integrated working practices. 9. Measured Term Contract It is designed for use by both private and public sector employers who have a regular flow of maintenance, minor works and improvements projects that they would like carried out by a single contractor over a specified period of time and under a single contract. This is a ‘re-measurement’ type of contract. 10. Prime Cost Building Contract It is used where the contractor is procured on a traditional basis and is to be paid on a cost reimbursement or cost plus payment structure. 11. Framework Agreement The FA is designed for use by employers who procure work on a regular basis and want to capture the benefits of long-term relationships within the supply chain. 12. Repair and Maintenance Contract |
| What is NEC and what are the different forms of construction contract offered by them? | The New Engineering Contract (NEC) is a formalised system created by the UK Institution of Civil Engineers that guides the drafting of documents on civil engineering, construction and maintenance projects for the purpose of obtaining tenders, awarding and administering contracts. 1. Contracts for the procurement of works The flagship contract in the NEC suite is the Engineering and Construction Contract (ECC). ECC is structured in a modular format. There are nine core clauses (e.g. dealing with the contractor’s main responsibilities, time, the payment process and compensation events) that will always apply to the contract. The parties then choose one of six main option clauses (A–F). The main options allow the employer different ways of pricing the project and ways of paying the contractor. The main option clauses are as follows: • Option A – Priced contract with activity schedule – lumpsum • Option B – Priced contract with bills of quantities • Option C – Target contract with activity schedule – Target Cost contracts that contain a painshare/gainshare arrangement so that the employer and contractor share any cost savings or overspend. • Option D – Target contract with bills of quantities – Target Cost contracts that contain a painshare/gainshare arrangement so that the employer and contractor share any cost savings or overspend. • Option E – Cost reimbursable contract, and • Option F – Management contract – does not differentiate between the construction management and management contracting procurement routes. Following selection of the main option, the parties will select a dispute resolution option – either Option W1 or W2. The parties can also opt to amend the ECC and import additional clauses through use of Option Z. This modular format means that the ECC is drafted on a ‘jurisdiction neutral’ basis and so can be used either in the UK or internationally. 2. Contracts for the procurement of services a. Professional Services Contract (PSC) is used to procure services for a particular project b. Term Service Contract (TSC) is used to procure services (possibly relating to a number of different projects) over a specified period of time. 3. Contracts for the supply of goods and services The NEC Supply Contract (SC) is recommended for use in the local and international procurement of high- value goods and related services, including design. |
| How is NEC different from other forms of contract? | The contracts are shorter, are written in the present tense, use bullet points and contain no cross referencing between clauses. The same structure and definitions are used, as far as possible, across the suite of contracts. The intention is for everybody in the construction industry to be able to understand and use these contracts, not just lawyers. The NEC contracts are structured in a modular format, with different contract options being selected to suit the needs of the particular project. |
| What is FIDIC and what are the different forms of construction contract offered by them? | Fédération Internationale des Ingénieurs – Conseils’ (International Federation of Consulting Engineers) (FIDIC) is an international standards organization for construction technology and consulting engineering. The organization is best known for the FIDIC suite of contract templates which are the most widely used forms of contract internationally, including by the World Bank for its projects. The FIDIC ‘Rainbow Suite’ of New Contracts was originally published in 1999 and includes the following. 1. The Red Book: Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer 2. The Yellow Book: Conditions of Contract for Plant and Design-Build 3. The Silver Book: Conditions of Contract for EPC/ Turnkey Projects 4. The Green Book: Conditions of Short Form of Contract 5. The Blue Book: Contract for Dredging and Reclamation Works 6. The Pink Book: Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (used by the Multilateral Development Banks (MDBs)) 7. The White Book: Client/Consultant Model Services Agreement 8. The Gold Book: Design, Build and Operate Projects |
| What is the Rainbow book? | In 2001 FIDIC published a Contracts Guide to the three major forms of contract; it has become known as the Rainbow Book and FIDIC has perpetuated the rainbow theme by encouraging all of its subsequently issued contracts to be known by the colour of their covers. |
| Comparison between FIDIC Red book 1987 vs 1999. | 1) 1999 Red Book diminishes the Engineer’s contractual impartiality compared to the 1987 Red Book by making the Engineer act for the Employer and removing the express duty to act impartially. 2) Disputes under the New Red Book are referred to a Dispute Adjudication Board rather than the Engineer. |
| What is the change in FIDIC Red Book 2017? | 1. 2017 version is 50% longer than the 1999 forms, and 100% longer than the 1987 4th Edition form. 2. Whereas the 1999 form had an Appendix to Tender and Particular Conditions, the 2017 form has Particular Conditions which are further divided into “Contract Data” (replacing the long-standing Appendix to Tender) and “Special Provisions”. 3. Cost Plus Profit: In terms of Cost-Plus Profit for relief events, unless stated otherwise, the Contractor will be entitled to a 5% profit (whilst under the 1999 Red Book, there was no stated figure and the Profit only had to be reasonable). 4. The Role of the Engineer: the Engineer is obliged to “act neutrally” as between the Parties, and shall not be deemed to act for the Employer. 5. Advance Warning: the 2017 Red Book introduces advance warning provisions, which require each Party to advise the other “in advance of any known or probable future events which may (a) adversely affect the work of the Contractor’s Personnel; (b) adversely affect the performance of the Works when completed; (c) increase the Contract Price; and/or (d) delay the execution of the Works or a Section (if any).” 6. Dispute Resolution Procedures: Disputes and Arbitration are now dealt with in a separate Clause. The DAB has become DAAB or Dispute Avoidance/Adjudication Board and is now a standing Board appointed from the beginning of the Project. |
| What is GC Works (Government Contract)? | GC Works (Government Contract) – standard forms of contract used by the UK Crown and the government for the procurement of building and civil engineering projects such as prisons and military establishments, etc. |
| How is procurement route and contract selection related? | Procurement is the overall process of obtaining goods and services from external sources (e.g. a contractor). This includes deciding the strategy on how those goods and services are to be acquired by reviewing the employer’s requirements (e.g. relating to time, cost, quality and responsibility for design) and their attitude to risk. The choice of an appropriate construction contract will flow from this analysis of the employer’s requirements and the chosen procurement route. Selection of an appropriate construction contract results from the choice of procurement route. A contract should not be ‘pre-selected’ and then used to drive the choice of procurement route. |
| What are the factors influencing the choice of construction contract? | 1. Procurement route 2. The types of works required and sector – building or engineering related, new building or the refurbishment, specialist design required? Are they major works or small works – UK is very familiar with the JCT suite of contracts, but less familiar with the NEC, FIDIC and ICC contracts. 3. Size, value and complexity of the project 4. The employer and their level of sophistication and familiarity with construction 5. Balance of risk/risk allocation 6. Design responsibility 7. Basis of the contract sum and payment 8. Control over subcontractors |
| Which form of contracts are suitable for Traditional procurement route? | Lumpsum • JCT Standard Building Contract (the ‘with Quantities’ and ‘without Quantities’ versions) • JCT Intermediate Building Contract • JCT Minor Works Building Contract • NEC ECC Option A Remeasure • JCT Standard Building Contract (the ‘with Approximate Quantities’ version) • JCT Measured Term Contract • NEC ECC Option B • FIDIC Red Book • FIDIC Pink Book |
| Which form of contracts are suitable for Design & Build procurement route? | • JCT Design and Build Contract • JCT Major Project Construction Contract • NEC ECC Options A–E • FIDIC Yellow Book |
| Which form of contracts are suitable for Construction Management / Management contracting procurement route? | • JCT Construction Management Appointment • NEC ECC Option F |
| Which form of contracts are suitable for Partnering? | • PPC2000 • JCT Constructing Excellence Contract • JCT Non-Binding Partnering Charter • NEC ECC with secondary Option X12 |
| Which form of contracts are suitable for Cost plus/cost reimbursable/prime cost? | • IChemE Green Book • JCT Prime Cost Contract and • NEC ECC Option E. |
| Which form of contracts are suitable for EPC procurement route? | • FIDIC Yellow Book and • FIDIC Silver Book. |
| What are the essential elements required to create a contract? | • offer • unconditional acceptance • consideration • certainty of terms • intention to create legal relations • capacity of parties |
| What is Offer? | An offer is a proposal or promise by one party (often known as the ‘offeror’) to enter into a contract, on a particular set of terms, with the intention of being bound as soon as the party to whom the offer is made (often known as the ‘offeree’) signifies their acceptance. In the context of the construction industry, a contractor’s tender for a particular project could be considered as an offer. |
| What is Acceptance of offer? | Acceptance is the final and unqualified assent to an offer. It is made in response to an offer and to be effective in creating an enforceable contract, it is required to correspond exactly with the terms of the offer with no variation of the terms. |
| What is a Counter-offer? | A purported acceptance that attempts to introduce new terms, or vary those contained in the offer, will be regarded as a counter-offer and not as acceptance of the original offer. |
| What is battle of forms? | As a result of the offer/counter-offer process, one consequence often encountered in the construction industry is a ‘battle of the forms’. This occurs during the negotiation of contracts between the parties, each of whom wants its own standard terms and conditions to be incorporated into the contract. However, this is more likely to occur in a contractor/ subcontractor or contractor/supplier relationship rather than an employer/contractor relationship. In trying to work out which party’s terms and conditions apply, courts will often look to see ‘who fired the last shot’, but every case will depend on its particular facts and the correspondence between the parties. |
| What is Consideration? | Consideration is something of value exchanged between the parties to a contract. Consideration can be many things such as money, property, service, work performance, or a promise to not do something. As long as the parties to the contract exchange something of value between each other, there is consideration. |
| Is a promise enforceable without any consideration? | As a general rule, a promise is only enforceable where it is made in the form of a deed, or the party seeking to enforce it has given some ‘consideration’ (i.e. something of value) in return for the promise. The law does not enforce a gratuitous promise, e.g. the promise of a gift. |
| What is certainty of terms? | For a binding contract to exist, and to be enforced, the terms are advised to be certain. Parties are advised to ensure that their agreement is complete (i.e. not lacking in some essential term) and that their agreement is not otherwise uncertain (e.g. vague or ambiguous). If an agreement is incomplete or otherwise uncertain, a court may not be able to enforce it. In the context of a construction contract, the essential terms are generally considered to be the ‘what’ (i.e. scope of work), ‘when’ (i.e. the time for performance) and ‘how much’ (i.e.the contract sum). If agreement has not been reached on these elements or if the contract records these elements in an ambiguous or vague manner, it could be found that the contract lacks sufficient certainty to be binding. |
| What is Intention to create legal relations? | A contract cannot be made without a mutual intention to create a legally binding arrangement. Where no such intention can be attributed to the parties, there is no contract. This can have an effect during contract negotiations. The parties may hope to enter into legal relations at a particular point in the future (e.g. once all essential terms have been agreed), but either or both of the parties may not wish to enter into legal relations any earlier than that (e.g. because there are outstanding matters to be agreed). In these circumstances, the relevant party will need to be clear that it does not wish to enter into legal relations at that earlier point in time. |
| What do the words ‘subject to contract’ mean? | The words ‘subject to contract’ are commonly used to evidence an intention not to enter into legal relations at a particular point in time. The relevant party can use these words, or any other way of expressing the same sentiment, until it is actually ready to enter into legal relations. |
| What is the reason for amending the standard form of construction contracts? | 1. Altering the risk allocation in a contract – Risk is generally moved away from the employer and transferred to the contractor. This can be done in a number of ways. For example, the list of events that entitle the contractor to claim additional time and/or money could be reduced. Professional advisers should consider whether a contractor would be likely to increase their tender price as a result of having to take on more risk. Is this an acceptable trade-off for moving the risk to the contractor? 2. Inserting additional obligations – For example, a contract can be amended by inserting a requirement for the contractor to provide certain bonds, guarantees and collateral warranties at a particular point in time. 3. Removing rights – For example, if a contractor is claiming an extension of time and/or payment of additional sums, a contract may be amended so that the contractor loses his right to claim these entitlements if he fails to provide a notice to the mployer within a particular time. 4. Project-specific requirements – For example, there may be a particular risk or hazard affecting a project (e.g. the possibility of contamination coming onto the site from a third party’s land) that needs to be addressed in a contract and a project-specific amendment is required. |
| What care should be taken while amending the standard form of construction contracts? | 1. Professional advisers should consider whether a contractor would be likely to increase their tender price as a result of having to take on more risk. Is this an acceptable trade-off for moving the risk to the contractor? 2. Amendments to standard form construction contracts should also be proportionate to the parties and the size, value and complexity of the project. A 30-page schedule of amendments to a ‘minor works’ contract may not be proportionate relative to the sophistication of the parties and the nature of the project 3. the contractual provisions within standard form construction contracts are generally interlinked. For example, amending a JCT Design and Build Contract so that the contractor takes full responsibility for any design carried out by the employer’s design consultants and contained in the employer’s requirements requires a number of amendments throughout the contract. It is not done in just one place. Therefore, those professional consultants who advise on and prepare amendments to contracts need to be aware of these interrelationships so that amendments do not cause conflict or create uncertainty or ambiguity within a contract. 4. Any amendments to a contract should also be made in the same language, style and terminology of the underlying contract. For example, the NEC contracts are written in the present tense so any amendments to an NEC contract should also be written in the present tense and use the same language, style and terminology as the underlying contract. |
| What is the difference between Deeds and contract? | A deed is a formal legal document (which is always written) that confirms an agreement between parties whereby an interest, right or property, or a binding obligation is created or confirmed. Consideration is the primary difference between a deed and a contract. All contracts require consideration. However, deeds do not, as they are a type of promise that does not necessarily require anything in return. Deeds have to be written, whereas a contract can be verbal and written. In the context of a construction project, the principal difference between the two relates to how long the parties will be liable for any breaches of contract. A contract that is signed as a deed will have a 12-year liability period. A contract that is signed as a simple agreement will have a six year liability period. |
| What are the key requirements if a contract is to be valid as a deed? | If a contract is to be valid as a deed, there are four key requirements: • a deed must be in writing • it must be clear from the face of the contract that it is intended to take effect as a deed (this is known as the ‘face value requirement’) • the contract must be validly executed as a deed, and • a deed must be delivered. |
| Which documents usually form part of a contract ? | 1. The contract agreement 2. The Letter of Acceptance 3. The Letter of Tender 4. The Particular Conditions 5. The General Conditions 6. The Specifications 7. The Drawings 8. The Schedules 9. any other documents forming part of the Contract |
| What is a performance bond? | A performance bond is a financial guarantee that the terms of a contract will be honored. If one party to a contract cannot complete their obligations, the bond is paid out to the other party to compensate for their damages or costs. |
| What is Letter of Award? Or Letter of Acceptance? | A letter of award, also known as an award letter or letter of acceptance, is sent by a client/employer as written confirmation that a tenderer has been successful and will be awarded a contract. The letter forms part of the contract award, which is the process of formally notifying a tenderer that they have been selected as the supplier for a particular contract. The letter will typically contain details of the amount of the award, the date of the award, and when the contract will be signed. A notice to proceed may also be included detailing the date on which a contractor may begin work |
| What is a Letter of Intent? | A letter of intent is a document expressing an intention to enter into a contract at a future date but creates no contractual relationship until that future contract has been entered into. A letter of intent is not an ‘agreement to agree’. Letters of intent are most commonly sent at a time when it is anticipated that the recipient will be incurring costs and overheads. They can be used as an interim arrangement to mobilise construction prior to a formal contract being executed, but they should never be seen as an alternative to a full contract and should place a limit on expenditure and the client’s liability prior to the contract being put in place. |
| What is the pre-requisite to prepare a final account? | Performance certificate issued by Engineer/Employer |
| Procedure of Final account as per FIDIC Red Book 99. | Upon completion of Defects Liability Period, Engineer will issue Performance certificate to the Contractor. Within 56 days, Contractor shall submit a draft Final statement. Upon approval of Engineer, Contractor shall submit Final Statement and Discharge letter. Within 28 days, Engineer shall issue FInal Payment certificate and within 56 days Employer shall make the payment. |
| What is a Performance certificate? | A certificate issued under most of the FIDIC contracts by the engineer/employer confirming that the contractor has completed performance of its obligations under the contract (including all testing and correction of defects). This certificate is deemed to constitute acceptance of the works by the employer. |
| What is a Discharge letter? | When submitting the Final Statement. the Contractor shalf submit a written discharge which confirms that the total of the Final Statement represents full and final settlement of all moneys due to the Contractor under or in connection with the Contract. This discharge may state that it becomes effective when the Contractor has received the Performance Security and the outstanding balance of this total. in which event the discharge shall be effective on such date. |
| Under what circumstances DLP period can be extended? | if the principal agrees to let the contractor address defects after the original period has elapsed, or if there is an ongoing dispute regarding whether defects have been satisfactorily rectified. |
| What will you advice if Time for Completion is not mentioned in the Contract and you identify it in the Post Contract Stage? | If no completion date has been stated in a contract, or if there is no mechanism for calculating one, then the governing law of a contract may provide that a contractor’s works are to be completed within a reasonable period of time; |
| What is Time at large? | Time can become at large because there is no clear completion date specified in the contract, or can be a situation that arises as a result of events or if the contract does not allow the construction period to be extended. The client would then not be able to claim liquidated damages from the contractor as there would be no date against which they could be calculated and the contractor would then only have to complete the works in a ‘reasonable’ time. The client would only be entitled to damages if they could establish that the contract was not completed within a reasonable time. |
