Contract administration
| Question | Answer |
|---|---|
| What is Contract administration? | Contract administration is the management of contracts made with customers, vendors, partners, or employees. This is to assure that the terms of a contract are complied with. For example, timely delivery, acceptance, payment, and closing contract. Contract administration includes all dealings between parties to a contract from the time that contract is awarded until the work has been completed and accepted. |
| What is the role of a Contract Administrator? | A Contract Administrator (CA) is appointed by an employer to administer the contract between the employer and the contractor. In practice the responsibilities of the CA will have commenced before the building contract exists to perform pre-contract services such as the selection of the method of procurement, calculation of liquidated damages and deciding on the type of building contract. The CA will act as the agent of the employer in some circumstances but will be required to make impartial decisions in others. The key CA tasks required under the standard forms of building contract will generally include: + chairing meetings + periodically inspecting the works + giving instructions, including variation or change orders + determining any applications for extensions of time by the contractor + authorising interim payments to the contractor + certifying the date of completion + settling the adjusted contract sum (final account). |
| What are the functions of a Contract Administrator? | The CA has two distinct functions, described as: + an agency function (The CA will act as the agent of the employer), and + a decision-making function (will be required to make impartial decisions) |
| What is Pre-commencement? | Period between award of contract and commencement date. |
| What is Pre-contract? | Period before contract is executed between the parties. |
| Where there is duress/undue influence, the court will treat Contract as Void or voidable? | Voidable |
| What is a Mistake in Contract? | In contract law , a mistake usually refers to a situation where the parties did not mean the same thing when they agreed to a term or provision. |
| What is a Kick-off meeting? | A project kick-off meeting is the first meeting with the project team and the client of the project where applicable. This meeting is the time to establish common goals and the purpose of the project. |
| How to check the Contract documents at Post contract stage upon Kick-off? | Check if all documents listed in tender are available, all pages stamped and signed. |
| What is the difference between Bond & Guarantee? | Bond is given by a financial institution, Guarantee can be given by anybody. Bond is an assurity of money, Guarantee depends on reputation of party giving the guarantee. Bonds have flexibiltiy, ease of encashing, Guarantee do not. • Guarantees are conditional which means that a contractor must first commit a default under the contract before the guarantor can be called in to perform. This requires performance of contractual obligation by the guarantor. The bank is liable only for an amount contractor is liable. • Payment bonds are unconditional. They do not require any proof of default for the employer to make demand for payment. Therefore often referred as unconditional on-demand bonds. In this type the guarantor pay a pre determined sum of money to employer irrespective of the actual loss. • In guarantee, the first obligation is for the contractor to fulfil its obligations. But in a bond, bank has an obligation to pay without waiting contractor action. • In the case of the bond, bank has primary liability. But in a guarantee bank has only a secondary liability. |
| What are the Types of Bonds? | Tender bond, Advance payment bond, Performance bond, Retention bond / Defects liability bond, Adjudication bond |
| What is On-demand/Unconditional bond? | It is an unconditional undertaking to pay a specified amount to a named beneficiary, usually on demand and sometimes on the presentation of certain specified documents. |
| What is conditional bond? | A bond obliging the surety to pay the beneficiary a specified sum provided that certain specified conditions are met—normally the employer is required to establish breach by the contractor as well as the loss it has incurred. |
| What are open ended and close ended bonds? | Open ended bonds are valid until fullfilment of conditions Close ended bonds are valid until an expiry date. |
| What is the difference between Limited Liability & Indemnity? | In a limited liability clause, a party may be liable to pay for damages only upto the limit of amount prescribed in the contract. Indemnity is a clause that makes the injured party whole again should there be damage to him because of the acts of commission or omission on the part of the other party. To illustrate, compare a warranty clause with an indemnity. Under a warranty, the contractor promises to replace or re-perform – but not all losses due to defective work are necessarily curable by replacement or re-performance (e.g., business losses due to downtime while the warranty repair is performed). Depending on its wording, an indemnity clause can offer protection against those losses too. |
| What is a material and non-material breach? | A material breach of contract is a major failure to perform according to the terms of the agreement. The failure to perform goes to the heart of the contract and negatively affects the value of the contractual arrangement. e.g. changing copper wire to PVC wire, changing marble to ceramic tile etc. A non-material breach, on the other hand, is less serious. It pertains to a more minor detail of the contract or to ancillary provisions of the agreement that do not go to the heart of the contract. e.g. changing color of primer from white to cream A material breach of contract represents a substantial failure in performance that fundamentally undermines the entire agreement. Unlike minor breaches, which involve small deviations from contractual terms, a material breach strikes at the core purpose of the contract, significantly depriving the non-breaching party of the expected benefits from the agreement. |
| What is a repudiatory breach? | A repudiatory breach is one that goes to the root of the contract, frustrates the commercial purpose of the contract or deprives the non-defaulting party of substantially the whole benefit of the contract. It is a breach so fundamental that it permits the distressed party to terminate performance of the contract, in addition to entitling that party to sue for damages. |
| What is suspension? | Suspension typically occurs when one party fails to meet their contractual obligations. Suspension of a construction contract can be initiated by either the contractor or the employer, depending on the circumstances. Contractors may suspend work if the employer fails to make timely payments or breaches other critical contract terms. Conversely, employers may suspend the contract if the contractor is not meeting deadlines, violating safety standards, or otherwise failing to comply with contractual obligations. However, the right to suspend work must be explicitly stated in the contract, and the suspending party must follow the contract’s procedures, such as providing notice and allowing time for remedy. Failure to comply with these requirements can lead to disputes and legal challenges. |
| What are the consequences of Suspension of whole of the Works? | The Engineer may at any time instruct the Contractor to suspend progress of part or all of the Works. During such suspension , the Contractor shall protect, store and secure such part or the Works against any deterioration, loss or damage. The Contractor shall give notice to the Engineer and shall be entitled to claim extension of time, claim prolongation cost, idle charges for plant and machinery, CAR insurance will be suspended and need to take stand-still insurance. As per FIDIC Red book 99, If the suspension has continued for more than 84 days, the Contractor may request the Engineer’s permission to proceed. If the Engineer does not give permission within 28 days after being requested to do so, the Contractor may, by giving notice to the Engineer, treat the suspension as an omission of the affected part of the Works. If the suspension affects the whole of the Works, the Contractor may give notice of termination. |
| What is the difference between Suspension & Termination? | Suspension is temporary, Termination is permanent. |
| What is termination? How the Client/Contractor can terminate the Contract ? | As per FIDIC Red book 99, 1. Termination by Employer when Contractor is at fault – The Employer shall be entitled to terminate the Contract if the Contractor: a) fails to submit Performance bond b) abandons the work c) fails to proceed with the works d) subcontracts the whole of the Works e) becomes bankrupt or insolvent. f) gives or offers to give (directly or indirectly) to any person any bribe. gift. gratuity. commission or other thing of value. as an inducement or reward 2. Termination for Convenience – The Employer shall be entitled to terminate the Contract. at any time for the Employer’s convenience. by giving notice of such termination to the Contractor. The termination shall take effect 28 days after the later of the dates on which the Contractor receives this notice or the Employer returns the Performance Security. The Employer shall not terminate the Contract under this Sub-Clause in order to execute the Works himself or to arrange for the Works to be executed by another contractor. 3. Contractor’s Entitlement to Terminate Work – If Engineer fails to issue Interim Payment certificate, Employer fails to make payment, Employer substantially fails to perform his obligations under the Contract., a prolonged suspension affects the whole of the Works, the Employer becomes bankrupt or insolvent |
| What is consequence of termination of Works? | 1. Termination by Employer – The Contractor shall leave the Site and deliver any required Goods, all Contractor’s Documents, and other design documents made by or for him to the Engineer. However, the Contractor shall use his best efforts to comply immediately with any reasonable instructions included in the notice (i) for the assignment of any subcontract. and (ii) for the protection of life or property or for the safety of the Works. 2. Termination by Contractor – After a notice of termination under Sub-Clause 16.2 [Termination by Contractor] has taken effect, the Employer shall promptly: (a) return the Performance Security to the Contractor. (b) pay the Contractor in accordance with Sub-Clause 19.6 [Optional Termination, Payment and Release], and (c) pay to the Contractor the amount of any loss of profit or other loss or damage sustained by the Contractor as a result of this termination. |
| What is determination of works in terms of termination? | The term ‘determination’ in relation to construction contracts typically relates ending the contractor’s employment under the contract. Contracts may provide for determination of the contractor’s obligations under the contract by the employer or the contractor if there is a breach of contract by the other party. This may happen if one of the parties has ceased to perform their obligations under the contract, for example, if the contractor is no longer proceeding regularly and diligently with the works. However, the contract itself remains in place, and so do the rights of both parties. This is as opposed to the termination of the contract, which brings the contract itself to an end. This may happen, for example, if one of the parties to the contract behaves in such a way that it indicates it no longer intends to accept its obligations under the contract, this is considered to be a repudiatory breach (or fundamental breach) allowing the innocent party to terminate the contract and to sue for damages. |
| What are the terms of contract? | 1. Expressed terms – they are expressly or specifically stated e.g. Payment terms 2. Implied terms – Implied terms are words or provisions that a court assumes were intended to be included in a contract. This means that the terms aren’t expressly stated in the contract.e.g. Decennial liability, good workmanship 3. Incorporated terms – If one document is referred to in another it is incorporated, which means it forms part of the other document. e.g. reference to some other document such as DM guidelines, Codes, measurement standards etc. |
| What is the difference between contracts under hand and under seal? | Contracts may be executed under seal (signed by the parties, witnessed and most importantly made clear that it is executed as a deed) or under hand (a ‘simple contract’ that is just signed by the parties). An action founded on simple contract cannot be brought after six years from the date on which the cause of the action accrued. The limitation period for a contract under seal is 12 years. |
| What are latent defects and patent defects? | Patent defects are discovered during the observation. Latent defects are discovered after the observations. |
| What are the different types of liabilities? | Joint liability – If parties have joint liability, then they are each liable up to the full amount of the relevant obligation. So if a husband and wife take out a loan from a bank, the loan agreement will normally provide that they are to be “jointly liable” for the full amount. If one party dies, disappears or is declared bankrupt, the other remains fully liable. Accordingly, the bank can sue one, or other, or both, for the full amount. However, in suing, the creditor only has one course of action, i.e., the creditor can only sue for each debt once. If, for example, there are three partners, and the creditor only sues two of them for the outstanding loan amount and cannot recover the full amount, he cannot recover the remaining amount from the partner who is left out of the lawsuit. Several liability – The converse is several liability, where the parties are liable for only their respective obligations. A common example of several liability is in syndicated loan agreements, which will normally provide that each bank is severally liable for its own part of the loan. If one bank fails to advance its agreed part of the loan to the borrower, then the borrower can only sue that bank, and the other banks in the syndicate have no liability. Joint and several liability – Under joint and several liability, a claimant may pursue an obligation against any one party as if they were jointly liable and it becomes the responsibility of the defendants to sort out their respective proportions of liability and payment. This means that if the claimant pursues one defendant and receives payment, that defendant must then pursue the other obligors for a contribution to their share of the liability. Joint and several liability is most relevant in tort claims, whereby a plaintiff may recover all the damages from any of the defendants regardless of their individual share of the liability. The rule is often applied in negligence cases, though it is sometimes invoked in other areas of law. |
| What is the Severability clause? | Severability refers to a provision in a contract which states that if parts of the contract are held to be illegal or otherwise unenforceable, the remainder of the contract should still apply. Sometimes, severability clauses will state that some provisions to the contract are so essential to the contract’s purpose that if they are illegal or unenforceable, the contract as a whole will be voided. |
| What is progressive recovery in Advance Payment bond? | It is a reduction in bond amount upon recovery of certain amount to reduce the premium amount and free up funds in the bank held against the bond. |
| What are the major types of insurances in construction? | – Insurance for the works (Contractor’s All Risk policy) – Workmen’s compensation – Professional Indemnity Insurance / Errors & Ommission insurance – Third party liability insurance / public insurance – Plant & Machinery insurance |
| What is Contractors’ All Risks (CAR) insurance? | Contractors’ All Risks (CAR) insurance is an insurance policy that provides coverage for both physical damage to works & site materials and third-party injury or damage claims. Construction projects typically involve two primary types of risk: damage to the property, and third-party claims of injury or damage. Damage to the property could include the structure not being properly constructed, or receiving damage during a renovation. Third-parties, including subcontractors, may become injured while working at the construction site. Contractors’ all risk (CAR) insurance bridges these two risks into a common policy, and helps cover the gap between exclusions that would otherwise exist when using separate policies. The amount of insurance is usually the total contract value + some additional % for professional fees, demolition, debris removal etc. As per FIDIC, this % is 15%. The insurance is maintained until the practical completion of the project. |
| What is the automatic reinstatement clause in insurance? | Even after paying amount of damage, insurance value is not reduced by that amount but gets reinstated to the original value. |
| What is Third-party liability insurance / Public liability insurance? | Public liability insurance covers liability arising from death or personal injury to third parties other than the insured’s own employees and for damage to property belonging to third parties. Payment is not typically made to the insured, but rather to someone suffering loss who is not a party to the insurance contract. In general, damage caused intentionally and contractual liability are not covered under liability insurance policies. When a claim is made, the insurance carrier has the right to defend the insured. The legal costs are also covered under the Liability Insurance Policy. If damage is more than the insurance limit, insurance will pay only upto the limit and the insured will have to pay amount above the limit to the injured. |
| What is Plant & Machinery insurance? | The policy covers losses or damages to Electrical or Mechanical machinery, Process plant and equipment in factories from causes such as defects in casting and material, faulty design, bad workmanship, physical explosion, tearing apart on account of centrifugal force, short circuit, vibration, mal-adjustment, misalignment etc. The Sum insured may be either on the basis of the actual value or the new replacement value of the property but should be adequate to cover the total exposure. |
| What is Workmen’s Compensation insurance? | Workmen’s Compensation Insurance covers the employer’s liability for compensation as a result of their employees suffering bodily injury or death due to work related accidents which occurred during the course of performance of his employment of the insured’s business. The compensation payable to employees is according to labour laws in force in the particular country. |
| What is Employer liability insurance? | Employer liability insurance protects the employers from major financial loss if a worker experiences a job-related injury or illness that workers compensation insurance doesn’t cover. Employer’s liability insurance can be packaged with workers compensation insurance to further protect companies against the costs associated with workplace injuries, illnesses and deaths that aren’t covered under workers compensation. |
| What is Cargo insurance? | Cargo Insurance covers loss and/or damage of cargo while it is in transit between the points of origin and final destination. Goods may be transported by sea, air, or land. Cargo Insurance is essential for businesses engaging in international trade, especially those shipping large quantities of goods by boat. |
| What is Professional Indemnity Insurance (PII)? | Professional indemnity insurance insures against liability arising from professional negligence. This usually includes a contractual liability that is equivalent to professional negligence, such as a breach of a contractual obligation to exercise reasonable skill, care and diligence when carrying out design. Architects, engineers, other professional consultants and a building contractor that owes a design responsibility to its employer are usually required to maintain such insurance. Even Cost Consultants can take PII to safeguard themselves against any breach such as over-certification of Final bill of a Contractor. It may also include cover for infringement of intellectual property rights, breach of confidentiality and destruction/loss of documents. It is usually valid from the Project start date to the Extended Reporting Date (ERP). |
| What is non-negligent insurance? | It is a requirement as per JCT clause – 21.2.1. This is an insurance taken by the Contractor on behalf of the Employer. The standard public liability insurance policy will only cover the contractor against damage to third party property which has resulted from negligence. Non-negligent insurance is taken to provide protection against the Employer’s liability for loss, claims or proceedings that arise due to non-negligent damage to property while undertaking a building contract due to: Collapse, Subsidence, Heave, Vibration, Weakening or removal of support, Lowering of groundwater. It is always recommend that non negligent insurance cover runs along side the Public Liability, therefore avoiding possible disputes in the event of a loss. Because of the nature of the work, it is possible that adjoining properties to the contract site may be damaged following the activities of the Contractor. However the Contractor may not have carried out the work negligently. The Contractor’s Public Liability insurance policy deals with allegations of negligence only and without evidence from the third party that the Contractor had been negligent, their claim may fail. However the Employer (Developer) may still be liable, as they will be seen as the party that brought the Contractor to site, hence the need for this more specific insurance cover. |
| What is Delay-in-start-up insurance? | Delay-in-start-up insurance or DSU insures project owners for the financial consequences of a delay to project completion arising from an insured physical damage event. |
| What is Delayed completion insurance? | This insurance protects the insured against costs arising from the delay of a construction project. Delay in completion coverage may offer protection against soft costs caused by the delay, including real estate taxes accrued, as well as protection against additional construction expenses, including additional fees for engineers and architects. |
| What is Standstill insurance? | There may be cases when projects are either suspended or terminated or absconded. The All risk policy ceases to cover any damages arising out of such situations. In such cases, a standstill insurance can be taken to protect any damages to the existing unfinished construction works. A site survey is conducted to assess the situation & progress. |
| What is Property all risk insurance? | Property all risk insurance indemnifies the insured for accidental physical loss of or damage to the Property Insured which is situated at the premises described in the policy. This will include loss or damage by Fire, Lightning, Aircraft, Explosion, Earthquake, Strike, Riot, Civil Commotion, Malicious Damage, Storm, Tempest, Flood, Bursting or Overflowing of Water Apparatus (including Sprinkler Leakage), Impact damage, Theft or Attempted Theft and Accidental Loss or Damage. The Sum Insured may be either on the basis of the actual value or the new replacement value of the property insured. This insurance is taken after CAR insurance will cease. |
| What is Decennial liability insurance / Deferred liability insurance / Latent defects insurance? | Decennial liability insurance is taken out (by the contractor or principal) to cover costs associated with the potential collapse of the building after completion. The name derives from the fact that it covers the 10 year period after completion of the project. |
| What is Product liability insurance? | Product liability insurance is taken by suppliers of products to protect against liability for injury to people or damage to property arising out of products supplied by them. Suppliers of equipment to a construction or engineering project, such as lifts or escalators, may be required to maintain such insurances. |
| What is First party insurance? | It is a type of insurance policy under which an insured (i.e. the first party) is paid by their insurer (the second party) in the event of an accident, injury, or loss whether caused by itself or someone else (the third party). |
| What is meant by Subrogation in insurance? | Subrogation is the right of the insurer to sue whoever’s responsible for causing loss to the insured. If New India Assurance has insured my house and my neighbour has through his negligence caused damage to my house, NIA will of course pay me up but will then subrogate the neighbour. |
| What is the Net contribution clause in insurance? | This is in relation to PI policies. A net contribution clause aims to limit the proportion of any loss or damage payable to the consultants’ ‘fair share’ (of culpability). If a building project goes wrong and loss is incurred, it is often due to the fault of various parties, who are all jointly liable. Any of these parties can be sued by the party suffering loss, and each will be 100% liable for the damages, whatever their share of blame. If more than one party is sued, the parties can claim contribution from each other also, in some countries. The intention of the net contribution clause therefore is that the consultant will only be liable for his proportion. |
| What is Cross Liability Clause in insurance? | Cross liability is the liability incurred by an insured because of him damaging another insured when both insured are covered under the same liability insurance policy. Each insured will then be treated as a discrete entity by the insurer under a cross-liability clause. Suppose that a large Development had bought an umbrella CAR policy for the whole of the projects, covering all contractors and while working concurrently had, say, a culvert slab cast by infra contractor crashes and damages a cable laid by building contractor, the cross-liability extension would kick in because the same CAR policy covers both contractors, and both would receive compensation from the insurer for losses suffered by each of them individually. Clause 23.3 of FIDIC says “The insurance policy shall include a cross liability clause such that the insurance shall apply to the contractor and to the employer as separate insured. |
| What is Act of God? | An event that directly and exclusively results from the occurrence of natural causes that could not have been prevented by the exercise of foresight or caution; an inevitable accident. Courts have recognized various events as acts of God—tornadoes, earthquakes, death, extraordinarily high tides, violent winds, and floods. Many insurance policies for property damage exclude from their protection damage caused by acts of God. |
| What is Additional insured? | An additional insured is a person or organization that enjoys the benefits of being insured under an insurance policy, in addition to whoever originally purchased the insurance policy. |
| What is retrospective date in insurance? | A retroactive date is the date from which you have held uninterrupted professional indemnity insurance cover (even if you changed insurer during this time) or a date in the past from which your insurer has agreed to cover you. Any claims that arise from events prior to this date is not covered by your insurance. |
| What is auto renewal? | It helps insurers to continue providing coverage to the customer once the initial policy period has passed, at the end of the term period, so the beneficiary never goes without coverage in any field of insurance. This is the case unless that Party receives Notice of non-renewal from the other Party before a specified date. |
| What are deductibles in insurance? | In an insurance policy, the deductible is the amount that must be paid out of pocket by the policy holder before an insurance provider will pay any expenses. |
| What is a Cause & Effect claim? | Each claim should be separately demonstrated. |
| What is a Global claim? | A global claim may be defined as a claim where a global or composite sum is put forward as the measure of damages or contractual compensation where there are two or more separate matters of claim or complaint, and where it is said to be impractical or impossible to provide a breakdown or sub-division of the sum between those matters. |
| What is an Excusable delay? What is a Non-culpable delay? | Excusable Delays are delays that are unforeseeable and beyond the control of the contractor. It may be due to the Employer also. EOT is allowed in such cases. |
| What is an Culpable delay? | Culpable delay is contractor’s delay and no EOT is allowed. |
| What is a Concurrent delay? | Two or more delays caused by different parties occur independently of each other, but during the same period and it affects the critical path. Delays absorbed by ‘floats’ are not considered as concurrent. Only delays that extend completion can be considered as concurrent. This will occur either by (a) Multiple impacts to a single activity or (b) Impacts to two or more critical paths by different parties. Example – Ceramic tile work was in critical path. Employer’s supplier delayed the supply for one week. At the same time contractor’s workers were on strike for the same week. Only EOT is given, no cost compensation. |
| Who is Reinsurer? | Reinsurance companies, or reinsurers, are companies that provide insurance to insurance companies. Reinsurers play a major role for insurance companies as they allow the latter to help transfer risk, reduce capital requirements, and lower claimant payouts. |
| What is reinsurance? | Reinsurance is insurance that is purchased by an insurance company (the “ceding company”) from one or more insurance companies (the “reinsurer”) directly or through a broker as a means of risk management. The ceding company and the reinsurer enter into a reinsurance agreement which details the conditions upon which the reinsurer would pay a share of the claims incurred by the ceding company. The reinsurer is paid a “reinsurance premium” by the ceding company, which issues insurance policies to its own policyholders. The reinsurer may be either a specialist reinsurance company, which only undertakes reinsurance business, or another insurance company. Insurance companies that sell reinsurance refer to the business as ‘assumed reinsurance’. A healthy reinsurance marketplace helps ensure that insurance companies can remain solvent (financially viable), particularly after a major disaster such as a major hurricane, because the risks and costs are spread. |
| What is a ‘First-Loss Policy’? | A type of property insurance policy that provides only partial insurance. In the event of a claim, the policyholder agrees to accept an amount less than the full value of damaged, destroyed or stolen items/property. In return, the insurer agrees to not penalize the policyholder for under-insuring their goods or property. First-loss policies are most commonly used in the case of theft or burglary insurance to insure against events where a total loss is extremely rare (i.e. the burglary of all goods contained in a large store). In a first-loss policy claim event, the policyholder does not seek compensation for losses below the first-loss level. Premiums are calculated proportionately – meaning they are not based on the full value of total goods or property. |
| What is Mitigation? | The contractor has a general duty to mitigate the effect of its works of employer Risk Events. The duty to mitigate does not extend to requiring the contractor to add extra resources or to work outside its planned working hours. This has two aspects (1) The contractor must take reasonable steps to minimise its loss (2) The contractor must not take unreasonable steps that increase loss. |
| What is Acceleration? | Acceleration generally refers to increasing the originally planned or current rate of progress of the work so as to complete the project earlier than would otherwise be the case. |
| What is the need for Acceleration? | A contractor on a construction project may want to complete the project early to reduce site running costs or free up key site staff to work elsewhere, or they may want to accelerate in order to ensure completion by the contract completion date, so as to avoid liability for liquidated damages. An employer may want a contractor to accelerate progress in order to avoid the construction work being handed over late. In many cases, the completion date for a project is crucial to the employer and any deferment of that date may have very serious repercussions. In these circumstances, it may be in the employer’s best interests to compensate the contractor for any additional costs incurred in accelerating the works, rather than to face the cost consequences of the building not being ready when required and also a claim from the contractor for loss and expense in the form of prolongation costs. |
| Can Acceleration be done if it is not mentioned in the contract? | If there is no mention of acceleration in the contract itself, that does not mean that the employer cannot ask the contractor to accelerate. Under contract law, it is always open to the parties to any contract to agree additional or separate contractual terms, so an acceleration agreement can be drawn up and entered into whether expressly envisaged under the construction contract or not. |
| What is an implied instruction to accelerate? | Employers occasionally tell contractors that the project must be completed and handed over by the completion date, come what may. The contractor may point to the extension of time clause in the contract, but an employer who is under pressure may be extremely resistant to granting extensions of time and may try to impress onto the contractor the imperative to finish by the specified dates, regardless of any additional cost. A statement along these lines should be deemed to be an implied instruction to accelerate. It would be well advised to clarify the situation rather than to take action in the belief that additional costs will be reimbursed. |
| Does a contractor have a duty to accelerate in any event? | A party has a duty ‘to take all reasonable steps to mitigate the loss consequent on the breach’, and this duty debars that party ‘from claiming any part of the damage which is due to his neglect to take such steps’. A contractor does not have a general duty to accelerate the works to recover delays caused by the employer. However, a contractor may well decide to accelerate progress, at its own cost, in order to recover any delays it has caused, so as to avoid liability for damages that may result. |
| Who is responsible for the additional costs if, in the event, no acceleration is achieved? | There are a number of reasons why acceleration measures may not work, and there may be other delay events that occur after the acceleration agreement is entered into, which make the early completion date unachievable. It is for this reason that great care must be taken when entering into acceleration agreements. If, for example, the employer wants the contractor to provide a warranty that the acceleration measures will be successful, it must make that clear when inviting the contractor to provide a quotation. This is likely to lead to a relatively high price being quoted, because the contractor will have to price in the risk of failure. If an employer does not want to pay a premium price, it could accept that the contractor would not carry the risk of failure to achieve acceleration. When preparing an acceleration quotation, the contractor is advised to ensure that it includes a caveat disclaiming liability in the event that further delays are caused by new events that would entitle it to an extension of time. A failure to clarify this point may lead to disagreements and disputes. |
| How can acceleration be achieved by Contractor? | In order to improve the rate of progress, the contractor may be able to change: • the site working hours – The introduction of longer working hours ought generally to increase the overall rate of progress of works and enable completion to be achieved earlier than would otherwise have been the case. A more dramatic change to working hours would be to introduce shifts. The introduction of one or two additional shifts in each 24-hour period ought to bring about very significant increases in output. • the level of resources deployed – The speed of progress of works on a construction site is usually proportionate to the amount of labour, plant and/or supervision resources deployed. In general, the rate of progress increases if the amount of resources is increased and vice versa. For example, the contractor might increase the number of bricklaying gangs, mixers, forklifts and supervisors. All other things being equal, such increases should boost output and speed up progress. • the programme and sequence of working – Progress can sometimes be accelerated simply by altering the sequence of activities or by increasing the amount of overlap between activities. For example, to carry out the first coat of emulsion paint to walls in advance of the planned period for decorations, and this may enable overall progress to be accelerated. • the temporary works – The rate of progress on a project may be increased simply by introducing additional temporary works measures. For example, progress may be expedited by the introduction of temporary weather protection, in the form of temporary roof sheets or temporary screens at openings. Such action would allow finishing trades, which require relatively dry conditions, to commence work earlier than would otherwise be the case, and this should accelerate progress. |
| How can acceleration be achieved by Employer? | The employer may be able to make changes to: • the specification – If a particular material has a long delivery period, it may be that it can be replaced by another similar material with a shorter delivery period. If this change is acceptable to the employer, then this will reduce the time required to complete that operation, and this may benefit the overall project. Equally, if a prefabricated unit can be used in lieu of materials that require a long period for site installation, this may accelerate the works. For example, if a reinforced concrete staircase to a building was due to be cast on site, it may be that changing it for a pre-cast unit will reduce the time required, particularly if the weather is very cold and casting concrete on site is not permitted. • the design – If the design can be simplified or altered to reduce installation periods, then the effect may be to accelerate overall progress. Such changes may include the substitution of bespoke joinery items with standard ‘off the-shelf’ products or may involve the redesign of an intricate or complex element of the structure so that construction is made simpler and quicker. • the work scope and conditions of working – In general, omitting works from the contract ought to reduce the contract period and thereby bring forward the completion date. In this way, a change to the work scope may be made to accelerate progress of the project. If work cannot be omitted altogether, it may be possible to defer some of the work until after handover, particularly if it is not absolutely essential for that item to be complete at handover. For example, it may be that the external soft landscaping works can be carried out after practical completion or that minor internal parts of a building can be completed after the rest of the building has been handed over. Such changes generally bring forward the date of ‘completion’. |
| Which activities must be focused on for undertaking acceleration measures? | The changes must be focused on activities that are critical to completion. If the progress of a particular activity is expedited, it will only bring forward the overall completion date if it is an activity that is on the critical path of the programme. |
| What are the reasons Acceleration measures may not achieve the early completion? | Extended working hours – It is likely that output will not rise in proportion to the increase in hours. This is because operatives will become increasingly tired the longer they work. For this reason, it is likely that the extra hours will produce only limited improvement in productivity, and the level of improvement may decline after the first few weeks if supervisors and operatives become weary. Increased resources – care must be taken to keep a correct balance between the resources. If the balance is lost, there may be little or no improvement in progress. For example, if labour resources are increased disproportionately to the other resources, there may be insufficient plant, materials and supervision on site, and this may lead to standing time. It is also necessary to ensure that there are, and will be, sufficient work areas for the additional resources. If the resources are doubled, but the work areas only increase by 50% improvements in progress will be limited and the rate of increased output will not justify the level of increased costs incurred. If there are too many people trying to work in a limited space, they will start to get in each other’s way and work will slow down rather than speed up. Alterations to the programme – changing the sequence of work may backfire. If work is carried out early, it is more likely to be damaged by other trades, leading to additional protection or repairs being required. If damage is extensive, the change in sequencing will come at additional cost but may produce no overall time benefits to the project at all. Introduction of temporary works – The problem with temporary works measures such as weather sheeting or screens is that the sheets/screens may not be robust enough to keep out particularly bad weather, with the result that completed works may get badly damaged. This may cause delays rather than acceleration to the rate of progress due to the time required to carry out repairs. |
| What should be considered when preparing an Acceleration quotation? | In order to prepare an Acceleration quotation, a contractor will have to decide: (i) what it can achieve; (ii) how it can achieve it; and (iii) how much it will cost. The quantity surveyor should have little difficulty pricing the basic labour, plant and materials items, as this task is no different to pricing any other variation. Allowance for risk – if the employer has asked the contractor to warrant that it will achieve an earlier completion date, and if the contractor is to carry the risk that it will receive no additional payment for the acceleration measures if it fails to complete early, it will have to include an allowance for taking such risks. |
| Should an Acceleration quotation be Lumpsum or Remeasurable? | If all the risk is to be placed on the contractor, it may be better for a lump sum quotation to be provided, although this will make it difficult for the employer to assess the merits of the quotation. It may be that the employer is far less concerned about whether individual elements of the contractor’s quotation appear to be high and more about whether the money that can be saved by completing early justifies the money that will have to be spent on acceleration. If the employer wants as low a quotation as possible and is prepared to accept the risk of failure to achieve an early completion date, it will be more important for a detailed price breakdown to be obtained from the contractor. This will allow the employer to see that the proposed measures are being undertaken and that the additional costs are being properly incurred. |
| What questions must be borne in mind while considering Acceleration? | When considering acceleration, the following questions should be borne in mind • Does the contract allow for acceleration? • Is a separate agreement required? • How can acceleration be achieved? • Is the activity to be accelerated on the programme’s critical path? • What is the total cost of acceleration? • What costs will be saved by achieving an earlier completion date? • What allowance should be made for risk? • Is the contractor to warrant completion by an earlier date? • How is failure to achieve an earlier completion date to be dealt with? Once these questions have been answered, an informed decision can be taken as to whether or not to instruct acceleration. |
| What is Difference between mitigation and acceleration in a project.? | • Mitigation is a contractual obligation. But acceleration is not. • Mitigation does not mean contractor to use extra resources. But in acceleration, the contractor uses extra resources. • Contractor will not get paid for mitigation. But will be paid for acceleration if due to employer delay (and if it is agreed) • Mitigation can be done without employer approval. But acceleration should not be done without employer approval (especially if he seek payment for it) |
| What is a Disruption? | Disruption of the Works – Is a disturbance, hindrance or interruption to the contractor’s ability to complete the works or it is reduction in the actual productivity of contractor’s labour due to an action or omission of the employer, but for which an EOT is not sought Should not be more than 1 day or it is a delay. |
| What are the methods to claim Acceleration and Disruption? | 1. Measured Mile 2. Expert opinion 3. Total or modified cost approach method 4. Time & motion study |
| What is the Measured Mile method? | Compares identical tasks during impacted and non-impacted periods to estimate loss of productivity. Since it compares to actual performance at site rather than bid estimates, this method is mostly accepted in Courts. |
| What is “Total” or “Modified” Cost Approach? | The “Total” method involves the comparison of the costs of the disrupted operation with the cost from the Contractor’s tender estimate. The “Modified” approach attempts to modify the result obtained from the “Total” method by deducting any costs caused by the Contractor’s inefficiencies/errors. |
| What is “Time & Motion Study”? | This method involves the use of a specialist who studies the operations being carried out in a disrupted area of work and compares it to another area which is not disrupted. This approach is a detailed form of the “Measured Mile” approach and is suitable if there are a lot of repetitive operations. |
| What is Expert Opinion? | This method involves the utilisation of a renowned specialist from the industry who can make an expert determination of the effect of the disruption by conducting an investigation on site and then, based on his experience, comparing it to other similar operations from other projects. This method is used in some projects and the use of an independent consultant (paid by both parties) is a good approach. However, it is rarely used on projects due to disagreement between the parties |
| What is the significance of the words “without prejudice”? | The without prejudice (WP) rule will generally prevent statements made in a genuine attempt to settle an existing dispute, whether made in writing or orally, from being put before the court as evidence of admissions against the interests of the party which made them. “Without Prejudice” means that you are sending a communication in an honest attempt to compromise a matter, in which you might make a concession (either expressly or implicitly) to the other side that cannot be later put into evidence in Court. |
| What is the Good faith principle? | In contract law, the implied covenant of good faith and fair dealing is a general presumption that the parties to a contract will deal with each other honestly, fairly, and in good faith, so as to not destroy the right of the other party or parties to receive the benefits of the contract. It is implied in every contract in order to reinforce the express covenants or promises of the contract. A lawsuit (or a cause of action) based upon the breach of the covenant may arise when one party to the contract attempts to claim the benefit of a technical excuse for breaching the contract, or when he or she uses specific contractual terms in isolation in order to refuse to perform his or her contractual obligations, despite the general circumstances and understandings between the parties. When a court or triar or fact interprets a contract, there is always an “implied covenant of good faith and fair dealing” in every written agreement. |
| What is substantial completion? | American Institute of Architects (AIA) defines substantial completion as: the stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance with the Contract Documents so that the Owner can occupy or utilize the Work for its intended use. The date of substantial completion is extremely important, because it determines the date that a contractor is no longer fully liable for delayed completion or for minor incomplete details. After substantial completion, the owner again becomes responsible for the property, i.e., security, utilities, etc. A contractor can still breach the contract, but any breach subsequent to substantial completion will only be a minor breach. |
| What is base date in contract? | A ‘base date’ is a reference date from which changes in conditions can be assessed. The base date in construction contracts is generally used as a mechanism for the allocation of risk between the client and contractor for changes that might occur in the period between the contractor pricing the tender and the signing of the contract. This period can be very long and changes that occur may have a significant impact on the costs of the works. The base date sets the reference date from which the conditions under which the tender was prepared are considered to have been known by the contractor and so are properly reflected in their price. If specified conditions change before the contract is implemented, then the contract may be adjusted to reflect this. |
| What is meant by Time is of the Essence? | A phrase in a contract that means that performance by one party at or within the period specified in the contract is necessary to enable that party to require performance by the other party. Failure to act within the time required constitutes a breach of the contract. The general rule is that time is not of the essence unless the contract expressly so provides. As a result, with respect to real estate transactions, the modern view is that time is not of the essence unless the parties have manifested such an intent. The same is generally true in construction contracts and in contracts relating to the manufacture of goods. When time is not of the essence, courts generally permit parties to perform their obligations within a reasonable time. |
| What is a Bonus clause in contract? | Construction contracts sometimes call for an incentive bonus for early completion. This is most common on public transportation projects, but the clauses can also be found in private contracts, particularly those affecting utility or industrial production. The opportunity to earn a bonus is attractive to contractors, but it comes with a risk. The contractor may not be able to achieve early completion due to factors beyond its control. And the incentive bonus is usually accompanied by a disincentive penalty for failing to meet the stipulated date. |
| What is meant by Float in a programme? | Float is the time available for an activity or path in addition to its duration. Critical path is the series of activities with least float or no float. |
| What is meant by consequential loss? | Indirect loss which accompanies an insured loss, such as loss of earnings resulting from a burnt down business that was insured against fire. Consequential losses are not covered by ordinary insurance policies, unless specifically included on payment of additional premium. See also direct loss, and indirect loss. |
| What is meant by “Contra Proferentem” principle? | Ambiguity in a document is construed in the way least favourable to the person who prepared the document |
| What is meant by Frustration? | A situation may arise in which it is not possible for the contract to be completed, without the default of any party. For example, new legislation may have been passed during the contract which would make further activity on it illegal. Construction projects are more likely to encounter frustration should, say, natural events make the site unsuitable for the project. “Frustration” is a legal doctrine which may bring about termination of a contract when external events make the contract either:- • illegal, • impossible of performance or • radically different from the original bargain Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. It was not this that I promised to do.” |
| What is the Difference between date for Completion and Completion date? | Date for Completion is the date inserted in the Contract which is the date agreed at the time of agreement. But the Completion Date is the Date for Completion of the Works after considering any extension or pre-agreed adjustment. |
| What are Liquidated Prolongation Costs? What is a Brown clause in construction contract? | Liquidated Prolongation Costs (LPC) are a fixed daily or weekly rate to reimburse the contractor for extra costs incurred by delays caused by matters for which the employer is liable e.g variations. An LPC clause is sometimes referred to as a Brown clause in construction contracts. Tenderers are asked to specify the LPC required in their tender so as to cater for delays or extended use of items in the BOQ or prelims. |
| What is the Quantum Meruit principle? | [Latin, As much as is deserved.] In the law of contracts, a doctrine by which the law infers a promise to pay a reasonable amount for labor and materials furnished, even in the absence of a specific legally enforceable agreement between the parties. Quantum meruit prevents the Unjust Enrichment of the other party. A person would be unjustly enriched if she received a benefit and did not pay for it when fairness required that payment be made. Quantum meruit can be used to address situations where no contract exists or where a contract exists but for some reason is unenforceable. In such cases courts imply a contract to avoid an unjust result. Such contracts are called quasi contracts. Quantum meruit also describes a method used to determine the exact amount owed to a person. A court may measure this amount either by determining how much the defendant has benefited from the transaction or by determining how much the plaintiff has expended in materials and services. |
| What is the Prevention principle? | The ‘prevention principle’ is a long established principle under English law whereby a party may not enforce a contractual obligation against the other party where it has prevented the other party from performing that obligation. The prevention principle is closely aligned to the principle that no party may benefit from its own breach of contract. Example If an employer causes delay to the project and there is no provision to extend the time in the contract. But the contractor is liable to pay LD. This situation should not be allowed as per the Prevention principle. |
| What is the Erection All Risks (EAR) insurance? | EAR policies are designed to cover the risk of loss arising out of the erection and installation of machinery, plant and steel structures, including physical damage to the contract works, equipment and machinery, and liability for third-party bodily injury (BI) or property damage (PD) arising out of these operations. Covered parties include the general contractor, subcontractors, and in some cases suppliers and manufacturers of equipment. Examples of the types of projects for which EAR coverage is typically purchased include power plants, manufacturing and fabrication facilities, water and wastewater treatment facilities, and telecommunications centers (particularly where the erection of signal towers is involved). |
| What is a hold harmless agreement? | A provision in a contract that requires one contracting party to respond to certain legal liabilities of the other party. For example, construction contracts typically require the contractor to indemnify the owner with respect to the owner’s liability to members of the public who are injured or whose property is damaged during the course of the contractor’s operations. There are a number of types of hold harmless clauses, differentiated by the extent of the liabilities they transfer. The most commonly used types of clauses are the “broad,” “intermediate,” and “limited” form hold harmless clauses. Limited form—Where Party A holds Party B harmless for suits arising out of Party A’s sole negligence. Party B is thus protected when it is held vicariously responsible for the actions of Party A. Intermediate form—Where Party A holds Party B harmless for suits alleging sole negligence of Party A or negligence of both parties. Broad form—Where Party A holds Party B harmless for suits against Party B based on the sole negligence of A, joint negligence of A and B, or the sole negligence of B. Broad form hold harmless agreements are unenforceable in a number of states. |
| What is a Fidelity Guarantee insurance? | Fidelity Guarantee Insurance protect the Employer for the losses due to misappropriation, forgery or embezzlement committed by employees in the course of their duties. When opting for fidelity guarantee cover employers should consider one or more of the following items:- • Number of employees handling money, valuable or convertibles ,stock etc • Limits being exposed to such employees • Eligibility and legal status of such employee to the organization |
| What are ‘claims made’ basis policies and ‘occurrence basis’ policies? | ‘claims made’ basis means that it is the policy in force at the time the claim is made or notified that deals with it, not the one that was in force when the work was done. ‘occurrence basis’, where the insurer at the time of the incident pays no matter when the claim is made or notified. |
| What is the minimum period for PII to cover after cessation of practice? | RICS require members to maintain cover for a minimum of six years from the date of cessation of any practice. |
| What is the level of PII cover required as per RICS? | RICS has laid down minimum levels of cover for members to carry in order to be compliant with its requirements. However, these are minimum levels only and may not be appropriate for particular member’s circumstances. The minimum levels are based on fee income bands and are as follows: – Fees up to £100,000 Cover required £250,000 each and every claim – Fees between £100,000 and £200,000 Cover required £500,000 each and every claim – Fees over £200,000 Cover required £1m each and every claim The definition of fees excludes VAT and disbursements. |
| What is a Directors’ and officers’ liability (D&O) insurance? | the cover provided by the D&O policy is for awards of damages, costs or settlements (including defence costs) for which a director or officer is legally liable resulting from a claim made against them during the policy period for any act, error or omission in their capacity as a director or officer of the company. Fines and penalties are typically excluded. D&O cover is taken out in the company name, but the main beneficiaries of the policy are the individual directors and officers. It also provides protection for employees who are acting in a managerial capacity or who are named as a joint defendant in an action against a director or officer. Further, although the policy is usually taken out in the name of the holding company, it then automatically provides protection for all directors and officers of any subsidiary companies on a global basis. Cover is provided for past, present and future directors and officers. Retired directors are commonly also provided with an automatic six-year period to cover claims made against them for acts committed whilst they were a director or officer of the company in the event the policy is non-renewed. D&O is also a ‘claims made’ cover (i.e. only claims notified during the policy period are covered) as opposed to the large majority of insurances, which are arranged on an occurrence basis. |
| What is the doctrine of ‘privity of contract’? How does it relate to construction contracts? | This doctrine provides, as a general principle, that only a party to a contract can take the benefit of that contract. In general terms, the doctrine of privity of contract means that, in the absence of any contract with those responsible for a mistake, the funder, purchaser or tenant, would not be able successfully to claim in contract to recover such loss. Further, as the law currently stands, it would be very difficult (if not impossible) for a funder, purchaser or tenant to recover their losses from the consultants and contractor on a ‘non-contractual’ basis, such as under the law of tort (essentially negligence). |
| What do you mean by ‘duty of care deed’? What is a Collateral Warranty? | A collateral warranty (sometimes also called ‘a duty of care deed’) is a binding contract between a third party with an interest in the project under construction or in the completed project (such as a funder, purchaser or tenant) and a party who was involved in the design, management and/or construction of the project. |
| What do you understand by a ‘forward funding’ arrangement? | certain funds may (in what is known as a ‘forward funding’ arrangement) provide finance to the employer to cover the cost of the project as it progresses during the development phases (including the costs of the contractor and the consultants). In such an arrangement, the fund is likely to purchase the land at the outset, before development commences. |
| What do you understand by ‘forward purchase’? | An employer (likely to be referred to as a developer) and a funder may exchange contracts for the sale of the completed property at an early stage of the development process (such as when the works are partially complete or even before they have started), a so-called ‘forward purchase’. |
| What do you understand by ‘building it out’? What do you understand by ‘step-in rights’? | If there is an employer default (financial or otherwise), a funder will wish to have arrangements in place from the outset that enable it to take over the project itself, or through an appointed third party with comparable skills to the employer, in order to complete it (sometimes referred to as ‘building it out’). This is to achieve completion of the project with the minimum of extra expense, disruption and delay that will inevitably occur in these circumstances. Such arrangements are usually called ‘step-in rights’. |
| What are the construction security and performance documents typically used in a construction project? | Construction security and performance documents typically used in a construction project are: + parent company guarantees + bonds + collateral warranties + third party rights + direct agreements; and + payment security methods (such as escrow accounts and project bank accounts). |
| What do you understand by a primary and secondary obligation in the context of a bond or guarantee given to an employer? | A primary obligation is (in the context of a bond or guarantee given to an employer) an undertaking from a bondsman to pay a sum of money to the employer without reference to the liability of the contractor. An example is where A promises to pay B up to £1 million if B (simply) asks A to do so, in writing. This is in the nature of an ‘on demand’ bond. A secondary obligation is (again in the context of a bond or guarantee to an employer) one where its enforceability is dependent on a breach by the contractor of the underlying building contract in favour of the employer. This is in the nature of a suretyship, or guarantee, obligation. If the employer cannot establish a breach by the contractor, then the bondsman has no liability to pay. |
| What are Liquidated Damages (LDs)? What are Liquidated and Ascertained Damages (LADs)? | It is generally the standard practice to enter a sum for daily or weekly delay into the contract prior to sending out the tender documents. A value is stated in the contract and referred to as liquidated or liquidated and ascertained damages (LAD). Liquidated damages are a stated sum in the contract and are normally deducted irrespective of the actual employer loss as a result of the delay, but must be a genuine pre-estimate of the loss at the time of entering the sum within the contract documents, rather than a penalty. |
| How are Liquidated damages calculated? | Damages can be calculated in a number of ways. For the construction of a hotel, damages could be calculated on loss of revenue from rooms and other facilities within the hotel. For the construction of an office block, liquidated damages may be calculated on the cost of leasing alternative accommodation if the construction is for the owner occupier. Where the office building is likely to be leased, the damages would be calculated on likely lease incomes similar to the example for the hotel above. Other items for consideration are continuing construction supervision costs and fees, accommodation costs, finance costs, etc. |
| What are Unliquidated damages? | Unliquidated damages are damages that are payable for a breach of contract, the exact amount of which has not been pre-agreed. Unliquidated damages are a form of compensation which is said to be ‘at large’, that is, the amount is not predetermined with the contract is entered into, but is determined by a court (either a judge or jury) after the breach has occurred. The advantage of unliquidated damages is that it allows for the recovery of losses that may have been impossible to foresee or to estimate with any certainty before the breach. The disadvantage is that it leaves the client having to prove their actual losses in the event of a breach, which can be very complex, and it leaves the contractor with an unknown liability. |
| What do you mean by “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. |
| What are the pre-requisited for Time at Large? | 1. Contractor notified and submitted EOT 2. Client did not respond or reject EOT 3. Contract period gets over 4. Client is not applying LD |
| What is cost at large situation? | Contractor has submitted variations but not yet approved by Engineer so Contractor is not aware of the revised contract value. |
| When is a contractor entitled to an extension of time, as per FIDIC? | Clause 8.4 of the FIDIC contracts provides that a contractor shall be entitled to an extension of time if the contractor is or will be delayed by: • variations • exceptionally adverse climatic conditions • unforeseeable shortages in the availability of personnel or goods (as defined) caused by epidemic or governmental actions • any delay, impediment or prevention caused by or attributable to the employer or to his or her personnel; and • events that entitle the contractor to an extension of time under any of the other clauses of the contract. |
| What is a condition precedent to an award of an extension of time and/or additional payment to a contractor? | FIDIC seeks to make the 28-day notice requirement in clause 20.1 a condition precedent to an award of an extension of time and/or additional payment. Clause 20.1 provides that if the contractor fails to give notice of a claim within the 28-day period, the contractor shall not be entitled to an extension of time (or any additional payment) and the employer shall have no liability in respect of such claims. |
| What are the methods of delay analysis? | 1. Overview of the facts – The simplest way of assessing delay, either prospectively or retrospectively, is by undertaking a review of the facts. The facts will be evidenced by letters, emails, meeting minutes, progress records, photographs, instructions, drawings and other contemporaneous documents, and possibly by personal first-hand knowledge of the project. This approach is likely to be suitable for dealing with relatively straightforward claims, where the cause and effect are reasonably apparent. 2. Comparing actual and planned progress – This method of analysis is often referred to by programmers as the ‘as-planned versus as-built’ method. As the name suggests, it is the technique of comparing the planned timings of the various programme activities with the actual or ‘as-built’ timings. 3. Critical path analyses – The primary purpose of a critical path analysis is to show which activities on a programme of works are critical to completion and which are non-critical. Critical path analyses can be used to review the impact of delay events on either the planned programme or the as-built programme. a. Review of the planned programme – This method of analysis is often referred to by programmers as the ‘planned impacted’ method. The idea is that delay events are added to the computergenerated planned programme to analyse what impact, if any, those events will have upon the completion date. b. Review of the ‘as-built’ programme – This method of analysis is, in some respects, the opposite of the ‘planned impacted’ method referred to above. Instead of adding delay events to the planned programme, the delay events are removed from the ‘as-built’ programme. The difference between the original completion date and the rescheduled date represents the delay period that would have been avoided, but for the events removed from the programme. This method of analysis is often referred to by programmers as the ‘collapsed as-built’ or the ‘as-built but for’ method. 4. Focused methods of analysis – such method is usually referred to by programmers as ‘time impact analysis’. With this method, only the period of time in which the delay event is likely to have an impact is reviewed. If the delay event is an instruction to carry out additional work, the analysis may focus on the period from the date of the instruction to the date the additional work is likely to be completed. this method involves adding (or ‘impacting’) delays onto the programme. this method uses an updated programme, showing the progress actually achieved at the start of the review period. An alternative, but similarly focused approach, would be to restrict the analysis of delays to particular periods of time. Programmers usually refer to this method as a ‘window’ or ‘time slice’ analysis. |
| What is a Penultimate certificate? | The JCT minor works building contract (MW 16) includes provision for a ‘penultimate certicate’, which signifies that there is no more work to value and triggers the final progress payment. Once issued, only the final certificate remains. The difference between the penultimate certificate and a normal certificate for a progress payment is that half the retention is now released. There will be no further payments until any defects that become apparent have been rectified and the final certificate is issued. At this point the final payment will be made, including the release of the remaining retention. |
| What is a Condition precedent? | A condition precedent is an event or state of affairs that is required before something else will occur. In contract law, a condition precedent is an event which must occur, unless its non-occurrence is excused, before performance under a contract becomes due, i.e., before any contractual duty exists. A condition precedent is a provision, which stipulates that a contractor (or a subcontractor under a sub-contract) must comply with certain specified procedures if he is to avail himself of other contractual provisions. If a contractor (or sub-contractor) does not comply with the certain specified procedures then he is deemed to have waived his rights under the contract, or at law, to the remedies, which would otherwise have been available to him. The remedies which are usually made the subject of conditions precedent are:- • extensions of time; e.g. Contractor has to notify in advance that delay will occur • financial claims for additional payment. e.g. Contractor has to notify in advance that variation will have additional cost |
| What is a Condition subsequent? | A condition subsequent is an event or state of affairs that brings an end to something else. A condition subsequent is often used in a legal context as a marker bringing an end to one’s legal rights or duties. E.g. In construction contract, if either party breaches the contract, say Employer fails to make payment to the Contractor, or say Contractor fails to mobilise on site within the mobilisation period, then the contract becomes voidable at the suffering party’s request. |
| What is meant by Termination for Convenience? What is Unilateral termination? | Unilateral termination (or termination-for-convenience) can be an attractive option where grounds for termination are uncertain or the project is no longer feasible. The terminating party is not faced with making the argument that a material or fundamental breach giving rise to termination rights has occurred, but must be prepared to compensate the subcontractor for loss of profit and the expenses incurred at the date of termination. |
| What is the difference between Variation and Claim? | The variations clause gives the employer the right to order alterations to the scope of works as originally defined. A claims clause is there to compensate the contractor for unexpected events or discoveries that are agreed under the contract as being the employer’s risk. |
| What is a “Pay if Paid” Clause? | A “pay if paid” clause is a payment clause that states that the contractor is obligated to pay its subcontractors only if the contractor receives payment from the Client. Similar to back-to-back payment clause. |
| What is a “Pay When Paid” Clause? | A “pay when paid” clause is a payment clause that states that the contractor is obligated to pay its subcontractors following receipt of payment from the owner. In other words, if the owner delays three months in paying the contractor, the contractor has no duty to pay you during that period of delay. the courts recognize that where there is a “pay when paid” clause rather than a “pay if paid” clause, the contractor still has a duty to pay the subcontractor even where the owner defaults. |
| What is the difference between a letter and a contractual letter? | A Contractual letter refers to the clauses in a contract, it is related to the responsibilities of the parties |
| What is an Assigned Risks Pool? | RICS maintains an agreement with the insurance market for the provision of an Assigned Risks Pool (ARP). This is a facility for actively trading Regulated Firms who find themselves unable to obtain insurance in the normal market. The ARP is underwritten by all RICS Listed Insurers collectively and the aim of the ARP is to make a Regulated Firm an insurable risk again in the normal market. Firms can remain in the ARP for a maximum of three years during which they will be audited and guided in how to amend business procedures/practices. Membership is subject to compliance with the terms and conditions of entry. The ARP is managed on behalf of RICS by Miller Insurance Services. |
| What was the outcome of the Merritt v Babb case? | Run-off cover introduced |
| What is the difference between an Engineer’s Decision and Engineer’s Determination? | Engineer’s Decision clause 67.1 in FIDIC Red book 1987 Engineer’s Determination clause 3.5 in FIDIC Red Book 1991 Under Engineer’s Decision a dispute of any kind whatsoever can be referred for Engineer’s Decision whereas the Engineer’s Determination under Sub-Clause 3.5 of Red-Book99 can be obtained for a given set of circumstances only. Any other dispute (and disputes arising out of any Party’s disagreement to Engineer’s Determinations) under Red-Book99 shall be referred to the Dispute Adjudication Board (DAB) pursuant to Sub-Clause 20.4 [Obtaining Dispute Adjudication Board’s Decision]. However under Red-Book99, all major circumstances such as variations, claims, payment certificates, extensions of time shall in an event of dispute be referred to Engineer’s Determination which can be regarded as if referred for Engineer’s Decision as given in Sub-Clause 67.1 of Red-Book87 |
| What will you do first – Design or Costing? | Depends on client requirement, if they have fixed budget, then prepare a cost plan first and then design accordingly. If cost not concern, then design first and the estimate the cost. |
| What is liquidated prolongation cost? | Predetermined prolongation cost in the beginning of the project. |
| What is Design to Cost? | Design-to-cost is a method for considering cost as a design parameter in your design development. |
| Can the payment application be rejected or returned for any reason? | Payment application cannot be rejected, accept it and then return it for: 1. Non-submission of performance bond 2. Non-submission of insurances 3. Contractors claim/eligible amount is less than minimum limit amount for certification |
| When would you suggest to go for Constructive acceleration? | Constructive acceleration occurs when the owner denies the contractor’s request for a time extension resulting from an excusable delay. The contractor is then obligated to accelerate work to meet the original or current contract completion date. |
| What is the effect of Beneficial occupancy? | The term “beneficial occupancy” is commonly used to describe the Client’s taking over of a portion of the work with the intent of later returning it to the contractor. Client has taken possession of site but does not give TOC. Insurance will become invalid and any loss or damage will not be covered. |
| If an Employer terminates for convenience, can he carry out the project by himself or through other contractor? | As per FIDIC Red Book 1999 clause 15.5, The Employer shall not terminate the Contract under this Sub-Clause in order to execute the Works himself or to arrange for the Works to be executed by another contractor. |
| What is Anticipatory (repudiatory) breach? | An anticipatory breach, sometimes referred to as an anticipatory repudiation, is when one party declares to the other party that they will not honor their obligations as expressed under a signed contract. This can be voluntary or involuntary. |
| What is the Contractor’s entitlement in event of Termination for Employer’s Convenience or at will? | the Engineer shall determine the value of the work done and issue a Payment Certificate which shall include: 1. amount of work done 2. Cost of Plant and Materials delivered 3. Cost of removal of Temporary Works and Contractor’s Equipment from the Site 4. Cost of repatriation of the Contractor’s staff and labour employed return of Performance Bond |
| What is the Contractor’s entitlement in event of Termination for Contractor’s Default? | same as above minus cost of of execution, completion and remedying of any defects damages for delay in completion (if any). and all other costs incurred by the Employer. |
| Omission vs descoping of works | Omission means part of works not going to be executed at all. Descoping means contractor is in default, so client descoped part of works and awarded to another contractor. |
| What is the Contractor’s entitlement in event of De-scoping/omitting the balance remaining works? | No entitlement for descoping since it is Contractor’s default. In omission, contractor eligible for loss of profit. |
| Until when variations can be instructed? | Until issuing the Taking-Over Certificate for the Works. |
| For what reason a Contractor can refuse undertaking the variation? | 1. If the instruction forces the contractor to breach other obligations under the contract, particularly those related to the safety of the works or compliance with industry standards 2. If the employer’s instruction is illegal under any applicable laws 3. The contractor can refuse if the instruction is impossible to fulfill. 4. Material not available locally |
| What is duty to warn? | the constructor must warn the client of any inadequacies in the construction or work that is assigned to him as far as these are known to him or reasonably should have been known to him. The same applies in case of defects or the unsuitability of things which are coming from the client, including the land on which the client lets others perform the work, as well as in case of errors or shortcomings in plans, drawings, designs, calculations, specifications, estimations or implementing regulations which are supplied by the client. |
| What is Constructive variations? | constructive changes are changes that are not expressly stated but are implied or inferred from the actions or conduct of the parties involved. Constructive changes often arise in situations where: Unforeseen Site Conditions Design Errors or Omissions Regulatory Changes |
| What is Deceleration? | Deceleration occurs if the construction contractor is directed in writing or constructively to slow its job progress. Many of the same considerations that apply to acceleration are also applicable to deceleration. |
| What is Constructive Deceleration? | Constructive deceleration is the opposite of constructive acceleration, where the owner suspends a portion of the work, thereby delaying the project, but refuses to acknowledge this change. The contractor’s overhead is extended and labor costs may increase. |
| Why the Employer wants to decelerate? | Employer doesn’t want to suspend the works. |
| What is Independent Parties Clause? | Independent parties refer to individuals or entities involved in a contract, agreement, or transaction who are not financially or legally dependent on each other. They operate autonomously, without control or influence from one another, and are often defined as separate from one another in terms of responsibility and liability. This concept ensures that each party has their own rights and obligations, without one party being subordinate to or controlled by the other. For example, in a business partnership, each partner is considered an independent party because they contribute to the business but maintain their own individual rights and obligations. |
| What is Independent Contractor? | The term “independent contractor” applies to anyone hired to perform work or services under contract (i.e. not directly employed by the hiring party) |
| What is Further Assurances Clause? | A Standard Clause commonly found in the miscellaneous section of a contract, in which the parties agree to cooperate with one another to take any actions not expressly specified in the agreement to carry out the intent of the agreement or implement its provisions. |
| What is Estoppel? | Estoppel is a legal principle that prevents someone from arguing something or asserting a right that contradicts what they previously agreed to or said. Put simply, estoppel prevents one person from contradicting an action or statement from the past. |
| What is Rescission and Restitution? | a rescission or termination will mean the contract is set aside so that the parties can be restored as much as possible to their original position. Restitution for unjust enrichment refers to the reverse transfer of benefits from the defendant to the claimant where the defendant has been unjustly enriched. |
| What is Reformation? | Reformation is a court’s equitable power to modify a contract to reflect the parties’ true intent where some error has been committed. |
| What is Exemplary Damages? | an amount of money that someone who commits an offence has to pay, which is intended to be large enough to prevent them or others from committing similar offences in the future |
| If the Main Contractor becomes bankrupt, can the subcontractor pursue to get the amount from the Employer? | the subcontractor may not claim from the employer any dues to the main contractor unless it was assigned by the main contractor to do so. |
| What is the difference between Variation and Varied works? | Variation is change in the original scope while varied work is the outcome of the variation. |
