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2.RICS Contract Admin & Contract Practice Flashcards by Matt Ward - Brainscape
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Entrance Exams
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Acceleration is referred to in Core Clause 36. Under clause 36.1 the Project Manager may
instruct the Contractor to submit an acceleration quotation. Project Manager cannot
assess an acceleration quotation like they can with a CE. No obligation on Contractor to
accelerate.
What is acceleration?
Either describes the completion of the works in a shorter time than that anticipated at
tender or the act of recovery by the contractor if they are in delay
3
What is retention?
It is a percentage of each interim certificate deducted and retained by the employer from
each interim payment to the contractor
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Retention can either be deducted from interim payments on the additional amount or the
value of the retention bond can be increased
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What is a defect?
Part of the works which is not in accordance with the Works Information
Part of the works which contractor has designed and does not conform with the design
accepted by project manager.
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8. How has the contract (rights of third parties) act changed the
situations regarding rights under contracts?
- It has significantly changed the traditional principle of privity of contract, whereby
obligations can only be enforced by the parties to a contract
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9. What contracts does the rights of third parties act apply to?
- All contracts made after the 11 May 2000
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11. How can third party rights be included under NEC contracts?
Secondary Option Clause Y(UK)3
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16. What is novation and how does this differ from assignment?
- A new contract that transfers the rights and obligations of one contractual party to a new
third party – assignment is only rights
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18. What is the key issue after a design team has been novated?
- Whether the new party has the right to take action against the novated party for
breaches that occurred before novation
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19. Novation - If the contractor took full responsibility for the design
what would they want?
- They would want the ability to take action against the consultants for breaches before
novation
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24. How can the employer potentially lose out with a net contribution
clause?
- They would have to sue each contributing party separately to reclaim their total loss
- If one party is insolvent they lose out on that money
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2. Is there a higher level than reasonable duty and care expected for
professionals?
- Yes
- A specialist or professional would be expected to show the same level of skill and care
expected of a similar man with that particular specialism
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The NEC forms of contract do not refer to final accounts as it is assumed that the final
account is adjusted as the project proceeds on the basis that the compensation event
procedure is followed.
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1. What is termination?
- Where the contract works are lawfully stopped under the contract
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What are some grounds for which the employer can terminate the
contractor’s employment in NEC3?
If the Contractor has -
- Substantially failed to comply with his obligations
- Not provided a bond or guarantee which was required by the contract
- Appointed a subcontractor for substantial work before the PM has accepted the
Subcontractor
- Substantially hindered the Employer or others
- Substantially broken a health and safety regulation
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- Industry rumours
- Over-valued applications
- Less labour on site
- Slow progress of works
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7. What is insolvency
- Insolvency is concerned with the inability to pay debts.
- Debenture: A security given to lenders against borrowings.
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13. Where does the client fall in relation to receiving monies after
liquidation?
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- In the absence of a separate bank account, case law suggests that the contractor may lose
this right.
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- 8 steps to take and need to act quickly, following measures need to be discussed with
professional team.
1. Advise client of contractor insolvency, contractual position and recommended action
2. Secure the site, change locks, secure all valuable goods equipment and materials.
3. Prepare a detailed valuation of the completed work and an inventory of materials and
equipment
4. Stopping the processing of any payment to the contractor
5. Contacting key S/Cs, suppliers and commence discussions about continuation contracts.
6. Check the contract for Bonds, PCG.
7. Contact the administrator or liquidator and client about their views with regard to
project completion.
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8. Keep a record of the time spent and costs incurred in dealing with and advising on the
insolvency. Normal for additional fees to be chargeable in this respect.
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1. Continuation with original contractor- only practicable if works are nearing completion.
2. Assignment or Novation of the contract.
3. Appointing a new contractor to complete the project. (new contract, PC basis)
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- Depends on stage of the project. If contract has just commenced it might be possible to
approach 2nd tenderer.
- If near completion and novation is not possible, new contractor may be the only course of
action to complete the project.
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- Condition that ownership of the goods does not pass to the contractor until they have
been paid for.
- Claim will fail if material is fixed in place.
- Materials paid for in interim payments are also owned by employer.
- More confusing when talking about materials of S/Cs not incorporated into the works.
- Hence the reason why it is important to secure the site
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1. What are the three main remedies for breach of contract at common
law?
Study These Flashcards
a) Damages
b) Set off and abatement
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c) Repudiation
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- To put the innocent party back in the position they would have been in had the breach
not occurred
- They are compensatory not punitive
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- Where the employer refuses to meet a contractor’s claim for payment because they have
a cross-claim that would reduce or cancel out the payment
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- Where the claim and counter claim are closely linked e.g. under the same contract
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7. What is abatement?
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- Where the employer asserts that the contractor’s claim is not worth the value they are
claiming i.e. due to physical defects to the work
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8. What is repudiation?
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- In two situations:
a) One party indicates that they have no intention of fulfilling their obligations
b) One party commits such a serious breach of contract that they can be deemed to have
no intention of fulfilling their obligations
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- Both parties are released from their obligations under the contract
- BUT the contract provisions regarding liability, assessed damages and dispute resolution
are still valid
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- Termination under the contract only terminates the contractor’s obligation to carry out
the works and does not release the parties from any further obligation
- The contract lays out detailed procedures to be followed to terminate AND the
consequences of termination
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- Termination at common law due to neutral events that have made the performance of the
contract impossible, illegal or radically different from that which was envisaged, due to the
fault of neither party.
- Only applicable where this is not dealt with by the contract
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CE Process - 60.1(7)
Core Clause 7 - Title
73.1 Objects and materials within the site.
Contractor has no title to any object of value or historical interest within the site.
Contractor notifies PM if any found, PM instructs contractor on how to proceed
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3. Who do any fossils, antiquities etc which are found on the site
belong to?
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- The employer
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- Issue PMI as necessary to instruct the contractor what to do if they are found
- This can include telling them to comply with a third party who is examining / excavating
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- Insurance
- Should pay proper note to site investigations and look at the site’s previous uses
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Contractor is obliged to rectify at own cost. If they do not PM assess the cost of getting
others to rectify which the Contractor pays. Alternatively, can Accept the defect,
Contractor submits a quotation reducing the prices or changing completion date.
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- Sum of money included in the contract for work by a statutory authority, work that
cannot be fully defined at time of tender or work that it is not sure is required
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• Comfort letter - Expressing a party’s intention to act in a way at some point in the future.
E.g. payment terms
• Consent to spend - Work to proceed up to a certain value while the contract itself is being
finalised. Superseded once the principal contract is executed.
• Recognition of contract - Letter of acceptance and is used by some forms of contract such
as FIDIC to formally execute the contract itself. Generally, letter is issued once the
contract has been agreed.
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• Allows work to commence before the contract is finally agreed – programme benefits
• Provides more safeguards than just telling the contractor to start without one
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• May lead to complacency and dis-incentivise them to sign the main contract
• Less robust than the main contract
• You would not want the works to continue for very long without getting the contract
signed
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• Recitals
• Articles
• Contract Particulars
• Schedules
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Option A - Priced Activity Schedule - Contractor prepares & prices AS based on defined
scope of works & provides a lump sum figure. Cost certainty provided. (D&B)
Option B - Priced BoQ - Employer provides BQ based on MM & tenderers price. Used
when scope clearly defined & can be measured from designers drawings. Cost certainty
(Traditional).
Option C&D - Target Cost Activity Schedule/BoQ - Tender information incomplete,
higher risks, financial risk shared. Pain/Gain Incentivisation mechanism.
Option E - Cost Reimbursable - Scope of works unknown & TC unable to be developed.
Early start required. Majority of risk sits with Employer. Contractor paid actual cost plus
fee. No incentive to drive down cost.
Option F - Management Contract - Contractor only responsible for works within Contract
Data. Appointed before construction to plan, procure & advise. Contracts directly with
subcontractors & fee increases if value of SC packages increase through CE.
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• Core Clauses:
• 1 - General
• 2 - The Contractors main responsibilities
• 3 - Time
• 4 - Testing and defects
• 5 - Payment
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• 6 - Compensation Events
• 7 - Title
• 8 - Risks and insurance
• 9 - Termination
• Main Option Clauses:
• Dispute Resolution Clauses:
• Option W1 - If UK HGCRA applies then not used
• Option W2 - If UK HGCRA applies then used
• Secondary Option Clauses: X1 - X20
Y(UK)1 - project Bank Account
• Y (UK) 2 - HGCRA 1996
• Y (UK) 3 - The Contracts (Rights of Third Parties) Act 1999
• Z - Additional Conditions of Contract
• Schedule of Cost Components
• Contract Data
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• Employer,
• Project Manager,
• Contractor,
• Supervisor
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responsible for managing the contract on behalf of the Employer, deals with time, money,
and changes to the contract.
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The Supervisor’s duty is to ensure that the Contractor Provides the Works in accordance
with the contract documents – in particular, the programme and the Works Information
(the specifications and drawings).
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NEC Defined Terms, Plant Incorporated into the Work & Equipment provided by
Contractor and used to provide the works.
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- 6 main options and secondary options (mix and match approach to distribute risks) JCT
uses separate contracts e.g. JCT SBC D&B, SBW W/Q, X/Q etc…
- NEC written in laymen terms easy to understand
- No QS mentioned in NEC only Project Manager
- Tries a more collaborative approach to working “Mutual trust and understanding”
- Programme is a contract document (NEC) 25% of monies due can be withheld if the
contractor does not submit an accepted programme
- Variation (JCT)= Compensation Event (CE) (NEC)
- Contractor can notify of a CE called (NCE) must do so within 8 weeks of becoming
aware of the situation
- Valuation rules, Bill rates are not binding on CEs.
- CEs built up from first principles called Schedule of Cost Components (SCC) People,
Plant, Equipment, Design and Manufacture include a % for O/H
- NEC does not have claims NO direct loss and/or expense
- Loss and/or expense is dealt with in CE
- EOT… again prolongation is dealt with in CE.
- Project Manager by accepting a CE is potentially extending the completion date
- Defects: Defects correction period (normally 2-3 weeks) contractor must “make good” in
these time periods (better at dealing with defects than JCT)
- Periods of reply (incentivises the parties to respond to each other) however reality is very
administration heavy.
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- Client supplies a list of names in the preliminaries / specification and the contractor
chooses which one they want
- The named sub contractor is then treated the same as a domestic subcontractor
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- The selection of a specialist sub contractor or supplier for the project by the client
- The client names them specifically in the preliminaries / specification
- They will often have been chosen and provided advice / design etc before the main
contractor is selected
- The work to be done is normally the subject of a prime cost or provisional sum
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a) Payment
b) Adjudication
c) Set off
d) Suspension
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- Pay when paid and pay if paid clauses are banned (except in insolvency)
- Contracts over 45 days must contain provisions for interim payments
- Contracts must state a date for final payment
- The amount and basis of each payment must be notified to the contractor after it
becomes due
- Withholding notices must be issued before final date for payment
- If these items are not included, the Scheme for Construction Contracts will fill the gaps
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- Created a statutory right for the parties of a construction contract to refer any dispute
arising under that contract to adjudication
- Created timescales for adjudication:
- An adjudicator must be appointed within 7 days of referral
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- The employer must issue a withholding notice before the final date for payment stating
the amount and reasons for withholding
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- The Contractor has the right to suspend carrying out the Works if the Employer fails to
pay the sums due in full in accordance with the contract conditions
- The contractor must first issue a written notice stating they intend to suspend
- If payment has not been received in full within 7 days they can suspend
- They contract period should be adjusted for the period of suspension
- The right to suspend ceases with full payment
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What are the key elements of the 2011 Construction Act Amendment?
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Core Clause 50.2, the amount due to the contractor is the total of:
• price for work done to date; plus
• other amounts to be paid to the contractor (such as compensation events); less
• any amounts to be paid or retained from the Contractor.
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A cost that -
• Is not justified by the Contractors accounts and record,
• Should not have been paid to a Subcontractor or supplier in accordance with his contract
• Was incurred only because the Contractor did not follow an acceptance or procurement
procedure stated in the Works Information or did not give an early warning which
contract required him to give
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• The project manager is obliged to certify payment within 1 week of each assessment date.
• The assessment date is normally agreed between the parties.
• If not agreed the assessment date is calculated by reference to the assessment interval
following the starting date.
• Payments are made within 3 weeks of the assessment date.
• If a payment is later corrected, interest is paid.
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• Payment becomes due within 7 days after the assessment date and the Project Manager
certifies the payment on the payment due date, such certificate being the notice of payment
to the contractor;
• the final date for payment is 14 days from the payment due or such other time stated in
the contract data;
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• No amount due can be withheld by a party unless a notice of the intention to pay less
than the notified sum is given.
• they notify the other party within 7 days of the final date for payment,
• setting out the amount due and the basis upon which it is calculated.
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• The materials should be for the works, adequately protected, delivered to programme
and in a reasonable quantity
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• Proof that ownership will transfer to the employer on payment (vesting certificate)
• Insurance until materials arrive at site
• Materials are clearly labelled as for the site and set apart from other materials
• A materials off site bond has been provided if required
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Contracts do not refer to 'variations' or 'loss and expense'. Instead, there are
'compensation events‘
• Compensation events are events which may lead to the payment to the Contractor being
changed or the Completion Date being delayed.
• 19 Compensation events are included under clause 60.1
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• This ensures that the Contractor can claim for costs incurred as a result of such
suspension.
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Both parties must give early warning of anything that may delay the works, or increase
costs as soon as they become aware of them.
They should then hold an early warning meeting to discuss how to avoid or mitigate
impacts on the project.
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- Contractor notifies PM with eight weeks of becoming aware of a CE. Unless PM should
have given notice but did not then failure to notify by the Contractor will result in no
change to the price or completion date
- PM has 1 week to decide if it is a CE, Contractor notifies after 1 week, if no decision
made after 2 weeks treated as accepted and quotation instructed.
- If it is a CE then Contractor has 3 weeks to submit a quotation
- PM then has 2 weeks to reply to quotation
- If PM does not make a decision, Contractor gives notices
-IF PM fails to reply within a further 2 weeks the notification is treated as accepted and
deemed a CE and the Contractor is automatically instructed to submit a quotation
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• The Project Manager has to be reasonably sure that the CE assessment is reasonably
accurate.
• Otherwise could be giving the contractor more time and money than would prove to be
necessary if reviewed retrospectively.
• CE assessment cannot be revised if a forecast on which the assessment is based is later
shown to be wrong.
• It is often the consideration of this risk that delays Project Managers in making decisions
regarding CEs.
• The fear is that the cost could be greater and the delay longer than anticipated.
• The tendency to be avoided is to over assess the effect of the CE, which is invariably the
Project Manager’s suspicion.
• Suspicion by the Project Manager that the contractor is under-resourced and fails to
keep adequate records properly to administer the CE procedure will lead to a failure of
the contractual procedure.
• Sorting out the entitlements of the parties once the contractual mechanism has fallen
apart can be expensive and is best avoided.
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Adjustment of Fee
• The third matter is an adjustment of the fee which, as it is a percentage addition to the
defined cost, is simply dependent on ensuring that the defined cost is correctly assessed
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• This element of assessment is often the area of greatest risk as it involves the forecasting
of the effect of individual and aggregated CEs on planned completion prevailing at the
time.
• The biggest risk to both parties is not having an up-to-date and accurate programme for
the works reflecting the actual progress week on week. This is because the delay is assessed
based on the last updated/accepted programme.
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constructor management
• Client management – understanding clients objectives + approach to risk
• Clear Contract Documentation
• Partnering + alliancing
• Good Payment Practice
• Record Keeping – Record of labour, plant and materials us
• Regular reporting + proactivity – Cost, progress and quality
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What is Mediation?
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ADR form of bringing in separate impartial third party to mediate and guide a decision
which optimises the parties’ needs, encrourages coming together and agreeing
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What is Concilliation?
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Parties may through an informal private or facilitated negotiation process agree to settle
the dispute either at a high level or in detail and agree to be bound by this settlement.
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What is adjudication?
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What is Arbitration?
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Procedure for the resolution of disputes which is under the control of the parties.
• Certain conditions must be met: a genuine dispute or difference between the parties &
award must be capable of enforcement
• Binding agreement to submit to arbitration in contract.
• Private.
• Three available procedures: Documents only (30 days), short hearing (30 days) and full
procedure (long).
• Parties do not pay for court or judge, process can deal with multi-party disputes, civil
procedure rules aim for accessibility, speed and efficiency.
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What is determination?
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- A genuine pre-estimate of the likely loss incurred by the employer should the completion
date not be met.
- X7 in NEC3 ECC. Amount defined in Part 1 of Contract Data
- If Contractor does not achieve completion date and X7 selected then delays damages are
due from Contractor to Employer
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What is a Bond?
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• Performance bond
• Retention bond
• Materials off site bond
• Advance payment bond
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• “Contract of Guarantee” whereby one party (the Guarantor) undertakes to pay damages
to a second party (the Employer) arising from breach of contract by a third party (the
Contractor).
• Standard value is 10% of contract sum
• To call for payment Employer must prove that the contractor has defaulted in their
obligations under the main contract and that loss has been suffered
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• Protection – PB is from a third party while strength of PCG is related to the final
covenant of the parent
• Cost/Availability – PCG is free which PB is not – if company does not have a parent
• Cover – PB does not guarantee completion of project, just recovery of loss up to a certain
amount whereas a PCG does guarantee continuance but is of little use if the parent is
insolvent.
• Duration – PB expires at PC or at the end of rectification period – PCG can be 12 years
• Enforcement – notoriously difficult to get pay-out under a PB – bondsman will require
the breach of contract to be upheld in adjudication or court proceedings.
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Not Qualified to advise on insurance but if project in delay check Client has extended their
insurance policy.
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• Insurance of the works - covers the cost of any damage to the works during construction
(110% of full value)
• Third Party/Public Liability - covers the cost of any damages due to damage, injury or
death to members of the public or property during the construction of the Works
• Employers Liability - covers the cost of any damages arising as a result of accident or
injury to an employee of the company during the course of the works
• Professional Indemnity - covers the cost of any damages arising as a result of negligent
advice / design
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3/6/2021 RICS Contract Admin & Contract Practice Flashcards by Matt Ward | Brainscape
Avoid subrogation. If can't be done in Joint Names then include a Subrogation Waiver
(except for Fraud)
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What is subrogation?
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The insurer can stand in the shoes of the insured (Employer) & sue the negligent party
(Contractor) for reimbursement of costs.
If policy is in Joint Names there is no requirement for this as the insurer would be suing
themselves, emphasis on rectifying the problem rather than apportioning blame.
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Put the party back into the position they would have been in had the event not occurred.
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The client insures work within existing buildings mainly due to the presence of an existing
policy.
This would be advantageous to the client as it would probably be cheaper & there would
be less problems in the event of a claim if damage or subsidence was caused to the existing
building
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If HGCRA applies then use W2, if not use W1 which contains far greater detail regarding
adjudication.
Party may refer a dispute to adjudicator at any time, who is appointed under the NEC
Adjudicators Contract.
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3/6/2021 RICS Contract Admin & Contract Practice Flashcards by Matt Ward | Brainscape
If a party is not satisfied with adjudicators decision can serve notice within four weeks of
decision to go to a tribunal which will be stated in Contract Data e.g litigation/arbitration.
The adjudicator cannot be called as a witness.
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NEC3 - Compensation Events - Cost of work estimated & agreed up front before work
carried out (If actual costs known then included).
Contractor should be able to gain on the CE.
Only client risks or CE listed in the contract can form a CE.
An allowance is made in the target for contractors risks.
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The pain / gain mechanism is used on a target cost form of contract, and is included within
the tender documents by the client upon issue.
Once the target cost has been set for the project the pain gain mechanism acts as an
incentive to beat the target.
If the contractor beats the target he will gain a share in the savings made. If he exceeds the
target, more than likely he will be responsible for 100% of the cost.
This will depend on what is contained within the contract documents.
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3/6/2021 RICS Contract Admin & Contract Practice Flashcards by Matt Ward | Brainscape
Prepare the Tender Documentation & appropriate pricing document (AS or BQ) for issue
to the Tenderers, who would return as part of the submission.
Analyse the pricing document & look at the programme durations proposed by the
contractor to ensure they were reasonable & the level of resources are appropriate.
Review quantities & rates
Labour - number & efficiency & rates,
Plant - number & output & rates,
Materials - quantity & rates.
Subcontract - Verify procurement strategy & back to back contracts (competitive quotes
recieved / benchmark rates / lowest quote used / subcontract uplift).
Check rates for project staff & ensure only employed during the appropriate periods in
the contract (planner & setting out engineer - 100%).
Site compound is adequate for level of staff & labour to be provided.
Check any unpriced items and determine if & where included.
Determine where insurances are priced.
Site vehicles - May be cheaper to purchase rather that rent.
What risks have been priced or included for.
Check level of Fee & Profit
Target must be set at a realistic level & must be capable of being beaten (Too low -
contractor penalised &will look for ways to increase target - Too high - no incentive to
innovate &
drive down cost)
Pain / Gain Mechanism should be appropriate to allow contractor to make further profit
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Consists of a forecast of the construction costs, allowance for preliminaries, risk allowance,
% additions for management fee
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Paid actual cost up to the value of the target for undertaking the works.
PG mechanism then invoked & depending upon arrangement will affect how much the
contractor will be reimbursed.
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3/6/2021 RICS Contract Admin & Contract Practice Flashcards by Matt Ward | Brainscape
Advantages:
1) Minimum enquiry definition
2) Short bid time / quick start on site
3) Conflict minimised / Partnering ethos
4) Contractor incentive to manage resources
5) Employer shares in savings
6) Does not pay full amount for risks that do not materialise
7) Early contractor involvement
Disadvantages:
1) Employer risk of being financially exposed
2) Cost checks & monitoring can be time consuming & expensive
3) Bid evaluation difficult
4) Reduction in competition"
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Carry out monthly audits on the valuations which would be submitted based on actual cost
- Check 10% of value.
Staff timesheets & rates.
Material / Plant invoices against returns.
Labour payroll sheets.
Subcontract certificates / invoices.
Duplication of costs between management fee.
Review programme & planned resources to determine actual progress & efficiency.
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