What is the reason for insurance in a standard form of contract?

What are the main risks to a project (in

relation to health & safety) ?
To be covered for allocated risks detailed within the contract

Working at Height

Slips Trips and Falls

Asbestos

Noise

Moving Objects

Materials & Manual Handling

Electricity
Respiratory Diseases

Explain the difference between indemnity and insurance?

Indemnity is the obligation that one party holds in paying compensation to another party that suffered losses.
A classic example would be an indemnity contract that was taken out by an owner of an amusement park to pay
compensation to any person who was injured at the park.

Indemnity contracts are also used by medical professionals, to pay compensation to any patient who may suffer
from medical malpractice.

What is Insurance?

Insurance is the guard against uncertain losses. An insurance policy will be taken by an individual who wishes to
guard themselves against the occurrence of a specific event and the losses that may follow by making a periodic
payment to an insurance company called an insurance premium. In case the event occurs the insurance company
will compensate the insurance policy holder, restoring their financial standing back to the position it was before
the loss occurred. Therefore, taking out an insurance policy is essentially transferring a risk from one party to
another in exchange for a payment made.

Insurance is taken out against a variety of risks; some forms of insurance include vehicle insurance, health
insurance, life insurance, home insurance, credit insurance, etc. An example of insurance is vehicle insurance,
where in case the insurance policy holder faces an accident and his vehicle gets damaged, he will be paid
compensation for damages to his vehicle, so that his vehicle can be restored.

What are the 2 types of insurance and explain the differences between them?

Public Liability Insurance

In simple terms, Public Liability Insurance provides protection for your legal liability against claims for injury
or damage as a result of the actions of you (or one of your employees) in the course of carrying out your
work. For example, a client trips over your laptop bag or a cable and breaks their ankle.Having public
liability insurance in place helps set your mind at rest, keeping you covered if a customer or member of the
public suffers a loss or injury because of your business.
Public liability insurance covers the cost of compensation for:
personal injuries
loss of or damage to property
death
 Policies vary from insurer to insurer, but most public liability policies cover you for:
incidents that occur on your business premises
incidents that take place off-site, at events or activities organised by your company
Professional Indemnity
PII Insurance provides cover for legal awards, costs and expenses if you (or one of your employees) is
alleged, in the course of your professional duty, to have provided either inadequate advice or services to a
client. The policy will pay costs in terms of defending a claim, together with any compensation due to your
client and / or rectification costs to remedy the error.
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.

Explain the different types of insurance required under JCT 11 relating to people and
property. If you were working for a Client what length of cover would you advise and why?
"Specified Perils" (SP) - includes insurance policies or their part, which covers specific hazards as indicated
in the contact, such as fire, explosions, flooding etc. (JCT MW- clause 5.4)
"All Risk Insurance" (AR) - policy covering all other losses, except those, which are caused by faulty
designing and completion, using faulty or inappropriate materials or other losses due to negligence.
Latent Defects
Professional indemnity insurance
Public Liability Insurance
Employers Liability Insurance

Duration of works and defects period

Explain the different types of works insurance required under JCT 11. What is the length of cover
required and why?

Contractor insurance

Employer insurance

Joint names insurance

The time is in the standard contract and can be amended to suit

Why is it important that QSs advise a client on the insurance provisions required? What should you look for
when assessing the cover?

Cause he understands the contract and how construction works

Who is responsible if damage to property occurs but neither the Emp or MC are negligent?
What can the Emp do to cover this risk?

The contractor is only responsible for damage to property due to negligence, breach of stature duty, omissions
or default on part of the contractor or of parties whom the contractor is responsible in law. Sometimes
damage can occur without any fault on the part of the contractor. eg. The damage in the case of gold v
patman. Against this type of damage the employer may have some protection through professional liability
insurance of his professional team if the damage is due to their professional negligence. Where the damage is
due to nether the fault of Emp or MC the employer will have to foot the bill clause 21.2.1 envisages that a
prudent employer may wish to insure against this type of liability. If that is the case it should be stated within
the appendix. The amount of cover per occurrences arising of the same event must also be stated.
Furthermore the architect must instruct the contractor to take out the insurance. This cost is added to the
contract sum.

If the Employer has paid for materials on site which are subsequently stolen who is liable
(JCT SBC 11) and why?
SBC clause 2.24 (IC and ICD clause 2.17 is to similar effect) puts the matter very clearly. It provides that if the
architect has certified the value of materials on site and the employer has paid for them, the materials become
the property of the employer, but the contractor remains responsible for loss or damage to them. However,
this pro- vision is made subject to insurance options B or C where they apply. Therefore, if they do not apply,
the contractor is responsible for replacing stolen materials at no additional cost to the employer. Where
option B (all risks insurance of the Works by the employer) or C (insurance of existing structures and Works in
or extensions to such structures) applies, the employer is responsible for insurance of materials on site.
Therefore, the claim for the cost of stolen materials is to be made against the employers insurance.

It will sometimes be argued that the contractor is liable, even if the employer is responsible for the
insurance, because there is a clause in the bills of quantities which states that the contractor is responsible
for taking all available measures to secure the site. Unfortunately, such a clause will not be effective to
overrule clause 2.24 because clause 1.3 provides that nothing in the bills of quantities can override or
modify anything in the printed contract form. Therefore, it seems that even if the contractor is in breach of
obligations to secure the site so that materials are stolen, the con- tractor will be liable for the cost of
replacement only if it is insuring under option A.

What if the insured goes bankrupt and you have a right to claim against him? What if the insured has missed a
payment?

If the risk holder does not take out the insurance what can you do? Who is liable for any shortfall and why?
The problem with an uninsured is not that it is not liable to pay for damage, but that it may not have sufficient
funds to pay. It does not prevent the employee claiming against it. You will have to make a claim against the
uninsured and they will have to pay out of its own resources

Why do standard forms of contracts ask for policies to be taken out in joint names?
Firstly, it means that neither party needs to take out its own insurance policy, which can lead to dual
insurance, unnecessarily increasing the projects total insurance cost. Secondly, it can help avoid costly
litigation between the jointly-insured parties who may otherwise try to claim against the other. In addition, the
policy cannot be cancelled without both the parties being aware of this.
The insurer has no rights of subrogation, meaning that they cannot recover amounts paid to one of the insured
by pursuing the other.Tyco v Rolls Royce

What is the difference between all risks and specified perils?

Named perils
Based on this explanation of risk or peril, a named peril is a risk specified in writing in the insurance policy.
That peril will therefore be covered. By default, anything not named is excluded. The most common
named perils are the ones we tend to think of first when we think about insurance: theft and fire.
All risks
 All risks is the opposite of named perils. Instead of mentioning which perils are covered, everything is
assumed to be covered. Of course, that coverage is much more comprehensive. In addition to the perils
you might already expect, unexplained loss is generally covered. With an All Risk policy, all damage or
loss is covered unless the Insurer can prove that it is excluded.
Named perils and all risks in the same policy
Its possible to have a policy that says all risks coverage applies to your building or leasehold improvements
but named perils coverage applies to your personal property. Its also possible to have an all risks policy
with a few types of property that would be named perils. Thats why its important to read your insurance
contract carefully and consult a general insurance agent, whos a professional with the necessary training
to answer your questions.

What are Excepted Risks?

There may be excepted risks, for which insurance is not required (because it will usually be unobtainable).
Excepted risks might include:
The use or occupation of the works by the employer, its agents, servants or contractors.
Any fault, defect, error or omission in the design of the works (other than design provided by
the contractor).
Riot, war, invasion, act of foreign enemies or hostilities.
Civil war, rebellion, revolution, insurrection or military or usurped power (not including
terrorism).
Radiation or contamination by radioactivity.
Pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonic
speeds.

Explain the reinstatement procedure for works insurance Option A and B.

Option 1
Reinstatement to a layout and condition that mirrors what was present prior to damage or destruction.
Option 2
Reinstatement to a form substantially similar to what was present prior to damage or destruction but with
minor changes to improve on what had been there before.

A Client has received notification from the contractor that terrorism cover has been halted by its
insurance broker. How would you advise the Client?

Advise of the client of risks and continue

What is meant by the term subrogation? What can you do to safeguard against it?
Subrogation means, in a legal sense, one party has the right to "step into the shoes" of another party for the
purposes of bringing a claim for damages. Not all types of claims may be subrogated. The most common type
that can be subrogated is property damage claims.
For example, if you are involved in an auto accident where no one is injured, but the vehicles are damaged,
and you are completely free of fault, your insurer will pay to have your vehicle damage repaired. If your
insurer pays for the "property damage" to your vehicle, in most states, your insurer then becomes
"subrogated" to your rights for that property damage. In other words, your insurer can "step into your shoes"
and make a claim against the other driver in your auto accident that caused the damage to your vehicle for
which your insurer had to pay the repair cost.

How would you advise the Client on the financial limitations of insurances required for a project and why?

Find out the cost for reinstate the works and advise the figure they need to insure

What are bonds? Explain the different types of bonds available?

Bonds are used in UK and international construction and engineering contracts as a means of protection
against contractor non-performance.

The bank or other bondsmans obligation will vary depending on whether it has provided a true guarantee or
an on demand bond. Although the terms are often used interchangeably, there is a crucial legal difference
between the two:

An on demand bond imposes a primary obligation on the bank to pay in circumstances where the contractor
fails to perform the building contract, without the employer having to sue the contractor and prove breach of
contract.
The obligation to make payment under a default bond (a form of guarantee is dependent on the employer
establishing the contractors breach of the building contract.
Performance bond
A performance bond is designed to ensure that the contractor performs the works in accordance with the
building contract. If it does not, the employer will suffer a loss, for example because of delay. The bank agrees
to pay the employer for its loss up to a stated maximum sum, often originally set as a percentage of the
contract sum.

A performance bond may be an on demand or default bond. On a property development project carried out in
England and Wales, if a performance bond is required, it is common practice to procure a default bond. On an
international project (and, in some circumstances, on other major projects that do not have an international
element), an on demand bond is more common.

Advance payment bond

The parties may use an advance payment bond where the employer has agreed to pay the contractor an
advance payment under the building contract, but is concerned that the contractor may not be able to
perform the contract or repay the employer if something goes wrong. For example, the advance payment may
relate to the pre-order of goods or equipment. An advance payment bond is usually drafted as an on demand
bond, whether used in connection with a project in England or Wales or an international project.

Off-site materials

Some standard form contracts refer to a similar, but different, bond in respect of off-site materials or goods.
This provides some security to an employer who pays for materials that are kept elsewhere before delivery to
site. For example, see Part 2 of Schedule 6 to the JCT Design and Build Contract, 2011 edition (JCT DB11).

Bid bond
A bid bond (also known as a tender guarantee) is intended to prevent a bidder from abusing the bidding
(tendering) process. However, as an on demand bond, it can be open to abuse by the employer or act as a
barrier preventing smaller companies from bidding. Despite these drawbacks, and while remaining rare in
England and Wales, a bid bond is sometimes part of the procurement process for an international construction
and engineering contract.

Retention bond
In England and Wales, the employer and the contractor often agree that the employer may retain a specified
percentage of payments due to the contractor from each interim payment as the project progresses (the
retention). When the project reaches practical completion, half of the retention is paid to the contractor. At
the end of the rectification period, the second tranche of retention is released.

If the parties agree to do without a retention, but the employer still wants some protection against the cost of
remedying defects in the works, the contractor may agree to procure a retention bond. The sum covered by
the retention bond reflects the amount that the employer would have held as a retention and, just like a
retention, usually reduces after practical completion.
For an example form of retention bond, see Part 3 of Schedule 6 to the JCT DB11, which is drafted as an on
demand bond.

Defects liability bond

On some engineering projects, at practical completion or taking over, the contractor may have been paid in
full and the employer may have released any other security it held. To continue to provide the employer with
some security in case the contractor does not remedy a defect, some standard forms of engineering contract
(such as the IETs MF/1 contract) include a defects liability bond, known (in that case) as a defects liability
demand guarantee. The bond remains in place during the defects liability period and in the case of the IET
MF/1 form, is payable on demand.

Adjudication bond
On a PPP project, an adjudication bond specifically allows the beneficiary of the bond to call for a payment
ordered by an adjudicators decision.

The difficulty with such bonds is that, where the adjudicators decision is temporarily binding, but the same
dispute may subsequently be referred to litigation or arbitration, the parties may need to provide in the bond
for a balancing payment if the court or arbitrator reaches a different final result. This is complex to achieve in
practice.

As such, adjudication bonds are most suitable when the adjudication referred to is final and binding. In that
sense, a person known as an adjudicator may be acting more like an expert with authority to finally determine
the parties dispute.

What is a performance bond? What are the advantages and disadvantages of Parent Company Guarantees v
Performance bonds?
PCGs are provided by either the contractor's immediate parent or other holding company and operate as a
guarantee to ensure a contract is properly performed and completed. In the event of a contractor default, the
parent is obliged to remedy the breach. If the contractor is no longer able or willing to continue with the
works, the parent will be obliged to meet all of the contractor's obligations and complete the works to the
standard specified in the terms of the original contract.

PBs and PCGs provide different remedies, types and levels of protection to the employer for contractor
default. If both forms of security are available, the factors outlined below should be considered to assess
which remedy is the most appropriate for the development in question.

PBS AND PCGS A COMPARISON

Protection

A PB gives the comfort of being a payment guarantee from an independent third party, whereas the strength
of a PCG is directly related to the financial covenant of the parent. In assessing the adequacy of the PCG, an
employer should be satisfied with the identity of the parent and similarly should insist that any PB be from a
reputable guarantor.

Cost/availability

A contractor will normally charge a premium for the provision of a PB whereas a PCG should not have a cost
implication for the contractor (with the exception of administration fees). Of course, a PCG will not be
available if the contractor has no parent and may not be desirable if the proposed parent does not have a
good financial covenant.

Cover

A PB does not guarantee completion of the project, just recovery of financial loss up to a stated maximum
amount. A PCG does guarantee the continuing performance of the contract, but is of little benefit if the parent
is equally unable to perform the contract (e.g. group insolvency).
Duration

Typically, PBs only operate for the period in which the contractor has immediate obligations to carry out the
works in question and expires at either practical completion or the end of the 12 month rectification period.
However, a PCG will often be co-extensive with the maximum duration of the liability the contractor has under
the underlying contract (i.e. six or 12 years depending on whether the contract has been executed under hand
or as a deed) and covers the contractor's liability for the remedying of latent defects.

Insolvency

An event of insolvency alone will not necessarily give rise to payment entitlement under a standard
unamended ABI form of PB, as this may be treated as an event terminating the main contract. Equally, the
terms of each PCG will need to be reviewed to ensure they cover an event of insolvency.

Enforcement

It is notoriously difficult to obtain payment under a PB. A bondsman would ordinarily require the breach of
contract to be upheld either in adjudication or court proceedings and the employer would be required to
provide clear evidence of the loss it has suffered as a result of the contractor's breach

How does NEC3 distribute risks between the Employer and MC? Does this differ from JCT SBC 11? How does
this affect the MC?
NEC3's approach could (albeit as a gross generalisation) be summarised as being that employers should pay for
risks as and when they occur, rather than paying a higher price to pass these risks to the contractor up front.
The consequence of this is that (on the face of the contractual provisions) the employer bears more risk than it
would under more traditional forms.
Both NEC and JCT contracts are standard forms of contract that are part of standard families for procuring
works or consultancy services (JCT), goods, works or services (NEC). Each has an allotted person to act on
behalf of the employer (contract administrator in JCT, project manager in NEC). They both include obligations
relating to time, cost and quality, although the explicit requirements are quite different, NEC includes
procedures providing for a more proactive and collaborative approach to managing the contract and requires
the parties to follow these procedures. Key NEC drafting features centre around flexibility, clarity and
simplicity, and a stimulus to good management.
1 Price
The JCT Contract is a fixed price lump sum contract. NEC Option B offers a fixed price lump sum contract but
Options C and D are target cost contracts.
2 Provisional sums
The JCT Contract contains provisional sums, whilst the NEC Contract does not.
3 Cost scrutiny
In a JCT contract there may be some cost scrutiny via the contract sum analysis and tender negotiations but
the NEC contract has an open book procedure with the key concepts of defined cost and disallowed cost.
4 Ground Risk
In the JCT contract ground risk is with the contractor. However, the NEC contract uses the ICE forseeability test
in relation to ground conditions.

5 The programme
The JCT contract does not have a programme as a contractual document. The programme is at the heart of the
NEC ethos. It is a contractual document and to be regularly updated. The NEC contract also has key concepts
such as float, completion float and time risk allowances.
6 Payment
In relation to payment, the JCT contract payment section is clear, is all in one section (clause 4) and easy to
follow. However, in relation to the NEC contract it is located in three different locations clause 5, Y(UK)2 and
Contract Data Part 1.
7 Extension of time/loss and expense
In relation to extensions of time and loss and expense, the JCT contract has relevant matters and relevant
events and time and money are dealt with as separate concepts. The NEC contract has the compensation
event and it deals with both time and money. The ethos of compensations events is that they are dealt with in
real time as much as possible and this is very much process driven. The compensation events also have a
condition precedent nature, and failure to notify the compensation event within the 8 week period can have
dire consequences.
8 Insurance
The JCT contract contains comprehensive detail in relation to insurances at clause 6 and Schedule 3. In relation
to the NEC contract, the insurance detail is very brief and contained at clause 84 of the contract. The NEC
contract is silent on some insurances. The missing insurances relate to existing buildings insurance and
adjacent property insurance, and need to be included in the additional insurances section of the Contract Data
Part 1.
9 Design risk
The JCT contract has a clear interaction between the Employers Requirements and Contractors Proposals and
there is extensive drafting in the JCT. The NEC contract however simply states a contractor is to design the
parts of the works which the Works Information states he is to design. The Works Information contains far
more than Employers Requirements. There is guidance as to what the Works Information should contain and
it is dangerous and bad practice to simply re-badge a JCT Employers Requirements document as an NEC
Works Information document.
10 Employers Requirements/Works Information
The Works Information contains far more information than a JCT Employers Requirements as it is a shorter
contract and leaves the some of the detail to the Works Information. Simply re- badging a JCT Employers
Requirements as an NEC Works Information is dangerous as the terminology and level of detail required is
different.

Under NEC3 what if there is loss / damage to the works after takeover? Who is responsible? What if the MC
was not liable?

fact that the Contractor carries the risk for loss of or damage to the works even after takeover by the
Employer. The fourth bullet point of Sub-Clause 80.1 states:

Loss of or wear or damage to the parts of the works taken over by the Employer, except loss,
wear or damage occurring before the issue of the Defects Certificate which is due to

a Defect which existed at take over,

an event occurring before take over which was not itself an Employers risk or

the activities of the Contractor on Site after take over.

This provision is somewhat tempered by the fact that the Employer is responsible for any damage / wear and
tear caused by him after take over.

Why must a % for retention be included in Contract Particulars? Why should a retention
statement still be produced?
The purpose of retention is to ensure the contractor properly completes the works required under the
contract. Half of the amount retained is released on certification of practical completion and the remainder is
released upon certification of making good defects. Retention due to subcontractors may in turn be held by
the main contractor and so on down through the contractual chain.

How do you claim under a retention bond?

There will be provision for the beneficiary's right to claim under the bond to end at some point. It is important
that the employer makes sure that the bond does not expire until full compliance by the contractor has been
provided - i.e. after completion of the works and the correction of defects.
 What is the difference between the fluctuation clauses under JCT SBC 11?
Fluctuating clause is a provision usually included in contracts. It increases or decreases the contract price
according to changing market conditions like higher or lower taxes or operating costs. The variations clause
gives the employer the right to order alterations to the scope of works as originally defined. The employer may
of course activate its right to vary for many reasons, not least because it simply changes its mind as to what it
requires. On the other hand, a claims clause is there to compensate the contractor for unexpected events or
discoveries that are agreed under the contract as being the employers risk.

Why might you recommend a Client to use the fluctuation clauses?

If the market is volatile then contracts might put in a big contingency on the basis things go up

Explain how JCT and NEC3 differ in relation to negative interim valuations and why?
Some forms (such as JCT) do not permit negative interim valuation payments (that is payments from the
contractor to the employer) until the final account stage. So, whilst the employer can issue a negative later
certificate if he thinks there has been an overpayment in respect of an earlier one, he cant claim it back at an
interim stage.

In standard forms of contract there is not always the ability to issue a negative interim certificate, to claw back
the overpayment, although some contracts like the NEC3 form and the JCT Major Project Construction
Contract permit negative interim certificates.

What are the ways in which a contract sum can be adjusted giving examples under JCT
SBC11?
A/CA's Instructions
Variation Quotation (Schedule 2) instruction is given

What is a Schedule 2 quotation?

Schedule 2 quotation Schedule 2 quotation A quotation to be provided by the contractor pursuant to an
Instruction for a Variation under the JCT standard forms. The contractor is not obliged to provide a quotation if
he gives notice that he disagrees with the application of the procedure.

If a variation has been calculated by a Schedule 2 quotation is the contractor entitled to a

loss and expense claim? Why?
This has disadvantages as Variations are not
breaches of contract and therefore loss and/or expense associated with these may not be
recoverable at common law though it would be recoverable under the express provisions of clauses

If a rate in BQ is really low and is subject to a variation which increases the quantity is the MC
able to increase his rate for the additional quantity? Why?

Yes, if he can show it has an error or the works of a different nature.

If it is agreed that a variation is to be valued on a daywork basis can the time claimed be
reduced if the PQS thinks that the contractor has taken too long? Why?
The PQS and Contractors QS will usually prepare and agree the Valuation before leaving the site; subsequent
disputes will thus be avoided.

Explain the difference between defined and undefined provisional sums.

Defined provisional sums are considered to have been accounted for within the contractor's price and
programme. In effect the contractor is taking the risk that their estimate will be sufficient.
Undefined provisional sums are not accounted for in the contractor's price and programme. This means that
the client is taking the risk for the works and the contractor may be entitled to an extension of time and
additional payments.

What are the valuation rules under JCT 2011?

Interim valuation is a pre-cursor to the issue of an interim certificate, which in turn allows an interim
payment to be made. It is a detailed breakdown, generally prepared by a contractor, that constitutes an
application for part payment for work undertaken since the last valuation. It is checked and signed off by
the client's contract administrator who often delegates the task to a cost consultant. This usually involves
visiting the site and checking that the work has been carried out, either by measurement or by
visual inspection.
Interim payments ease the contractor's cash flow, on the premise that project finance is cheaper for
the client than it is for individual contractors.
Interim valuation is a pre-cursor to the issue of an interim certificate, which in turn allows an interim
payment to be made. It is a detailed breakdown, generally prepared by a contractor, that constitutes an
application for part payment for work undertaken since the last valuation. It is checked and signed off by
the client's contract administrator who often delegates the task to a cost consultant. This usually involves
visiting the site and checking that the work has been carried out, either by measurement or by
visual inspection.
Interim payments ease the contractor's cash flow, on the premise that project finance is cheaper for
the client than it is for individual contractors.

Can you explain how you value preliminaries for an Interim Valuation (IV) under JCT SBC
2011?
consider all items to be time related and simply divide the total costs of the Preliminaries by the duration of
the contract, such practice is not advisable and should be discouraged.

If a project is delayed how do you amend the preliminaries value in the next IV?
Pro-rata
Find out the delay
Award extension of time, isolate time related element and apply them
Isolate fixed cost then time related cost.
Time related element x delay

Who is responsible for assessing the amount due under NEC3? Can this be changed, if so
how and why?

Project Manager
Contractor can issue an application in accordance with the Contract? And if not paid then the Contractor may
suspend all or part of the work
Adjudicator

How is the PWDD valued under Option A ?

PWDD is an activity schedule provided by the contractor. Total price of the activities completed. The Price for
Work Done to Date (PWDD) is the total of the activities completed at the lump sum Prices for each of the
activities in the activity schedule. The Contractor is paid for only those activities or groups of activities which
have been completed. There is no provision for payment of partly completed activities. It is important that the
Contractor, when compiling the activity schedule, defines activities completion of which can be clearly
recognised.
The Price for Work Done to Date (PWDD)

How does the MC receive payment for preliminaries under NEC3 option A? How does the MC
receive payment for materials on site under NEC3 option A?
Activity Schedule under Option A this document is a series of lump sums, and payment is
only due if the activity is completed (similar to milestone payments). Careful consideration
of the Activity Schedule will maximise the contractors cash flow within interim payments.

Under Option A, unless the Contractor has Activities on the Activity Schedule which specify materials
on / off site with a figure against them, the Contractor will not be entitled to payment for them, and
will then have to wait for payment until the Activity is completed.

What is unusual about how the PWDD is valued under options C - E? How is this usually
managed?
Defined Cost + Fee
C,D & E = Amount due to SC + cost of Schedule of
Cost Components less any Disallowed Costs

What are the requirements for provisional sums under NEC ?

NEC3 Contracts do not provide for the use of provisional sums on the basis that if you cannot clearly define an
aspect of the works, you should not include it in the contract because the Contractor will have no clear idea of
what he is pricing for or what should be included in his programme

If provisional sums are unavoidable (such as when it is necessary to secure an overall budget for a project), the
Employer should put as much information about the unknown items in the Works Information as possible at
the outset and update the Works Information as soon as the final requirements are known.

What are the optional X clauses in relation to payments that can be used?

Explain the fundamentals of a contract agreement.

Offer/Agreement:
Consideration
Acceptance
Mutuality .

What is the difference between an estimate and a quotation?

Estimate is basically a guesstimate or rough, educated guess based on what a job MAY cost. Often it is
supplied either before you know all the details of a particular piece of work (such as during an initial call from a
prospective new customer) or during a site visit.
A quote (or quotation) is an exact price for the job being offered. As such it is fixed and CANNOT be changed
once it has been accepted by the customer (unless the customer changes the amount/type of work required or
you discover something completely outside of the scope of what was agreed).

What date is usually used as the Base Date, and why is this date important?
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. 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.

Explain the difference between a contract under hand and a contract as a Deed
Contracts may be executed under seal (signed by the parties, witnessed and most importantly made clear that
it is executed as a deed - see below) or under hand (a 'simple contract' that is just signed by the parties).
Firstly, simple contracts and contracts under seal have different limitation periods. 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.
Secondly, unlike a simple contract, a contract under seal does not have to be supported by valuable
consideration.

What is the difference between a condition and a warranty in a contract? Give an example
For example, where a collateral warranty consists of unilateral undertakings by one party, the contract must
be a contract under seal if it is to be enforceable. It is important to note that whilst consideration is not
necessary for a contract under seal in the absence of valuable consideration and, arguably, in the absence of
something more than mere nominal consideration, the remedy of specific performance will not be available in
respect of the contractual undertakings (See Milroy V. Lord).

What is the difference between reasonable skill and care & Fit for purpose?
A contractual obligation to carry out works or services with reasonable skill and care creates a performance
obligation which is similar to the standard of care in negligence.

In a construction context, this means that a contractor is effectively guaranteeing that the components and
the finished building will be fit for their intended purpose

Identify the various certificates that may be issued under a JCT 2011 Standard Building
Contract (with Quantities) For each certificate, outline their legal implications.

What are the main issues in relation to time within a contract?

Commencement Possession Defer Sectional possession Progress Completion Sectional completion
Partial possession Delay Extensions of time

What is meant by the term 'regularly and diligently'?

How quickly or otherwise a contractor must carry out his works. For example can he start slowly, provided he
catches up towards the end of the project and completes by the date for practical completion? This is
important, particularly in the current economic climate, when both parties to a contract will keep a close eye
on performance and cost, with some employers quick to allege delay.

Many standard form contracts get round this by including an express obligation that the contractor must
proceed regularly and diligently with his works. But in the absence of such an express clause, can the
employer say one should be implied? If such a term is implied, it enables the employer to allege delay if he
thinks the contractor is not proceeding quickly enough (and so claim damages).

What happens if no date for completion is inserted in contract?

LDs will not be chargeable. For this reason, construction contracts will include a fixed completion date which
may be extended.
 What is the difference between sectional completion and partial possession?
Partial possession requires the contractors agreement to allow the employer to use part of the works for their
intended purpose before practical completion of the whole of the works.
Sectional completion is a term used to describe either practical completion of a section or the completion of
the whole of the works under the building contract in sections. It differs from partial possession in that it is
pre-determined and addressed in the contract documents.

What are the effects of a practical completion certificate (JCT SBC11) explaining the meaning
/ consequence of each one?

Practical completion
The contract administrator certifies practical completion when all the works described in the contract have
been carried out. Practical completion is referred to as 'substantial completion' on some forms of contract.
Certifying practical completion has the effect of:
Releasing half of the retention (an amount retained from payments due to the contractor to
ensure that they complete the works).
Ending the contractor's liability for liquidated damages (damages that become payable to the
client in the event that there is a breach of contract by the contractor - generally by failing to complete
the works by the completion date).
Signifying the beginning of the defects liability period.
Documentation that should be issued to the client on certification of practical completion might include:
A draft building owner's manual.
A building user's guide.
The health and safety file.
The building log book.
A construction stage report.
Once the certificate of practical completion has been issued, the client takes possession of the works for
occupation.
There is no absolute definition of practical completion, and case law is very complex. There is some debate
about when practical completion can be certified and whether it can be certified where there are very minor
(de minimis) items 'not affecting beneficial occupancy' that remain incomplete.
It is important to note however, that the defects liability period, which follows certification of practical
completion, is not a chance to correct problems apparent at practical completion, it is the period during which
the contractor may be recalled to rectify defects which appear following practical completion. If there are
defects apparent before practical completion, then these should be rectified before a certificate of practical
completion is issued.

What significance does a programme have under NEC3? What are the sanctions available if an
accepted programme is not submitted?
starting date, Key Dates and Completion Date

Planned Completion

order and timing of the operations which contractor plans to do

 provisions for float

provisions for time risk allowances

dates when in order to provide the works the Contractor will need access to any part of the site,
acceptances, Plant and Materials provided by the employer, Information from others

any other information that is requested within works information

statement of how the contractor plans to do the work identifying principal equipment and resources which
he plans to use

Without an accepted programme the assessment of all compensation events is taken out of the hands of the
contractor altogether. The project manager is required to reject all compensation event quotations and make
his or her own assessment of each compensation event

If the contractor doesnt issue a programme, Either the contractor is disorganised and has no control of
progress, or the contractor has a programme that it does not want to show you.

Why do we have extension of time mechanisms in building contracts?

Extension of time EOT in construction contracts
Construction contracts generally allow the construction period to be extended where there is a delay that is
not the contractor's fault.

What is the difference between the Date for Completion and the Completion Date?(JCT)
Most construction contracts set a date by which the works described in the contract must be completed. This
is not the date by which all obligations under the contract have to be discharged, but the date by which
'practical completion' must be certified. That is, the date by which the works have been completed and
the client can take possession of the site, albeit there may be very minor items outstanding that do not
affect beneficial occupancy by the client.

What is a time risk allowance (TRA)? What is the difference between TRA, terminal float and
activity float?
The term float is used to describe the amount of time that an event or activity can be delayed without
delaying the overall completion of the works. Float is calculated by subtracting the time necessary to perform
a task from the time available to perform it.
There are a number of types of float identified in NEC contracts:
Total float: The time an activity can be delayed from its early start date without delaying the
planned completion date.
Terminal float: The difference between a contractors planned completion date and the
completion date set in the contract.
Time Risk Allowance (TRA).
TRA is the amount of time allowed by the contractor in programming activities to allow for the risk of delay
should problems arise. This might allow for risks such as poor weather and inefficiencies on site that have a
reasonable probability of occurring but are not significant enough to merit inclusion in the risk register.

Who does this float time belong to in JCT SBC 11 and why? Who does this float time belong to
in NEC3 and why?
It is sometimes argued that if a contractor programmes to complete a 12-month contract in 10 months, the 2
months are the contractors float.

If work is omitted from the project can the Date for completion be brought forward? Why?
 No,

If the MC does not complete by the completion date, what must the CA do? Why?
Certificate of non-completion Cl 2.31 Time is of the essence Right to terminate or Liquidated damages
Delay Damages
liquidated damages clause providing for the contractor to forfeit a stipulated sum to the owner for each day
of delayed completion

What is a global claim?

global claim is one which arises when the contractor has suffered loss caused by a number of different events,
but is unable or unwilling to identify the quantifiable amount of loss caused by each different event. The
contractor therefore rolls up his claims into one global claim.

Name some situations when a client has a right to make a claim (damages) against the
contractor.

Liquidated damages.

Claim for investigation, area of brick wall then need to replace and pay for the inspection

Termination of contract

What is the general principle of damages?

It should put the injured party in its original state before breach of contract.

Claims can be Damages arising out of breach of contract Loss and/or expense Other matters

What happens if NIL is inserted in the Appendix as the rate for liquidated damages?
parties have agreed that there should be no entitlement to damages, including general damages, for delayed
completion.

If the amount of LADs is too low can the Employer decide to refuse to collect LADs and claim
unliquidated damages?
What are LADs?
A fixed sum specified in a contract, payable in certain circumstances where there is a breach. In construction
contracts this is typically when there has been a delay to completion.
Why are LADs included in building contracts?
Employers see them as a mechanism to encourage the contractor to keep to programme. If the contractor
doesnt (and an EOT is not granted) LADs can be levied to allow the employer to recoup some of his losses.
LADs also avoid the
expense of having to prove actual loss.
There are also benefits to contractors by enabling them to quantify their exposure/risk in the event of delay
which they can then price, rather than being left to face unknown and potentially unlimited losses should a
claim for unliquidated damages against them succeed.
The penalty rule
A penalty levied for late completion (as opposed to a genuine pre-estimate of the employers loss for late
completion) is seen by the courts as wholly unenforceable.
Unliquidated damages are sum of money that cannot be foreseen or assessed by a fixed formula. It is
established by a judge or jury. Damages may be categorized as unliquidatable when the amount of damages is
unidentifiable or subject to an unforeseen event that makes the amount not calculable

What are liquidated damages? What does the employer have to do to levy liquidated
damages?
if the contractor fails to complete the works by the date for completion (original or extended), then the
contractor shall pay to the employer LDs for every day between the date for completion and the date
completion is certified. The clause then provides that the employer may deduct the LDs from any monies due,
or which may become due, to the contractor.
as soon as the time for completion has passed, and the contractor has not completed the works, the employer
will be entitled to deduct LDs from any amount due (or which will become due) to the contractor

What are the advantages and disadvantages of LADS?

First, they establish some predictability involving costs, so that parties can balance the cost of anticipated
performance against the cost of a breach. In this way liquidated damages serve as a source of limited
insurance for both parties. Another contractual advantage of liquidated damages clauses is that the parties
each have the opportunity to settle on a sum that is mutually agreeable, rather than leaving that decision up
to the courts and adding the costs of time and legal fees.

Saves time and money

Doesnt need to go to court
Amount of damages is known by both parties and they can plan ahead and factor in this

The major downside to a liquidated damages clause is that it may turn out to be grossly disproportionate to
the actual damage incurred by a party--either too small or too large

What is the difference between liquidated and unliquidated damages?

If the contract prevents the client claiming liquidated damages, or if actual losses are significantly different to
those that were estimated at the time the contract was entered into, then the client may pursue a claim for
unliquidated (i.e. actual) damages through the courts. This would require them to prove that an actual loss had
been incurred and that loss was not too 'remote'.

As a contractor what factors would you consider when deciding whether to claim for
damages/EOT through the contract or through common law?

The cost recoverable by the Contractor must therefore follow the common law damages rule. This relies on
showing that the damage flows from the breach, or the cost flows from the event complained of.

The term time at large concept describes the situation where there is no identified date for completion, either
by absence from the contract terms or arising from events and the operation of law. Time is said to be at large
because the time or date for completion is not fixed before carrying out the work, but determined after the
work has been completed.

If the MC carries out defective work what is the basis of calculation that the Employer will
receive as damages.
Essentially, unless the claimant can show that he has suffered a fi nancial loss, he will be entitled only to
nominal damages. Where the claimant has suffered fi nancial loss, then money will be able to do this relatively
easily. So, for example, the usual measure of damages for defective work or materials is either the diminution
in value of the property which results from the defects, or the cost of putting the defects right, subject to
considerations of reasonableness and mitigation of loss.

Give some examples of how liquidated damages could be calculated for the following
projects:-
 new 4* hotel
Direct Costs incurred under the Contract

B) Lost Revenue and Profit

C) Additional Project Administration Costs

D) Damages and Penalties to which they may be liable

E) Interest and Financing Costs

F) Cost Implications to third-party contracts

G) Losses for Tax or Investment Incentives

Rental
damages could be calculated on the loss of revenue from rooms and other facilities. The person calculating
damages should consider issues such as occupancy levels, likely room charge rates, income from restaurants,
leisure facilities, etc. and costs that may be saved as a result of delay, e.g. utility consumption. The calculation
should, however, not include any loss of profit as there is no guarantee that the hotel room would have been
in use should the delay not have occurred. This list is by no means exhaustive but the calculation cannot be
based purely on revenue. Other items for consideration include continuing construction supervision costs and
fees, accommodation costs, finance costs, etc

office block

Apartments with retail unit below

the loss of revenue from rooms and other facilities. The person calculating damages should consider issues
such as occupancy levels, likely room charge rates, income from restaurants, leisure facilities, etc. and costs
that may be saved as a result of delay, e.g. utility consumption. The calculation should, however, not include
any loss of profit as there is no guarantee that the hotel room would have been in use should the delay not
have occurred. This list is by no means exhaustive but the calculation cannot be based purely on revenue.
Other items for consideration include continuing construction supervision costs and fees, accommodation
costs, finance costs, etc. It is, however, more difficult to calculate damages for civil engineering projects such
as roads, e.g. to put a financial value on the loss incurred from not having a road upgrade available. It may also
be more difficult for a contractor to calculate the level of damages to apply within a sub-contract. The
contractor will need to consider if the sub-contractor being late will affect other trades and/or have an impact
on the overall completion of the project. The damages may then become disproportionate to the value of the
works covered by the sub-contract. Contractors may, therefore, choose to enter into sub-contracts with
unliquidated damages

Name some situations when a Main contractor has a right to make a claim against the
Employer (damages)
Claims may arise due to various failures to effectively manage the procurement process such as: failing to
adequately plan the project at precontract stage; providing inadequate information at the time of tendering;
using inappropriate tendering procedures; ordering extensive variations on site; employing deficient
nomination procedures, and causing delay due to other design team deficiencies. Risks and unforeseen events
also give rise to claims.

The employer used there own subcontractors and they caused a delay which effected the whole project.

What is a concurrent delay? There are a number of ways to deal with concurrent delays.
Explain the following:-
Concurrent delay refers to the complex situation where more than one event occurs at the same time, but
where not all of those events enable the contractor to claim an extension of time or to claim loss and expense.
For example, the contractor may already have been delayed through their own fault, when another event
occurs for which the client is at fault.

1st in line approach. First occurring event of 2 overlapping is the one which cause the
critical delay.

the Malmaison approach

it is agreed that if there are two concurrent causes of delay, one of which is a relevant event, and the other is
not, then the Contractor is entitled to an extension of time for the period of delay caused by the relevant
event notwithstanding the concurrent effect of the other event Thus, to take a simple example, if no work is
possible on a site for a week not only because of exceptionally inclement weather (a relevant event), but also
because the contractor has a shortage of labour (not a relevant event) and if the failure to work during that
week is likely to delay the works beyond the completion date by one week, then if he considers it fair and
reasonable to do so, the architect is required to grant an extension of time of one week. He cannot refuse to
do so on the grounds that the delay would have occurred in any event by reason of the shortage of labour.

What is meant by the term "culpable delay"?

Part of the delay for which the client is responsible

If the contractor is in culpable delay can he claim an extension if extremely adverse weather
occurs? Why?

Yes because it is an event which neither party has control over.

If the contractor is in culpable delay can he claim an extension if the CA issues an instruction
(variation)? Why?

Define the term Practical Completion.

Generally, it is the point at which a building project is complete, except for minor defects that can be put right
without undue interference or disturbance to an occupier.
The contract administrator certifies practical completion when all the works described in the contract have
been carried out. Pr

What is the difference between disruption and prolongation claims?

Prolongation' refers to a claim for damages by a contractor for the additional costs it has incurred as a result of
delay, such as hire of plant, additional labour costs, off-site overheads and loss of profits

Detail the various heads of claim when producing a loss and expense claim and provide
examples of how each item may be quantified. (Please note I am not going all through the examples here
but you will need to provide some if asked in the presentation)
Prolongation costs 'Prolongation costs' is the shorthand term applied to the costs of additional on- and off-site
Increased site overheads In short, this head of loss relates to additional labour, utilities, and plant that is
required on site for a longer period than the contract anticipated
Increased office overheads As all contractors are engaged in running a business, they will have overheads as a
matter of. However, delays or disruption to works may mean that the contractor is precluded from diverting
such overheads to new projects
Loss of profit
Increase in cost of materials
Disruption costs
 What would you claim if you received an instruction to divide a room into 2 separate rooms
when the project was almost complete?

Extension of time / variation

Can the cost of producing the claim be included within a loss and expense claim? Why?
Claims are restricted to 'direct' loss and expense and so 'consequential losses' (such as lost production) are
generally excluded.
he costs of preparing the initial claim are not recoverable, but if the architect, contract administrator or
engineer fails to respond to the claim, or makes an unjust award under the terms of contract, this would
constitute a breach of contract and costs incurred in pursuing the claim from this point onwards would be
recoverable

How can a contractor claim for disruption?

A contractor may make a claim against the employer for more time and money (loss and expense) and for the
cost of changes to the works .

Why are overheads and profit difficult to claim?

The contractor must prove, on the balance of probabilities, that if the delay had not occurred
it would have secured new work or projects, which would have produced a return.
Using a formula, such as the Hudson or Emden formula, is a legitimate way of
determining entitlement on the balance of probabilities.

What does the MC have to demonstrate within a L&E claim.

How does NEC3 deal with unforeseen ground conditions on site? Explain how the clause
operates?
Both NEC 3 and the ICE Form of Contract entitle the contractor to the cost of and time spent in dealing with
unexpected physical conditions (which includes ground conditions) regardless of whether any of the contract
documents have to be changed in consequence. Under NEC3 risk lies with the contractor unless he encounters
physical conditions within the site. Physical conditions are defined as conditions (not weather conditions)
which an experienced contractor would have judged at the contract date to have such a small chance of
occurring that it would have been unreasonable for him to have allowed for them
The contractor is assumed to have taken into account the Site Information and publicly available information it
refers to, information obtained from visual inspection of the site and other information an experienced
contractor could reasonably be expected to have or obtain

How are inconsistencies/discrepancies in the site information dealt with?

NEC3 does not include a core clause that deals with the priority of contract documents, as a result of which
there is a risk that a provision in another contract document could take precedence over the Conditions of
Contract. Clause 17.1 provides some comfort by obliging the contractor and project manager to notify the
other if they become aware that there is an ambiguity or inconsistency in any of the contract documents, in
which case the Project Manager gives an instruction resolving the ambiguity or inconsistency. However, this
falls far short of a priority of documents clause which would deal with such a problem before it arises.

How does NEC3 deal with delays or costs incurred by extremely adverse weather conditions?

What is the difference between assumptions and forecasts?

How do costs submitted by a MC for a compensation event under NEC differ to those
submitted under a claim for loss and expense (JCT 16 SBC/WQ)?

Do NEC3 contracts have a provision for "force majeure"?

the NEC does not even mention the words force majeure but provides for it all the same. It disucusses this in
clause 19 and last bullet point of the compensation even
 Does NEC allow Global claims?

What is the procedure for notifying CE?

Is there a time bar for the MC for notifying a CE?

If the MC does not agree with a PM decision, what can he do?

Why might you advise a PM to make an assumption when issuing a CE?

What are the responses a PM can make to a CE notification from the MC?

If the MC failed to submit an early warning notice for a CE later notified what should the PM
do? What will the MC be entitled to?

A client is looking to undertake construction works. This is the first project they have ever
undertaken. They ask you what advantages the use of a standard form of building contract would have
over a bespoke contract. How would you guide them?

What would you do if on the way into work you heard a rumour that the main contractor on
a project you were working on had gone into either administration or liquidation?

A Contract Administrator has to decide whether a contractor is proceeding regularly and diligently. To
ensure that the CA does not advise the Client to terminate the contract unreasonably, what would you advise the CA
to base his decision on?

What are the reasons why a MC may terminate the contract?

What are the reasons why an Emp may terminate the contract?

What does the term repudiation mean?

Is it true that a MC can walk off site if the Emp fails to pay?

One of the reasons for termination by the Emp in NEC3 is Termination for any reason. Are there any
problems with this? Why do you think it is included?

Is the sub-contractor obliged to work in accordance with the actual progress of the main contractor's
Works?

The contractor has gone into liquidation and the heating sub-contractor says it is going to remove all the
loose piping stored on site and take away the radiators fixed in the building. Can it do that ?

Can you describe the difference between Novation, Assignment and Sub-contracting?