The Contract Practice competency is a vast subject area and can seem overwhelming when working towards your APC. Candidates should aim to focus the majority of their revision on the specific forms of contract they have used and from my experience of helping colleagues pass their APC over the last 9 years, I compiled the following questions & answers based on past interviews and really hope you find this a useful revision tool.
The following questions & answers are focused on the Contract Practice competency
Question) What elements must be in place in order for a Contract to be formed?
Answer) A contract must include the following key elements:-
- Capacity.
- Intent.
- Consideration.
- Lawfulness.
- Offer.
- Acceptance.
- Clarity of the Terms.
Question) How would you respond if the client advised you that the liquidated damages needed to be set at £100,000 per week?
Answer) I would check that the liquidated damages figure is based on a genuine pre-estimate of financial loss and explain that in the event that damages are to be applied, they would need to substantiate this figure. I would also explain that if the figure inserted into the contract is shown to be punitive and not based on genuine financial loss, it is not likely to be enforceable. In this scenario, the employer would have to pursue the main contractor for any actual direct loss that can be substantiated through a formal dispute resolution procedure.
Question) Please explain your understanding of the term, ‘extension of time’?
Answer) Extensions of time adjust the completion date and relieves the contractor’s liability to pay liquidated damages for the period of the extension.
Question) What are liquidated damages?
Answer) They are a genuine pre-estimate of the likely loss incurred by the employer should the completion date not be met.
Question) What items must be in place before liquidated damaged can be deducted?
Answer) The following must be in place prior to levying liquidated damages:-
- A non-completion certificate.
- A payless notice.
Question) Please explain your understanding of the term, ‘time at large’?
Answer) Time at large refers to a moment in time when there is no set completion date. This can happen when the practical completion date elapses without a formal notice being issued under the contract to record this and set a new completion date. In this scenario, the contractor only has the obligation to complete the works in a reasonable time. Liquidated damages cannot be claimed as there is no date to apply them from and the employer would have to try and prove that the contractor had not completed in a reasonable time.
Question) Please explain your understanding of the term, ‘frustration of contract’?
Answer) Frustration occurs when any event or circumstances beyond control of both parties changes the contractual obligations or makes it impossible or illegal to fulfil their contractual obligations. The happening of such events automatically discharges the contract.
Question) How is a contract executed under hand different from a deed?
Answer) A Deed is signed by a witness & traditionally authenticated by a seal. The contract limitation period of a contract executed under hand is 6 years whereas a deed is 12 years.
Question) What is the defects liability period?
Answer) The defects liability period is the duration at the end of the contract, usually 52 weeks after the Completion Certificate has been issued whereby the contractor undertakes to rectify any defects that arise within the structure at the contractors expense. These are undertaken providing that they were due to materials & workmanship not being in accordance with the contract. In the event that the contractor failed to rectify any defects, the employer may employ another contractor to carry out the works & recover the cost of doing so from the Main Contractor. The retention money retained may be used to cover the costs of making good these defects.
Question) In the event of a discrepancy between the employer’s requirements and contractor’s proposals, which document would prevail?
Answer) As the Contractor’s Proposals are submitted in response to the Employer’s Requirements, the Contractor’s Proposals would take precedence.
Question) What is a bespoke contract?
Answer) Contract conditions that are drafted specifically for a particular project. These are tailored in order to meet the unique requirements of the parties involved. Unlike standard forms these often require the input of a skilled legal advisor.
Question) What are the advantages of standard forms of contract in comparison to bespoke forms?
Answer) Standard forms are written by legal experts with the rights and obligations of each party clearly set out. Risks are clearly allocated between the parties and often the parties are familiar with the provisions in the form which provides greater consistency in application and fewer unforeseen anomalies. The time and expense of preparing a new form for each project is significantly reduced. Case law is also built up over time and provides a good source of knowledge and clarity of the terms.
Question) What are the disadvantages of standard forms of contract in comparison to bespoke forms?
Answer) Apportionment of risks is rarely questioned and therefore becomes implicit, this results in the allocation of risk not being reviewed on whether it is appropriate. The terms within standard forms may not be appropriate to the needs of a particular project or client. Using an inappropriate standard form for the project will cancel out any advantages.
Question) When would you look to use a bespoke contract rather than a standard form?
Answer) They should generally used for major projects with novel obligations. When specialist advisors can undertake the amendments as this requires great skill and knowledge. Drafting from first principles is too daunting for most in the industry.
Question) Please explain your understanding of the term retention of title?
Answer) This legal term allows the sub-contractor or supplier to retain ownership of materials until they are paid for by the main contractor. This highlights the importance of vesting certificates as the employer may subsequently pay for materials that are not owned by the contractor. This legal principle can lead to disputes in the event of insolvency.
Question) What are collateral warranties?
Answer) They create contractual relationships between the main parties of a contract with an external third party. The contractual relationship would not otherwise exist with the third party due to privity of contract.
Question) Who might want a collateral warranty?
Answer) Any third party with a financial investment in a project but not party to the main contract. Funding institutions, future tenants or purchasers may use collateral warranties. The employer may want a collateral warranty with key subcontractors or suppliers, as if the main contractor were to go into liquidation they would have no contractual link with them for redress in the case of defective workmanship.
Question) Please explain your understanding of the term, assignment?
Answer) Assignment is where the rights and benefits of one contractual party are transferred to a third party.
Question) What is the standard commercial position regarding assignment?
Answer) It is standard to allow assignment of rights twice without consent. The assignment should be notified in writing to the other party.
Question) What is novation and how does this differ from assignment?
Answer) Novation is where a new contract transfers the rights and obligations of one contractual party to a new third party. Assignment is the transfer of contractual rights or contractual benefits only as burdens cannot be assigned.
Question) What is the key issue after a design team has been novated?
Answer) A common issue is whether the new party has the right to take action against the novated party for any breaches that occurred before the novation.
Question) How does novation affect the employer’s rights?
Answer) They lose all contractual relations with the novated party and therefore the right to take action for a breach. It is therefore common for there to be a collateral warranty between the employer and novated party.
Question) What does ‘JCT’ stand for?
Answer) Joint Contracts Tribunal.
Question) What are the main parts of JCT contracts?
Answer) JCT contracts are made up of the following key sections:-
- Recitals.
- Articles.
- Contract Particulars.
- Attestation.
- Conditions divided into 9 sections.
- Schedules.
Question) Can you provide a high level overview of what the sections contain?
Answer) The sections are made up of:-
- Definition and interpretation.
- Carrying out the works.
- Control of the works.
- Payment.
- Variations.
- Injury, damage and insurance.
- Assignment, Third Party Rights and collateral Warranties.
- Termination.
- Settlement of disputes.
Question) Please provide an overview of the main types of JCT contracts?
Answer) The JCT forms consist of:-
- Minor works.
- Intermediate.
- Standard building contract.
- Major Projects.
- Design and Build.
- Prime cost contract.
- Measured Term contract.
- Construction Management Agreement.
- Management Contract.
- Framework Agreement.
Question) When would you use JCT Minor Works?
Answer) A minor works form would typically be used on projects that are short in duration, on a small scape with a straight forward construction. JCT guidance advises these are used for projects with values up to £200,000. These contracts are made on a fixed price, lump sum basis where design should be completed prior to execution. The Employer or the Employer’s design team is responsible for providing specifications, drawings and a schedule of works.
Question) When would you use a JCT Intermediate Contract?
Answer) The Intermediate form is recommended for projects that do not exceed a one year duration. The project should be simple in content and require only basic skills and trades where services are not complex and where the works are already designed.
Question) When would you use a JCT Standard Contract with Quantities?
Answer) A JCT Standard Building Contract would be used where the work has already been designed at execution. It is suitable for use with a bill of quantities and is a lump sum form. The contractor’s risk is limited to price only, the employer would retain the risk of errors within the bill of quantities.
Question) What are Relevant Events in a JCT Form of Contract?
Answer) They are events that entitle the contractor to an extension of time.
Question) Please name some of the relevant events you are aware of?
Answer) There are 13 relevant events set out in JCT forms including:-
- Variations.
- Instructions.
- Deferment of possession of the site.
- Suspension by the contractor for non-payment.
- The carrying out of work by statutory authorities.
- Impediment, prevention or default by the employer.
- Loss or damages occasioned by the Specified Perils.
- Exceptionally adverse weather conditions.
- Strike or lock out.
- Civil commotion or terrorism.
- Force majeure.
Answer) When pricing an EOT, I would include costs for prolongation of site cabins, site utilities, welfare facilities, management staff, security, cleaners, inefficient use of labour & plant resources, subcontractor mobilisation costs, head office, finance charges & loss of profit.
Question) What are the different certificates you are aware of under JCT forms of contract?
Answer) Certificates typically issued under JCT forms of contract include:-
- Interim certificates.
- Practical completion or sectional completion certificates.
- Non completion certificates.
- Certification of Making Good.
- Final Certificate.
Question) What is the difference between partial possession and sectional completion?
Answer) Sectional completion is a contractual obligation to hand over the section at the stated date whereas partial possession relies on the main contractor’s consent.
Question) Do the works have to be totally completed before practical or sectional completion is achieved?
Answer) Practical completion is a subjective concept and is not defined in the JCT suites. It is reliant on the architect’s opinion that the works are complete and should not be conditional. It is common practice for PC to be granted when the works are substantially complete however there may be minor defects or omissions with nothing to prevent the employer from taking beneficial occupancy.
Question) What does NEC stand for?
Answer) New Engineering Contract.
Question) What are the Advantages of NEC forms of Contract?
Answer) They are applicable to a variety of procurement strategies and offer greater clarity and simplicity than some of the more traditional forms, this is achieved by:-
- Use of ordinary language with minimal use of complex legal terms.
- They include flow charts to support their use and administration.
- They act as a stimulus to good management through maintaining an up-to-date programme which is required to be clear and precise.
- Provision of early warning procedures and risk registers are also included.
- They require provision of a rolling final account to keep all parties aware of running costs.
Question) What are the Disadvantages of NEC forms of Contract?
Answer) They are often only considered to be used for civil engineering projects and partnerships. They have limited exposure to the market so they are therefore not fully tried and tested with supporting case law.
Question) What are the roles of the parties in the NEC?
Answer) The Project Manager can be from the employer’s organisation or an external consultant. The Project Manager represents the client and has full authority to make decisions, unless the employer has restricted his authority. The PM has the duty to be impartial and to apply the contract. Designers prepare the work information and are not named in the NEC. The supervisor is either from the employer’s organisation or an external consultant. The supervisors role is to check that the works are carried out as described in the contract. They have a similar role to the clerk of works with authority such as instructing searches or issuing defect certificates.
Question) What is the role of the quantity surveyor under the NEC?
Answer) The role of the QS is not mentioned in the contract. The QS can adopt a supporting role to the contractor and PM in order to agree the cost of compensation events despite not being formally referenced. Options B and D involve quantities and measurement. Target costs under options C and D require an audit role in open book accounting which the QS may be responsible for.
Question) How are ambiguities and inconsistencies dealt with under the NEC?
Answer) Under clause 17 they are awarded in favour of the party who did not provide the works information. The PM issues an instruction to vary the works information which is a compensation event.
Question) What is a compensation event?
Answer) Events which, if they do not arise from the fault of the Contractor, entitle the Contractor to be compensated for effect on the Prices, Key Dates and Completion Date. There are 19 compensation events listed in clause 60.1
Question) Please name some of the compensation events?
Answer) There are 19 listed in clause 60.1 which include:-
- Changing the works information.
- Access to the site.
- PM instruction to stop work.
- PM or supervisor not responding to a communication within the timescale stated in the contract.
- Object of value or historical interest.
- PM withholds an acceptance without valid reason.
- Instruction to search.
- Adverse weather.
- Employer’s risks listed in clause 80.1 and contract data.
- PM changes assumptions previously made on compensation events
- Employer’s breach of contract.
Question) What are Early Warning Notices under an NEC contract?
Answer) They are notices given by the PM or the contractor of any matter which could potentially have an impact on cost, completion date, key dates or performance of the works in use. Their purpose is to give the parties sufficient time to consider the options available to prevent or mitigate the issue and collaboratively find the best solution to meet the employer’s interests.
Question) What are the difficulties of assessing interim valuations with an activity schedule under NEC Option A?
Answer) The activity schedule does not describe the works to be done, this is included in the works information. Therefore there is a need to cross reference to understand what works are required for the activity to be fully completed. If the contractor re-sequences the works to meet the completion date, he needs to revise the activity schedule so that the works and methods of working included in each activity are compatible with the programme. He may take advantage of this to disproportionally load some activities. The PM can reject the revised activity schedule in this case.
Question) How is completion defined under the NEC?
Answer) All the works must have been completed as described in the works information (drawings and specifications). The contractor must have done all the works required for the employer to use the works and for others to do their work. All notified defects that may prevent the employer or others to use the works must have been rectified. The PM has one week to certify completion. Clause 35 specifies that the employer should take over the works within 2 weeks of completion, if they take over part of the works, this forms a compensation event.
Question) How does the NEC permit payment by milestones?
Answer) The contractor must group in his tender, their activities by groups of activities which will form the milestones. At each assessment date, the PM assesses the level of completion for each group. Payment is only certified when all activities of the group have been fully completed with no scope for partial payments.
Contract Practice Questions & Answers Free PDF
To receive a PDF copy of the above questions and answers via e-mail please click here