Flashcards in Contract Practice Deck (167)
What are the principles of Contract Law?
What is meant by an offer?
- A promise made by one party which matures into a Contract when accepted by the other party
- An invitation to treat does not turn into a contract; it merely is a stage in negotiations, inviting the other party to make an offer
What is meant by acceptance?
- where a party agrees to the terms of the offer presented by another party, creating a binding contract
- Acceptance must be unconditional (e.g. a signature on a contract of employment)
- Negotiations are counter-offers, not acceptance
- Silence is not acceptance, unless it is clear acceptance was intended (as substantiated by that party's conduct)
What is meant by consideration?
- Parties must exchange something of value for a contract to be binding
- For example, selling their house for £1 is valid consideration. Selling your house for nothing is not.
What is meant by capacity?
- All parties must have the ability to understand the terms of and any obligations under the contract.
- Consent to the contract must be freely given (force, fraud, misrepresentation, inebriation renders the contract void)
- People under 18, under the influence of drugs or those suffering from mental health conditions generally lack the capacity to enter into contracts.
- THE CLIENT/COMPANY MUST HAVE THE CAPACITY TO BE ABLE TO DELIVER THE WORK/PAY FOR THE WORK e.g. I do not have the capacity to enter into a Contract to deliver a £100m scheme because I am one person with £0 capital, no labour etc
What is meant by intent?
- Not all agreements between parties are contracts. It must be clear the parties intended to enter into a legally binding contract
- The person who wants the agreement to be a contract must prove the parties actually intended to enter into a legally binding contract
What is a letter of intent?
- A letter from an employer to a Contractor indicating intention to enter into a formal written Contract for works described
- LOI's are used to begin work before formal contract is executed
What are the three typical ways a LOI will operate?
- Comfort Letter
- Recognition of Contract
- Consent to Spend
What is a comfort letter?
A comfort letter is a non-binding statement of the future intention of both parties
What do Comfort Letters recognising the existence of Contract do?
- Also referred to as a letter of acceptance, it is used by some forms of Contract (e.g. FIDIC) to formally execute the Contract. Generally such a letter will be issued following the agreement of the Contract and marks the completion of negotiations.
- In some cases it can act as an Interim Contract on its own terms, which will govern the relationship between parties unless and until a formal written Contract is executed ?????
What is an LOI with consent to spend?
- Sometimes referred to as an "if" Contract
- Allows work to proceed up to a certain value whilst Contract is being finalised
- Creates a legally binding Contract between parties which pre-dates the principal Contract but will be superseded once principle Contract is executed
What is the HGRCA 1996?
- Housing Grants, Contruction and Regeneration Act 1996
- Applies to all Contracts for "Construction Operations" (incl consultants)
- Intended to ensure payments are made promptly throughout the supply chain and that disputes and resolved swiftly
What rights does the HGRCA give construction professionals?
- Right to be paid in interim, periodic or stage payments
- Right to be informed of the amount due, or any amounts to be withheld
- Right to suspend performance for non-payment
- The right to adjudication
What were the changes to the HGCRA in 2009?
- LDEDCA 2009, local democracy, economic development and construction act saw changes to HGRCA
- Includes all Contracts, including those not in writing
- Withholding notice replaced with pay less notice, altering how the sum to be paid is built up.
List some the Forms of Contract in the JCT suite
- JCT Design and Build 2016
- JCT Standard Building Contract 2016
- JCT Intermediate Building Contract 2016
- JCT Minor Works Contract 2016
- JCT Measured Contract 2016
What are some of the other forms of Contract aside from JCT?
- NEC3 ECC
- FIDIC Red Book (Conditions of Contract for Construction)
- FIDIC Yellow Book (Conditions of contract for Plant & Design-Build)
- FIDIC Silver Book (Conditions of Contract for EPC Turnkey Projects)
What is assignment?
- The benefit of a contract is transferred from one party to another, but the burden of the contract remains with the original party
- Contrast of Novation
What is novation?
- The process whereby both the benefit and the burden of a Contract are transferred from one party to another.
- Requires consent from all parties, usually parties enter into tripartite novation agreement.
What is a collateral warranty?
A way of forming a direct contractual link between two parties with otherwise wouldn't have a link, such as between a sub-contractor and a client.
What is a performance bond?
A means of insuring the client against the Contractor failing to fulfil their contractual obligation
Why might you get a performance bond for a smaller Contractor?
They are more at risk of going insolvent. Less well established, probably are more dependent on credit and good cash flow.
How much is a typical performance bond worth?
10% of Contract Sum
Who issues performance bonds?
What are the two variations of performance bonds?
- Conditional: Client has to prove that Contractor has not performed
- On Demand: No pre-conditions needed to be met. Not often used, seen as too harsh.
How long would you recommend a performance bond should stay in place?
Until the end of the Defects Liability Period.
Name 7 insurances that you may come across in a construction Contract.
- Contract Works Insurance
- Employer's Liability Insurance
- Public Liability Insurance
- Professional Indemnity Insurance
- Terrorism Insurance
- Flood Insurance
- Legal Indemnity Insurance
What is Contract Works Insurance?
- non-standard insurance policy
- coverage for property damage and third-party injury or damage claims, the two primary types of risks on construction projects
What is Employer's Liability Insurance?
Covers compensation if employees are injured or become ill because of the work they do.
All firms that employ staff are legally required to hold Employers Liability Insurance.
What is public liability insurance?
Provides cover against personal injury or death, loss or damage to property of third parties e.g. the general public or sub-contractors