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?

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.

Option A
Option B
Option C

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

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

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?

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?

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

What is a bond?
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?

Explain retention bonds and advanced payment bonds how do they work?
 Why must a % for retention be included in Contract Particulars? Why should a
retention statement still be produced?

How do you claim under a retention bond?

What is the difference between the fluctuation clauses under JCT SBC 11?

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

Explain how JCT and NEC3 differ in relation to negative interim valuations and
why?

What are the ways in which a contract sum can be adjusted giving examples under
JCT SBC11?

\What is a Schedule 2 quotation?

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

to a loss and expense claim? Why?

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?

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?

Explain the difference between defined and undefined provisional sums.

What are the valuation rules under JCT 2011?

Can you explain how you value preliminaries for an Interim Valuation (IV) under
JCT SBC 2011?

If a project is delayed how do you amend the preliminaries value in the next IV?

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

How is the PWDD valued under Option A ?

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?

What is unusual about how the PWDD is valued under options C - E? How is this
usually managed?

What are the requirements for provisional sums under NEC ?

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

Explain the fundamentals of a contract agreement.

What is the difference between an estimate and a quotation?

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

Explain the difference between a contract under hand and a contract as a Deed
 What is the difference between a condition and a warranty in a contract? Give an
example

What is the difference between reasonable skill and care & Fit for 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?

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

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

What is the difference between sectional completion and partial possession?

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

What significance does a programme have under NEC3? What are the sanctions
available if an accepted programme is not submitted?

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

What is the difference between the Date for Completion and the Completion
Date?(JCT)

What is a time risk allowance (TRA)? What is the difference between TRA, terminal
float and activity float?

Who does this float time belong to in JCT SBC 11 and why? Who does this float
time belong to in NEC3 and why?

If work is omitted from the project can the Date for completion be brought forward?
Why?

If the MC does not complete by the completion date, what must the CA do? Why?

What is a global claim?

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

What is the general principle of damages?

What happens if NIL is inserted in the Appendix as the rate for liquidated
damages?

If the amount of LADs is too low can the Employer decide to refuse to collect LADs
and claim unliquidated damages?

What are liquidated damages? What does the employer have to do to levy liquidated
damages?

What are the advantages and disadvantages of LADS?

What is the difference between liquidated and unliquidated damages?

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

If the MC carries out defective work what is the basis of calculation that the
Employer will receive as damages.

Give some examples of how liquidated damages could be calculated for the
following projects:-

new 4* hotel

office block

Apartments with retail unit below

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

What is a concurrent delay? There are a number of ways to deal with concurrent
delays. Explain the following:-

1st in line approach

the Malmaison approach

What is meant by the term "culpable delay"?

If the contractor is in culpable delay can he claim an extension if extremely adverse

weather occurs? Why?

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.

What is the difference between disruption and prolongation claims?

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)

What would you claim if you received an instruction to divide a room into 2 separate
rooms when the project was almost complete?

Can the cost of producing the claim be included within a loss and expense claim?
Why?

How can a contractor claim for disruption?

Why are overheads and profit difficult to claim?

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

 The traditional approach to managing change in construction projects is normally
dealt within three separate elements. How does JCT deal with these? How does NEC3 deal with these?

What is the aim of compensation events under NEC3?

How does NEC3 deal with unforeseen ground conditions on site? Explain how the
clause operates?

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

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"?

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?