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Contract Administration (RICS) (Bonds, guarantees, warranties and third…
Contract Administration (RICS)
Bonds, guarantees, warranties and third-party rights
Offers security from risks e.g. breach of contract and insolvency.
Bonds
Types;
Advanced Payment Bond
Retention Bond
Performance Bond
Performance Bonds
- Offers a fund the employer can withdraw if there is a breach of contract, where the contractor has failed to comply with their obligations. Usually
10% of contract sum
Types;
On Demand bond - an indemnity (actual or claimed loss, employer does not have to prove default)
Default bond - a guarantee (second guarantee that interest and principal payments are made, employer has to prove conditions are met)
Contractor obtains from a bank or insurance company. A counter-indemnity is obtained by guarantor from contractor or parent company.
Promise usually by deed (binding), for the bondsman to pay the employer a sum. Only obliged to pay when called to do so.
Parent Company Guarantee
- lowers the risk to an investor in the event of insolvency.
The Contract (Rights of Third Parties) Act 1999
- Provides security to investors and can be used as an alternative to collateral warranties.
Enables 3rd party beneficiaries (investors & subcontractors)to enforce terms of a contract they are not party to.
Collateral warranties
Commencement of works
Construction insurance
Defects
Extensions of time
:watch:
Applied for by contractor - releases them fro delay damages
Payment of any costs caused by a delay is separate and not dependent on EOT
Both parties incur costs;
Employer (LADs - set rate awarded by court) - fees, finance
Contractor - prelims
Entitlement to EOT
Cause of delay
Delay period
NEC3 - Compensation events
Notice required, if not issues results in a breach of contract > damages.
Final account
Final certificates
Letters of intent
Loss and expense
Payment :money_with_wings:
Planning and programming
Practical completion
Rectification period
Taking the brief
Termination
Valuations for interim certificates
Methods of valuing interim payments:
Valuing the quantity completed at stages
Pre-agreed amounts to be paid at certain dates/ milestones (periodic e.g. monthly).
Quantum meruit
The process and terms should be set out in the contract.
Milestones - the basis of valuation should be identified at outset, and is not issued until certification of milestone.They need to achieve cash-flow expectations.
Legislation
Housing Grants, Construction
and
Regeneration Act 1996
the Construction Act
a party to a construction contract in excess of 45 days in duration is entitled to interim or stage payments.
Every construction contract should include provision for interim payments.
amended by the Local Democracy,
Economic Development and
Construction Act 2009
Ensures prompt payments.
Scheme for Construction Contracts
(England and Wales)
Regulations 1998
Role
The responsibilities are defined by the contract type (form).
To administer the contract.
Manage the contract between the client and the contractor.
Does not commence until the building contract is in place. Implied requirement prior.
Employers Agent
- Acts as the CA exclusively for the client & may carry out additiinal duties
Project Monitor
- Protects the Client's interestts by identifying & advisiing on risks on a project that are not under the Client's control.
RICS Guidance
Contract Administration Guidance Note
NEC3
Payment
Construction insurance