Select And Prepare A Construction Contract Assessment

(i)

The Offer

For a pact to be binding, there ought to be a proposal. An offer is an assertion to accomplish or cease from performing, which is prepared in exchange for a return assurance to do the same. The party who pledges the agreement is known as the offeror and offers a proposal outlining assured footings. 

(ii)

Acceptance of the Offer.

Recognition of an offer is the communication of agreement to its conditions. Recognition must largely be prepared in the way indicated by the proposal. If no method of acceptance is quantified by the proposal, then approval may be made in a way that is rational under the conditions. An approval is only binding, conversely, if the offeree knows of the proposal, the offeree demonstrates a plan to admit, and the approval is communicated as an undisputable and unrestricted contract to the footings of the offer.

(iii)

Consideration.

Every party to an agreement ought to offer something of significance that encourages the other party to come into the contract. The decree calls this exchange of principles “consideration.” The worth traded need not comprise of money. Instead, it may entail of an assurance to execute a performance that one is not lawfully necessary to do or an assurance to desist from an act that one is lawfully allowed to do.

(i)

Small Works from $5,000 – $20,000 contract:

This type of contract is endorsed for vocation works (such as carpentry, painting, tiling), minor add-ons to the existing structure and makeovers, repairs, maintenance and enhancements to suburban possessions up to a value of $20,000. This kind of contract has the least requirements. This can be used for painting and joinery works in Casey’s residence.

(ii)

Small Works over $20,000 contract:

This type of a contract requires a more detailed and extensive home building procedure. This contract is exercised in major renovations, beautification and landscaping and, in construction of recreation facilities such as a swimming pool. This is suitable for beautification and landscaping of Casey’s residence.

(iii)

Cost Plus contract:

This is a type of contract whereby the contractor is paid the incurred cost in the activities carried out plus a certain percentage as a profit. This kind of contract is applicable in the purchase of construction materials and labour used in the construction. This can be used in the purchase of construction materials and the labour to be used.

(iv)

Renovations and Additions contract:

This is a type of contract recommended for renovations of existing structures (such as replacement of roofs and floor tiles) or extensions to the existing building. This type of contract is not applicable in Casey’s residential construction since it’s a new building.

(v)

NSW Residential Building contract:

This is a type of contract that is recommended by Australian standards in construction of new dwellings and for renovations and additions. This type of contract can be adopted in Casey’s residential construction.

C.

Review the Casey plans and then download and complete the nominated sections of the NSW Fair Trading Home building contract for work over $20,000 template, using the specifications below.

(i)

Refer to page 14 of 29 of the contract and complete the ‘Schedule of Progress Payments’ using the following information:

(a)  Item ‘1’ in the ‘Stages of work’ table should include the total ‘estimated cost’ of $368,540.00 for the Casey residence.

(b)  Calculate the ‘Less deposit’ amount at 10% of the overall cost and insert this amount in the second line of the table.

(c)  Insert the following items in the remaining lines of the ‘Stages of work’ table and calculate the amounts of each item – insert in the ‘Amount (including GST)’ column. 

·         Site Establishment and Earthworks  – 10%

·         Floor/Slab – 20%

·         Wall and Roof Framing to lock-up – 30%

·         Fix-out to Practical Completion – 20%

·         Handover, including Landscaping – 10%

(ii)

Explain why you think the ‘Wall and Roof Framing to lock up’ would be 30% of the overall estimated cost (maximum 100 words). 

(

iii)

Refer to page 12 of 29 of the contract and complete the ‘Provisional Sum Schedule’ by inserting the following information:

·         Boring and placement of concrete piers – $5,360.00 for 20.0 metres depth has been allowed. An additional charge of $268.00 for every additional metre will apply.

·         Allowance for Landscaping of $5,000.00.

(iv)

Refer to page 13 of 29 of the contract and complete the ‘Prime Cost Schedule’ by inserting the following information:

·         Toilet pans and cisterns – $589.43 each

·         Bath tub (1 off) – $554.66

·         Vanity units – $378.33 each

·         Porcelain shower bases – $431.78 each

·         Laundry tub (1 off) – $211.21

·         Kitchen sink (SS) (1 off) – $461.47  

·         Polyethylene Slimline 1100 L rainwater tank (1 off) – $2,970.24

·         Hot Water Unit (1 off) – $1049.97

(v)

Prepare a final ‘rise and fall’ amount in the table below, when the Provisional Sum allocations have increased by 20% and the Prime Cost allocations have decreased by 6%. Two examples are provided:

(vi)

List the three mandatory documents that must be included in the contract.

1.    Articles of agreement and conditions of contract.

2.    Bill of Quantities.

3.    Specifications.

(vii)

List three other documents that may also be included in the contract.

1.    Schedules of work.

2.    Insurance policies

3.    Drawings

(viii)

Complete the following statement in relation to defect rectification:

“The contractor must rectify omissions and defects in the work which become apparent within the period of 12 months from the date the work has been completed.”

D.

What are the two main legislative regulations used in NSW that you need to consider when selecting and preparing the contract? 

1. Environmental Planning and Assessment Act 1979 

1. Environmental Planning and Assessment Regulation 2000

E.

List three possible causes for the termination of a contract?

1.    Lack of ability, as well as lack of productivity or poor quality of work.

2.    Noncompliance and correlated issues such as dishonesty or breaking footings and conditions of the contract.

3.    Joint mistake. If parties arriving into a bond are erroneous about the details relating to a contract.

F.

Complete the table below to explain the key terms, clauses and procedures of a valid contract and provide examples of how each works in practice.

Contract item

Explanation of contract item 

Example

Payment schedule

e.g. Specifies the construction stage and the percentage and amount that is required to be paid by client 

Client payments could be scheduled in the contract in line with scheduled compliance inspections with final payment being made at the handover stage. A builder may not ask for more than a 10% deposit paid up front.      

Offer and acceptance

An offer is an exposed call to any person wishing to agree the assurance of the offeror and normally, is castoff for facilities and amenities. Approval happens when an offeree decides to be jointly bound to the rules of the contract by giving consideration, or something of importance like money, to close the deal. 

 Jack’s Construction Company received an order from Yummy Plum Smoothie Shack for the construction of a production plant. Jack has accepted the offer to construct the plant. It is expected that payments will be done according to the terms of the contract.

Breach of contract  

This is a disappointment, without lawful justification, to accomplish any assurance that forms all or part of the construction agreement.

Jack’s Company agrees to construct the production plant for Yummy smoothie plum, and the two agree on the purchase price of $1,000,000. However Yummy company fails to pay Jack’s progressive payments as per the contract. Following, Jack’s company can reasonably assume that Yummy is in anticipatory breach. This enables Jane to file a lawsuit against Yummy for breach of contract.

Prime cost items

This is a budget in the agreement for the supply of essential items not yet finally selected.

for example taps or door furniture.

Provisional sum items

 A budget projected by a cost consultant, for a detailed part of the works that is not yet well-defined in adequate feature for tenderers to precisely price.

Supply and installation of hot water services and floor tiles.

Insurance

  This is a contract, characterized by a policy, in which a contractor receives monetary protection or compensation against damages from an insurance company.

Upon award of the construction of the production plant, Jacks Company insures the project against potential losses.

Defects liability period

A period after practical completion in the course of which a building contractor holds liability under a building contract for dealing with any defects which manifest themselves.

Usually six or 12 months for construction projects

Dispute resolution

This refers to any means applied to solve disputes among the parties involved.

Most of the construction contract disputes are solved in court of laws as per laid terms of the contract.

Practical Completion

 A construction agreement generally outlines practical completion being when all works are finalized, apart from any flaws or oversights which do not stop the structure from being used for its anticipated purpose.

Client occupies the premises upon practical completion of the production plant.

Variations

This is an alteration to the constraint of works in a construction contract in the form of an addition, changeover or exclusion from the original scope of works.

All the variations in construction works are accounted for and lead to addition or subtraction of the total cost of the contract by the client.

Contract Termination

This is process of ending the contract before it is performed by the involved parties.

The construction of production plant for Yummy company was terminated when the company failed to honour the progressive payment schedule as per the contract.

Liquidated damages

The whole amount of payment an aggrieved party ought to receive, if the other party breaks the contract.

Jack’s Company received $50,000 liquidated damages upon failure by Yummy’s company to honour the contract.

Retention sum

A fraction of the sum specialized as unpaid to the service provider on a temporary certificate, which is withheld from the amount due and retained by the client. 

Client retains 5% to ensure that the contractor properly completes the activities required of them under the contract.

Rise and Fall

This is the fluctuations of cost such as provisional and prime cost. The exact cost of the items or services fluctuates against the set cost by the consultant during quotation.

Rise and Fall sums are calculated when the Provisional Sum allocations have increased by 20% and the Prime Cost allocations have decreased by 6%.

1.    Completion of responses to questions A to F

o

2.    Completed NSW Fair Trading contract

o