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What are the three ways that benefits can be transferred under JCT contracts?
1) Collateral warranties2) Third party rights3) Assignment
What are collateral warranties?
Create contractual relationships between parties where there would otherwise not have been any. They are alongside another agreement
Why are they used?
Privity of contract means the rights and obligations under a contract can only be enforced by a party to that contract, thereforecollateral warranties give remedies to parties that otherwise would not have them.
Who might want a collateral warranty?
Any third party with a financial stake in a project but not party to the main contractE.g. funding institution, house buyersEmployer may want a collateral warranty with key subbies (M&E) or suppliers, else if main contractor goes bust no contractual link for redress in case of defective workmanship etc
How are they requested?
They should be notified to the tenderers at the time of tender
Part 2 7C and D is where the number and nature of the collateral warranties should be stated
What are the common clauses / terms in collateral warranties?
Obligations should mirror main agreement - therefore a breach of the main agreement would also be in breach of the warrantyLimitation of liabilityReasonable skill and care v fitness for purposeRequirements for PI insuranceAssignment rightsNovation rights
Name some standard forms of collateral warranty that may be used?
CWa/F – JCT standard form of collateral warranty for a funderCWa/P&T – JCT standard form of collateral warranty for a future purchaser or tenant
How has the contract (rights of third parties) act changed the situations regarding rights under contracts?
It has significantly changed the traditional principle of privity of contract, whereby obligations can only be enforced by the parties to a contract
What contracts does the act apply to?
All contracts made after the 11 May 2000
What has been the impact of the Act?
Initially the response was suspicion – new – not much case law – not tried and tested etcBUT JCT now includes provisions to allow third party rights to be grantedEvidence that they are starting to be used in the industry
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