On demand bond – a form of Performance security ; it takes the form of a promise by a guarantor (usually a bank or insurance company) to pay a specified sum to a third party (usually the employer) on the occurrence of a specified event (usually a breach) without the employer having to sue the contractor and prove the breach.
on the basis that they are entitled to rely on their common law rights, whereas design team members argue for its inclusion because it is unfair to transfer to them the litigation and insolvency risk of recovering contributions from other members of the design team. Nominated subcontractor – a subcontractor specified (or ‘nominated’) by the employer to carry out certain, usually design, works. The employer is thus able to control choice of subcontractor, but has no direct contractual relationship. The main contractor is compelled to appoint the subcontractor and often take responsibility for its work, although it has no free choice in the selection. If problems arise, and a re-nomination is required, this may lead to claims for an Extension of time . It is unsurprising that this procurement method is now rarely used. To be distinguished from a Named subcontractor . Novation – where a party to a contract is substituted for another party with an involvement or interest in the project. The incoming party will take on all the rights, obligations and liabilities of the outgoing party. This arrangement is effected by using a Deed . It is most often associated with design and build procurement where the employer will appoint a design team to produce a preliminary design, and the design team is then taken over by the contractor to complete the design. The design team are novated to the contractor, so that their obligations are no longer owed to the employer, whose shoes the contractor has effectively stepped into. Care has to be taken when drafting novation provisions to ensure that the design teammembers owe a duty of care to the contractor as if they had always been appointed by him, otherwise, the contractor may find that he is unable to claim for breaches occurring prior to novation because the loss was suffered by the employer, not him ( Blyth & Blyth Ltd v Carillion Construction Ltd [2001] ).
Parent company guarantee – this is provided by the parent or holding company of a contractor and guarantees the proper performance
of the contract so that if the contractor is in breach, the parent company guarantor will be obliged to remedy the breach and complete the works to the standard originally specified and/or pay damages in compensation. As such it differs from a Performance bond , which will provide financial compensation but cannot achieve completion of the works. Pay less notice – a notice which is required by the Construction Act if an employer wishes to pay less than the amount certified in the Payment notice . The parties are free to agree when the pay less notice is to be served, but it must be served prior to the Final date for payment . Payment notice – following submission of a payment application by the contractor the Construction Act requires the employer to serve a payment notice notifying the contractor of the payment the employer intends to make. If the employer fails to serve such a notice, the contractor’s application may serve as a default notice i.e. he will be entitled to the full amount of his application unless a Pay less notice is served.
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