Experience Sharing on NEC Implementation and its Effectiveness in Hong Kong

KH FokNEC3 ECC Accredited Project Manager

lobowfok@icloud.comMobile: 9819 4463

17 January 2017

Note:

This set of notes has been prepared according to the speaker’s interpretation of the NEC and related documents and is intended for knowledge sharing purpose only. While every care has been taken in the assembly of this material, no responsibility for loss occasioned to any person acting or refraining from action occasioned by or as a result of any material included herein can be accepted by the speaker.

DEVB's website (for access by the construction industry stakeholders)http://www.devb.gov.hk/en/publications_and_press_releases/publications/standard_contract_documents/practice_notes_for_new_engineering_contract_engi/index.html

DevB Webpage: www.devb.gov.hk

Contents in the 120-pages PN

Background Information (Chapters 1 – 3) Pre-Tender Stage (Chapter 4) Tender Stage (Chapter 5) Construction Stage (Chapter 6) Knowledge Sharing (Chapter 7)

This 120-pages PN Part A (a living document) is for ECC only. There will be Part B and Part C for TSC and PSC.

Key Topics in Part A for ECC1. Option selection – A4.2

2. Partnering – A4.3

3. Pain/Gain for target cost contracts – A4.4

4. Pre-tender estimate, contingency and provisional sums – A4.5

5. Tender documents – set of standard documents such as amendments to the NEC clauses, ACC,

etc.

6. Effective project management – A6.1 to A6.4

7. Healthy financial management under target cost contracts – A6.2

8. Cost control and corruption prevention for subcontracting – A6.2

9. Payment checking for target cost contracts – A6.2

10. Equitable risk allocation and management of compensation events – A6.3

11. CSD and alternative proposals – A6.6

12. Performance benchmarking – A6.7

13. Knowledge sharing – 7

34 pages

Coverage in this Seminar

NEC provisions, highlights of the PN and common issues in the following aspects: Time (Programme) Subcontracting Payment Compensation event

Specific issues encountered / anticipated by the participants

TIME (PROGRAMME)NEC provisions, PN Highlights and Common Issues

Time – NEC Provisoins

Cl. 31.1: Contractor submits a first programme; failing in submitting the first

programme, 25% payment reduction (cl. 50.3)

Cl. 31.2: Programme requirements (detailed requirements like float, time risk

allowances, information from others etc.)

Cl. 31.3: Project Manager has 2 weeks to accept the programme. If not

accept, state reasons

Cl. 32 – Onerous requirement for the Contractor to revise the programme

(prospective approach, no longer retrospective); failing in updating the

programme, Project Manager’s assessment of compensation event (cl. 64.2)

Cl. 36 “Acceleration” – Project Manager may instruct Contractor to submit

quotation for acceleration to achieve Completion before the completion date

Time – Cases for Discussion

1. Whether the Contractor’s Programme should include “time risk

allowance” for inclement weather?

2. Can the planned Completion shown in the Contractor’s programme

go beyond the completion date?

3. If the Contractor’s programme shows a duration for design

acceptance different from the period for reply as stated in the

Contract Data, which duration prevails?

Programme Acceptance:

Better have an Accepted Programme in place, otherwise will become a

compensation event (Cl. 60.1 (9) or Cl. 60.1 (6)),

or the Project Manager to make his own assessment of compensation

event(s) under Cl. 64.2

Programme meeting / workshop to ensure mutual understanding

Detailed sub-programme for next 3 months or so

Identify key changes in subsequent revised programmes

“Programme Register” to trace changes of planned Completion and

Completion Date

PN Highlights on Time

SUBCONTRACTINGNEC provisions, PN Highlights and Common Issues

Subcontracting – NEC Provisions

Cl. 26.1: If a Contractor subcontracts works, he is responsible for

Providing the Works as if he had not subcontracted…

Cl. 26.2: Contractor submits the name of each proposed

Subcontractor …

Cl. 26.3: Contractor submits the proposed conditions of contract for

each subcontract … The Contractor does not appoint a

Subcontractor … until the Project Manager has accepted them. …

PN Highlights on Subcontracting

Clause 26 (with amendments) should be followed

Clause C9 of the standard additional conditions of contract sets out the tender

requirements for subcontracting for Options C & D and for compensation events under

Options A & B

Should not prevent the appointment of any proposed Subcontractor on unreasonable

grounds

Project Manager should attend pre-tender meetings

2-stage selection process with alternative designs can be accepted

Ensure competitive tender

Declaration of no linkage

Qualification of tender is not accepted; clarification is needed if there is different

interpretation

PN Highlights on Subcontracting

If insufficient number of return tenders, Project Manager should make decision within

three weeks

If not the lowest tender is proposed, Project Manager should make decision within

three weeks

Practices to ensure a smooth subcontracting process

Benefits from early Project Manager’s involvement in the subcontracting process

Involve Subcontractors in regular meetings during construction

Finalize subcontracts as soon as possible

Discuss whether new Subcontractors will be invited for compensation events with

reasons; if yes, clauses C9 and C11 of the standard additional conditions of contract

should be followed

Subcontracting – Cases for Discussion

4. Will a design consultant be treated as a “subcontractor” in target

cost? How the design fee be recovered – Defined Cost or Fee?

5. Whether the Contractor should follow the subcontracting or

procurement procedures for works / services required at early

construction stage such as hoarding erection, security?

6. Can the Project Manager accept Subcontractor whose tender

return price is not the lowest?

7. If the accepted Subcontractor quits, does a retender process

require or the 2nd lowest tender can be proposed?

PAYMENTNEC provisions, PN Highlights and Common Issues

Payment – NEC Provisions

Clause 1 – definition of terms (PWDD, Fee, Defined Cost, etc.) Clause 5 – payment process (payment applications [as amended],

payment assessment, payment date, etc.) X1 – Price adjustment for inflation× X6 – Bonus for Early Completion X7 – Delay Damages× X14 – Advanced payment to the Contractor X16 – Retention × X17 – Low performance damages X20 – Key performance indicators

PN Highlights on Payment

Project Manager decides the first assessment date (clause 50.1) PAH 25-day rule – payment to the Contractor within 25 days from

the assessment date for contracts using NEC Clause 51.2 – each certified payment is made within three weeks of the assessment date or,

if a different period stated in the Contract Data, within the period stated

Interest – not for corrected amounts in later certificates due to compensation event or other reasons (clause 51.3 [as amended])

X1 Price Adjustment for Inflation – X1.4 for Options A & B and X1.5 for Options C & D

… A total of 34 pages (out of 120) on checking of payments covering:

Start-up procedures Checklists …

Payment – Cases for Discussion

8. There were confusion in payment related to “People” since the

definition has been amended to exclude “management and

supervisory staff”:

Is a land surveying team entitled for payment under “People” of the Schedule of

Cost Components [as amended]?

Is a “procurement team” classified as “management and supervisory staff”?

Is the MPF for “management and supervisory staff” part of the amount due?

9. Are performance tied payments in X20 subject to retention (X16)?

10. Item 23 of the Schedule of Cost Components is deleted. Will the

Contractor be entitled for full payment of the purchased

Equipment?

COMPENSATION EVENTNEC provisions, PN Highlights and Common Issues

Cl. 60.1 – lists 19 situations which are compensationevents if happen

Cl. 80.1 – lists Employer’s risks Clauses 61 to 65 – set out procedures in handling

compensation events

Compensation Event – NEC Provisions

1

2

3

4

Compensation Event – NEC Provisions

(13): Weather measurement worse than that once in ten years (but has been amended to:)

One or more of the following weather conditions: (i) the hoisting of tropical cyclone warning signal No. 8 or

above, or (ii) Black Rainstorm Warning, or (iii) Red Rainstorm Warning, or (iv) Amber Rainstorm Warning, or (v) inclement weather and/or its consequences adversely

affecting the progress of the works.

Compensation Events – Cl. 60.1

(20): A Change in Law as defined in Clause [A1] of the additional conditions of contract.

(21): A shortage of labour which would have been unreasonable for an experienced Contractor to have allowed for at the tender closing date.

Compensation Events – Cl. 60.1

PN’s Highlights on Compensation Event Amendment to cl. 63.4 – time only

Weather (cl. 60.1(13)) – time only for A & B

Unforeseen physical conditions (cl. 60.1(12)) – difference from the Site Information (cl. 60.2)

Shortage of labour (cl. 60.1(21)) – time only

Utility interface (cl. 60.1(5)) – time only

Change in law (cl. 60.1(20)) – as stated in additional conditions of contract A1; X2 not used

Prevention (cl. 60.1(19)) – time only

Change to the Works Information (cl. 60.1(1)) – similar to “variations”; not applicable to Contractor’s

design

Correction to an assumption of a compensation event (cl. 60.1(17)) – assumption made by PM only

Delay by the Employer or Others (cl. 60.1(2) or (5)) – time only

Failure to respond (cl. 60.1(6)) – Contractor’s design, subcontractors procurement

Change in quantities (cl. 60.4 to 60.6) – re-measurement record

Assessment of prolongation costs – time-related resources; to be established early

Compensation Event Delegate’s authority up to HK$300,000

Talk before submission in view of PM’s authority

Cl. 63.1 effect of compensation event – Defined Cost plus Fee; cl. 63.3 Contractor’s risk

For Options A & B – rates or lump sums can be used if agreed but not subject to fee percentage

Assessment should be properly documented in the Project Office for audit

Programme update

Changes to the Activity Schedule (cl. 54.2) – payment follows the adjusted Activity Schedule

Compensation Event – Cases for Discussion

11. EPD’s notification of increasing the waste disposal charges in

August 2016:

Is this a compensation event?

Such increase does not cause additional resources in the physical works. Does

the Employer need to pay Contractor the Fee?

12. What if Subcontractors’ quotations for compensation events do not

follow the NEC’s approach, i.e. not use the Schedule (or Shorter

Schedule) of Cost Components?

GROUP SHARING

Thank you