NEC 3: Introduction

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Introduction

• The rudiments of NEC

• New (No, really quite mature)

• Engineering (No, anything really)

• Contract (No, a contracting system)

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A Brief History of NEC1985 ICE review alternative contract strategies

1986 ICE commissioned new style of contract

1991 First consultative edition produced

1993 Edition 1 published

1994 “Constructing the Team” Latham 1994, singled out NEC for good practice

1995 Edition 2 published, all 13 Latham principles adopted

1999 Short form published

2005 Edition 3 published and existing contracts updated. New Term Service and Framework contract published

2006 June 2006 amendments

2013 April 2013 amendments

Still the New Engineering Contract?

NEC Amendments April 2013

http://www.neccontract.com/

Why the NEC?

• Constructing the Team - Sir Michael Latham 1994

• Rethinking Construction – Sir John Egan

1998

• Achieving Excellence – OGC 2003

• HM Treasury

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Basic Characteristics of NEC

• Contractor lead

• Mutual trust and co-operation (edition 2 onwards)

• Good management encouraged (not just rights and obligations)

• Procedure driven

• Programme given HUGE prominence

• Recognising risk and dealing with it as you go rather than

allocating blame afterwards

• Clear and distinct roles for those involved

• Minimises subjective phrases such as fair, reasonable, opinion

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Basic Characteristics of NEC

• Modular approach

• Interlocking contracts e.g. Subcontract, PSC, Adjudicator

• Logical contracts (can be described in flow charts)

• Written in simple English (and in the present tense)

• Certainty of actions and outcome

• Flexible approach allows use in multi discipline projects

and a wide range of projects

• Can be used internationally

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Using the NEC

• Works well where used properly

• Allows great flexibility in public and private sectors

• Easy to apportion design responsibility

• Use the main options to decide big issues such as pricing options

• Tailor with secondary options

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The Present Family of NEC Contracts

• NEC3 April 2013 Edition complete family

of contracts (39 documents including guidance

notes and flow charts)

A typical project using NEC Contracts

Client

Project ManagerPSC or PSSC

Consultant SupervisorPSC or PSSC

ContractorECC or ECSC

SubcontractorECS or ECSS

SuppliersECS or ECSS

SuppliersSC or SSC

ConsultantPSC or PSSC

AdjudicatorAC

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NEC 3:Main and Secondary Options

and Alternatives

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Introduction

• Strategy for choosing the correct contract

• 6 Main Options

• Secondary Option Clauses (X, Y & W)

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Contract Strategy

• ECC main option is based on completeness of the Works Information

• Example Scenarios• Employer has fully designed the required works & requires a lump

sum price

• Employer requires Contractor to design and construct the work on a fixed sum basis

• Employer requires Contractor to design and construct the work on a fixed sum basis

• Employer requires immediate and urgent works that are not designed

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Main Option Concepts

• Activity Schedule

• Bill of Quantities

• Cost Reimbursement

• Target Cost

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Balance of risk

Contract Type Main Options

Balance of risk

Employer Contractor

PricedA

B

TargetC

D

Cost reimbursable E

Management F

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Main Options – A (1)

• Option A – Priced contract with activity schedule

• Fixed Price Lump Sum contract

• Activity Schedule

• Price Comparison

• Change Management

• The Programme

• Control and Change

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Main Options – A (2)

• Risk and Reward with Contractor

• Ideally suited to contractor’s design but can be used for Employers design

• Divided design responsibility providing the Employer’s design element is complete at time of tender

• Offers best prospects for price certainty

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Main Options – B

• Option B – Priced contract with bill of quantities• Re-measurement contract

• Bill of Quantities• Price Comparison• Changing the BoQ• Change Management

• Not suited to Contractor’s design because of reliance on bills of quantities

• Risk split Quantity/Price

• Lacks price certainty

Main Options – C (1)

• Option C – Target contract with activity schedule • Target contract based on lump sum

• Allows Employer flexibility in developing his own design

• Target Cost• Administrative Burden• Cash flow certainty• Cost Transparency

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Main Options – C (2)

• Risk split - Contractor:• Fixed margin• Pain/gain

• Risk split – Employer:• Payment burden• Pain/gain

• Fixes some degree of certainty on price

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Main Options – D

• Option D – Target contract with bill of quantities

• Target contract bill of quantities based

• Similar price risk as Option B

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Main Options – E

• Option E – Cost reimbursable contract• Maximum flexibility in allocation of design

responsibility

• Contractor has little incentive by way of any target to minimise costs

• Not suitable if the employer is looking for price certainty

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Main Options – F

• Option F – Management contract• Not suitable for allocation of the whole of the

design responsibility to the Contractor unless placed as a ‘design & manage’ contract

• Suitable for contracts with a high reliance on specialist subcontractors who undertake their own design

• Can be arranged on the basis of lump sum contract

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Secondary Option Clauses

• You must elect to include them; No automatic incorporation

• X Clauses (15 in total in Main Contract)

• X4 – Parent Company Guarantee

• X5 – Sectional Completion

• X7 – Delay Damages

• X16 – Retention

• Y Clauses

• Y(UK)1 – Project Bank Account• Y(UK)2 – The Housing Grants Construction and Regeneration Act 1996 as

amended by the Local Democracy, Economic Development and Construction Act 2009

• Y(UK)3 – The Contracts (Rights of Third Parties) Act 1996

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Secondary Options

• X1 price adjustment for inflation

• X2 changes in the law

• X3 multiple currencies

• X4 parent company guarantee

• X5 sectional completion

• X6 bonus for early completion

• X7 delay damages

• X12 partnering

• X13 performance bond• X14 advanced payment to the

contractor

• X15 limitation of contractor’s liability for design

• X16 retention

• X17 low performance damages

• X18 limitation of liability

• X20 key performance indicators

• Y(UK)1 project bank accounts

• Y(UK)2 HGCRA as amended• Y(UK)3 contracts (Rights to Third

Parties)

• Z1

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Key Options

• W2 and Y(UK)2

• X5 – Sectional completion

• X7 – Delay Damages

• X16 – Retention

• X13 – Performance Bond

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Options using NEC3 ECCPriced Contract

eitherA with AS

or B with BoQ

Target Contracteither

C with AS or

D with BoQ

Cost ReimbursableE

ManagementF

W1

or

W2

X3 multiple currencies

if requiredX1 price

adjustment

X16 retention

as required

X2 changes in the Law

X4 parent company guarantee

X5 sectional Completion

X6 bonus for early Completion

X7 delay damages

X12 Partnering

X13 performance bond

X14 advanced payment to the Contractor

X17 low performance damages

X18 limitation of liability

X20 Key Performance Indicators

Y(UK)1, Y(UK)2, Y(UK)3Z

as required

X16 retention

as required

Main OptionDispute Option

Secondary Options

Engineering Construction Short Contract (ECSC)

• For work that does not require all the procedures in the ECC

• Single Contract Data• Price list for PWDD and:

• Quantity changes• But not CE’s

• No express provisions for contractor design• Flexible programme requirements• No Main or Secondary Option but:

• can have “additional clauses”• includes delay damages and retention

PSC & PSSC

• Used to appoint professionals (by Employer or Contractor)

• Designers

• Project Manager

• Supervisor

• Same Objectives as NEC Main Contracts

• Same clause structure as the NEC ECC

• No SCC or SSCC

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Professional Services Contract (PSC)

• Main Option Clauses:

• A – Priced Contract with Activity Schedule

• C – Target Contract

• E – Time Based Contract

• G – Term Contract

• Options B, D & F are not used

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When to use?

‘a simpler approach to simpler commissions’

• Choice between the PSSC & PSC should be base purely on the level of complexity and level of risk

• Non-UK heavy engineering

• Another member of NEC family• Project Manger• Supervisor • Service Manager

• Consultant on a ‘as and when needed’ basis

PSSC –v– PSC

PSSC does not include:

• Main Option Clauses

• Secondary Option Clauses

• Sectional Completion

PSSC does include Pro-forma’s for:

• Consultant’s Offer

• Client’s Acceptance

• Price List

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