The NEC4 Design Build and Operate Contract: a whole-life ...... · Speakers ©NEC2017 The NEC4 DBO...

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The NEC4 Design Build and Operate Contract: a whole-life delivery solution

Ross Hayes and Robert Gerrard

Improvement through collaboration

Speakers

©NEC2017 The NEC4 DBO Contract 2

Presenters:

Robert Gerrard NEC Users’ Group Secretary and NEC4 drafter

Ross Hayes, Consultant and Project Manager for Anthony Collins Solicitors LLP and NEC4 drafter

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What we will cover

• What is the new contract? • Where would you use it? • How the DBO contract fits in the

NEC suite • Underlying principles • Roles of the Parties • The contract strategy • The pricing and performance

mechanism

©NEC2017 The NEC4 DBO Contract

What is the new contract?

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• The DBO contract is an operational contract where the Contractor is providing a service (not just a project) over a period of time (the “Service Period”)

• During the Service Period there is a need to create, replace or upgrade a significant part of the asset (the “Works”)

• Design and build of the Works can occur at any time during the Service Period

• The scope of service is generally a defined performance output (in the “Scope” and “Operational Requirements”) and includes a risk/reward relationship (in the “Performance Table”)


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Where would you use the DBO contract?

• When a single point responsibility for both aspects of construction and operation is required

• For the traditional approach of design and build a new asset, and then operate it for the Client for a period of time

• For the operation of a network, for example road or water supply, where a new asset is needed or part of the asset needs creating or replacing during the operational life

• Where the timing of the major build may be at the discretion of the Contractor if that suits the overall objectives of the Client

• No constraint on the type of project/asset ©NEC2017 The NEC4 DBO Contract

User guides

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• For all contracts

• Vol 1 Establishing a procurement and contract strategy

• Vol 3 Selecting a supplier

• For the DBO contract

• Vol 2 Preparing a design build operate contract

• Vol 4 Managing a design build operate contract

• Flow charts for the DBO contract - electronic only


Key documents

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• Key documents are • the Scope and Price List • the Operational Requirements and Performance Table

• The Operational Requirements form part of the Scope • The Performance Table is used to incentivise the

Contractor financially, to achieve or better the targets set for the Operational Requirements

• Discuss these in more detail later


DBO contract people

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• People in contract, defined by their role • Client

• Contractor

• Service Manager

• Senior Representatives

• Adjudicator

• Others (eg statutory authorities)

These two are the Parties to the contract


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The contract strategy – pricing mechanism

• No main pricing Options to select – all are available in the core clauses

• Contract has ability to mix cost and price based strategy in the Price List

• Achieved through the definition of PSPD (cl 11.2(20)) and the work defined in the Price List parts A (price based) and B (cost based)

• There is then an option to share the difference between the Defined Cost and total of the Prices for work done against part B of the Price List (cl 53.4). This “target price approach” requires a share mechanism in the Performance Table ©NEC2017 The NEC4 DBO Contract

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The contract strategy – secondary Options

• Limited set of Options • X3, X4, X8, X9, X10, X13, X14, X18, X23

• Of those not used • Options X1 and X2 are now in core clauses • effects of ECC/TSC X6, 7, 16, 17, 20 could be included in Performance

Table and Operational Requirements, as can an Option C type target share approach

• no reduction in design liability through X15, but financial risk can be limited through X18. Other parts of X15 (period for retention, etc) now in core clauses

• no termination by the Client, X11


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And the complex part …..

• Defining the Price List and assessing the total of the Prices

• What are the Performance Table and Operational Requirements, and what goes into them?

• What does the Client say about the condition at handback, at the end of the Service Period, and where is it stated?


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Handback

• At the end of the Service Period, the Contractor returns to the Client the Affected Property in the condition stated in the Scope (clause 30.3)


Price List

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• Explained by the definition of PSPD • “The Price for Service Provided to Date is

• for the work identified in part A of the Price List, the total of the Prices in the Price List for

• each completed lump sum item and

• where a quantity is stated for an item in the Price List, an amount calculated by multiplying the quantity which the Contractor has completed by the rate and

• for the work identified in part B of the Price List, the total Defined Cost which the Service Manager forecasts will have been paid by the Contractor before the next assessment date plus the Fee.”


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Performance Table & Operational Requirements

• An Operational Requirement is an aspect of performance by the Contractor which forms part of the Scope and for which a performance target is stated (clause 11.2(11))

• The Performance Table includes the targets for performance stated for the Operational Requirements and sets out the adjustment to payment if a measured performance is higher or lower than the target. The Performance Table is the performance table unless later changed in accordance with the contract (clause 11.2(15))


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Operational Requirements

• The Operational Requirements are what the Client wants • Examples could be

• availability of asset/facility • capability of the asset/facility

• They can be changed by the Service Manager because they are in the Scope


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Performance Table • The Performance Table states how the Contractor will be

rewarded for achieving, bettering, or failing to achieve the objectives

• It may include elements used on Options in other contracts • key performance indicators, and benefits if achieved • poor performance “damages” if standards are not achieved • delay damages if the Works are not complete on time, or a bonus if

they are delivered early • a pain/gain share approach relating to the items of work in part B of

the Price List • It can be changed through the compensation event

assessment process


• It provides the opportunity to provide a comprehensive and flexible approach to the performance aspects of the DBO contract

• It needs great care in developing it to • achieve the required outputs • provide the appropriate incentives • avoid ambiguity/contradiction of incentive and reward • get the balance right

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Performance Table


Upcoming NEC4 webinar NEC4 Service Contracts: how have they changed? A discussion on changes that are special to the service contracts

Ross Hayes NEC4 drafter

Ben Walker NEC4 drafter

15 November 2017 | 13:00 GMT

neccontract.com/NEC4serviceswebinar

NEC4 online courses

The first batch of NEC4 online courses is now available

NEC4: Introduction to NEC

NEC3 and NEC4 compared – ECC

NEC3 and NEC4 compared – Service Contracts

neccontract.com/nec4training ©NEC2017 The NEC4 DBO Contract

Contact us +44 (0)20 7665 2446

[email protected]

One Great George Street, London SW1P 3AA

neccontract.com

Improvement through collaboration

The NEC4 Design Build and Operate Contract: a whole-life ...... · Speakers ©NEC2017 The NEC4 DBO...

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