Adjudication reports

I'm not sure if we've shared this before but those parties contemplating adjudication as a means of formal dispute resolution might like to quickly have a look at this service provided by the Glasgow Caledonian University.

http://www.gcu.ac.uk/ebe/businessservices/adjudicationreports/

The Adjudication Reporting Centre reports on the progress of adjudication in the UK. These reports examine trends in the number of adjudication nominations and on various aspects of the adjudication process.  For use by the construction and property industries, these reports contain data supplied by the Adjudicator Nominating Bodies (ANBs) and by adjudicators directly.

Whilst there is no particular reference to NEC, inevitably some of the adjudication references will be on NEC Contracts so it's good to have some sort of idea of the number of referrals, the trend of successful parties, primary subjects of the disputes, time limit compliance, and so on. Quite interesting!

'Trust, but verify'

Another interesting quote which appears to have been was originally said by Russians as one of their proverbs. It was later made famous by Ronald Reagan, who used it in his dealings with the Soviet Union.

So what is the relevance to NEC3 Contracts? Clause 10.1 of NEC3 Engineering and Construction Contract (ECC) gives an obligation of those parties named to act in a spirit of mutual 'trust'. When it comes to using eg Option C, when the Project Manager decides how much auditing of Contractor's Defined Cost should take place and when, I wonder how much more emphasis we put on the word 'verify' rather than the word 'trust'? Surely we should expect the Contractor by and large to only put forward Defined Cost in accordance with the contract, save the odd error of course. If the Contractor doesn't, there are really significant trust issues at stake. So, do we get the balance of these matters right in practice?

I was going to say something about phone/email bugging, but I won't as this is a highly professional discussion board....

'The secret is to gang up on the problem, rather than each other'

This quote, from Thomas Stallkamp, compliments the NEC early warning process superbly well. Clause 16.3 of the NEC3 Engineering and Construction Contract (ECC) demands that '...at a risk reduction meeting, those who attend co-operate in...seeking solutions that will bring advantage to all those who will be affected....'.

Collaboration, co-operation and common sense should all prevail when things go wrong.

Capturing ECC Option C Defined Cost

Question: Why do we need to capture Defined Cost in the ECC?
Answer: Because the contract demands (clause 52.2) that the Contractor keeps records of accounts of payments of Defined Cost, also proof that the payments have been made.

But in any case, doesn’t the Contractor have a corporate obligation in the eyes of any jurisdiction I’m aware of to capture cost (not quite Defined Cost, but not too far off!)? So how difficult is it to tag cost – tag for accountancy/legal purposes, tag for ECC Defined Cost, Disallowed Cost, Working Areas overheads, and Fee %’s and so on. Each cost can only go in one place so surely any Contractor needs an outstandingly simple but effective cost recording system, all neatly offered up in one system and available to view from the perspective of an accountant or the ECC Project Manager (PM). Simples!

Any cost into the Contractor’s company (real cost) can then be tagged according to the pre-determined set of rules in ECC that determine what is, and what is not, recoverable as Defined Cost, Fee and so on. Auditing by the PM becomes far easier, the Contractor in turn has a good basis to provide the required forecasts of total Defined Cost under 20.4, maybe has the basis for producing earned value analysis (EVA) (if required), trending, and so on.
So, in the interests of sharing good practice, who has such a great system?

Managing the tender chaos

A few thoughts on some practical advice to tenderers when tendering for eg NEC3 ECC projects:

·         Carefully read the Works Information (WI). Anything ambiguous or inconsistent should be queried – the sensible tenderer surely has a better chance of beating the gamblers with a level playing field using a high quality, clear, objective and coherent WI as the basis? (Advice to clients – for goodness sake get the WI right in the first place or at least act upon queries raised by tenderers).

·         Think about variants where you have a great innovative idea but make sure you submit a compliant bid as well.

·         Look at the quality of the Site Information, is it sufficient for tendering purposes?

·         Think carefully about health & safety, the CDM pre-construction information, your programme/cost allowances for these.

·         Know how to fill in Contract Data part two, get some training, don’t ring up the NEC Users’ group helpline asking what the heck is the subcontracted fee percentage for a bid due in 1 hour (it has been known!).

·         Make sure you know how Contract Data part one works.

·         In fact, make sure the client provided documents are sufficient/clear/objective then set about compiling an excellent offer, possibly with variants, for the right price etc.

Otherwise, and not surprisingly, chaos = chaos = chaos!

Challenge one another

My observations of our extremely fragmented industry is that there is an incredible amount of waste that plagues us, holding us back at every opportunity. In our slow and windy road towards integration, or at least better co-operation and collaboration, why not helpfully challenge one another’s’ assumptions, plans and so on? Neither the buying nor selling side know everything there is to know about themselves, let alone each other, so why not challenge and therefore perhaps better understand and contribute to a more successful outcome? For example, from Contractor to PM:

• Why have this particular constraint in place and will it be necessary to retain it for the duration of the contract?
• Why specify this type of product when a far more cost-effective whole life solution is available?
• We note access to this part of the Site is delayed, can we help to bring this forward at all?

From PM to Contractor:

• Why are you commencing this particular activity at that time of year?
• Why is the productivity of this Equipment or gang so low?
• On your design of xxx, why did you opt for that particular solution?

And so on. Challenge each other, learn, contribute, actually try and shape a more informed industry.

Early warnings are good, compensation events are bad. Discuss….

Of course this is extremely over simplistic but within NEC3 contracts, the early warning (EW) process has been called the jewel in the crown. That’s easy to comprehend. The more notice you have of an impending matter, the better chance you have of doing something about it. Co-operative behaviour, where people solve problems, is surely a good place to be from all perspectives (other than those that derive an income from chaos!). When a compensation event (CE) arises, all the parties are left to do is agree the additional time/cost associated with the CE – at this point it is what it is and most of the opportunity to be creative and solve such problems has been lost.

So how are we doing in all of this? As a rule of thumb on NEC projects, are there more or less EWs than CEs? If more, do the parties fell they are in a good state of management control? If less, what on earth is going on with that project and how are you going to change it?

Remember, early warnings are good, compensation events are bad….!

Try to accept submitted programmes

Having an Accepted Programme in place at all times is a cornerstone of good management of NEC3 contracts. Dark clouds gather where the first programme submitted for acceptance is late, or does not show the information the contract requires as 1/4 (25%, lots!) of the Price for Work Done to Date is retained (until the clause is complied with). That's bad enough but then the assessment of compensation events is taken away from the Contractor and given wholly to the Project Manager to assess. Who would want to put themselves in that position, even allowing for an outstanding Project Manager who is not a fortune teller/mind reader?

So don't let that happy, keep the sun shining on the project and work damn hard as a team to regularly update, submit and accept successive programmes, giving all parties an outstanding tool to check progress, help make decisions in risk reduction meetings, assess compensation events, and so on.

What does this mean in practice?

• Try and say yes, I accept your programme, wherever you can, even perhaps if there are a couple of small niggly points.
• As Project Manager, tell the Contractor your reservations.
• Challenge the programme/Contractor.
• As Contractor listen and work with the Project Manager putting your points across of course.
• Walk and talk each other through it, don't do this in isolation, use that 10.1 spirit of trust and co-operation.
• Maybe make this process even more regular than the fallback position the contract demands.

Again, why business will not benefit from having a realistic, up-to-date programme in place at all times?

Saying no is easy; saying yes can sometimes be a challenge. Even with saying yes remember clause 14.1 means the communication (the 'I accept' bit) does not change the Contractor's responsibility to Provide the Works in accordance with the Works Information.

Prospective quotations for compensation events - what's the problem?

Most quotations for compensation events will be for work not yet done ie to be done at some point in the future. I hear a sharp intake of breath from some at this point, 'what if we get it wrong?'. Why, what is the problem, how difficult can it be? Of course it is impossible to predict/forecast an event +/- one penny, I don't hear of any organisations wanting other than there or thereabouts when it comes to assessing change. What I don't get is a tenderer given something like 4-6 weeks to tender for a £10m+ contract (every penny of which is prospective) who then gets nervous at submitting a quotation for £5k, 'but it might be £5.3k' etc! Why are we so happy to commit our organisations to contracts involving millions of pounds on a prospective basis, but less confident post contract when it comes to compensation events involving fractions of that amount?

It doesn't make any sense to me, I'm not asking people to be cavalier in their quotations/assessments, just to put things into perspective, work together and come up with sensible agreements for quotations. Remembering of course to think about all time and/or cost effects to be included...!

Understanding ECC Defined Cost - part I

Dear all,

In the NEC Contracts, Official Group on Linkedin we are going to go through the provisions of the ECC in respect of Defined Cost and hopefully improve understanding in this area and dispel some myths. I'm not going to reproduce it here as there will be 2 debates/threads and hopefully this might turn out be a useful resource tool. So please join the Linkedin group if you haven't already done so..

Rob

Think of the goal as being an outstanding Works Information.....

Whether you are writing the Scope (for PSC), Service Information (for TSC), Works Information (for ECC), Good Information (for SC) and so on, a key deliverable must be an outstanding document that is produced, ready to go to tender. Is it clear, unambiguous, contains minimal subjective requirements, covers all the constraints and so on? Just how proud are you of this document at the point you go to tender? Don't rely on the tender stage to put the poor document right, don't assume the poor contract management team will have nothing better to do post-contract than to put right what should have been right in the first place either.

Use the how to write the (WI/SI/Scope) NEC3 guides as a basis, but they can only ever be a starting point that captures some good practice. Just how good is your tender document? Do you get supplier feedback and is there a post-contract review? What do we learn from the process?

The goal has to be an outstanding starting point - we either get this right and have an easier contract management experience allowing us to actually manage, or we get it right in the end through multiple changes post-contract and ensure the contract management process is 'interesting' (for that read chaotic)!

Rob