The most important clause in ECC is......

.....what do you think and why?

Using schedules of rates with NEC3 contracts

There's a number of occasions users have asked 'am I ok using a published schedule of rates with NEC3 contracts'? The sorts of questions are about using the SoR for:
- ECC for assessing compensation events (clause 63.14, if both Project Manager (PM) and Contractor agree),
- TSC or TSSC for use in/as the Price List,
- the quotation procedure when setting up the NEC Framework Contract.

The simple answer is yes(ish), the longer answer is really more of a 'watch it'. By this I mean take care to find out precisely what are in (or out) of the SoRs - do they include overheads & profit, financing charges, insurance premiums and the like? If they do, how are you going to work that through with things like the ECC Fee % taking care not to double up or leave something out. So read the front end of the published SoRs very carefully indeed to make sure you know the basis of the rates you wish now to use.

It would be good one day if all such published SoRs were neutrally drafted to enable them to be used by any standard form contract. Until then, take care!

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

z clauses v Works Information

I see quite a few examples of very poor tender documents indeed - both in terms of conditions of contract (Contract Data with z clauses) and the brief (Works Information). The z clause part of the document is often very extensive indeed, to the point of wondering why bother using an NEC3 Contract at all. Apart from tackling this, I'm curious as to what users think is a realistic and sensible split of time/cost spent between preparing lets say z clauses against the Works Information, assuming NEC3 ECC is the contract chosen.

Although each contract/project has its own constraints/risks etc, I believe the intelligent client should probably spend 10 or 20 times more time/cost on producing a high quality, clear and comprehensive Works Information as opposed to z clauses. I sense the reverse is often too - that has to be madness!

What do you think?

NEC launches free ECC Works Information Guidance

NEC has marked the start of 2012 by publishing a new best-practice guide on preparing the all-important works information for NEC3 Engineering and Construction Contracts (ECC). The purpose of the guide is to help and encourage all NEC users to create better quality works information documents in their ECC contracts. This in turn will improve the outcome and delivery of projects, which is increasingly critical in the current economic climate. The link is below, let us have your feedback in use. Rob http://www.neccontract.com/documents/works_info.pdf

NEC or NEC3 or ECC or EEC?

There seems to bit a bit of confusion with the NEC acryonyms looking at articles and Users' Group helpline queries!

Often we get the question...we are using NEC3 Option C or NEC Option C - well, we know it's a target cost form of contract, but which particular NEC contract?

NEC is basically now a brand name. Within the NEC family there are contracts, guidance notes and flow charts. So, NEC is a generic brand name (not to be confused with the NEC near Birmingham!); NEC3 is the third edition of the NEC suite of documents; ECC is an abbreviation of just one of the NEC contracts, likely to be the NEC3 Engineering and Construction Contract (so hopefully you can see how we NEC2 ECC and NEC3 ECC now). EEC is nothing to do with NEC at all, it's a game that member states of Europe play!

Clear as mud?!

Rob

Letters of intent are rubbish!

In the RICS Construction Journal legal helpline page 27 June-July 2010 is stated that a letter of intent 'should only be used where there are good reasons to start work in advance of concluding the formal contract'. Whilst such circumstances dictate that an urgent agreement between the parties is required, I personally deplore the use of letters of intent and would never advise of their use! Further, I would consider the use of them often to be negligent.

How do I arrive at this opinion? Well, some of those I have seen are devoid of essential terms in any contract such as insurance, change management, (jurisdiction compliant) payment procedures and dispute particulars. They often state what works can be progressed and what the cap is in terms of payment, but that is it. I also struggle to see how a client can ask for a scope of works to be delivered but places a cap on the amount they will pay - what is that all about? What if it genuinely costs more to deliver than is permitted in the cap?

We have at our disposal in the industry cost reimbursable contracts such as the NEC3 Engineering and Construction Contract (ECC), main option E. This contains all the essential terms a contract should contain. Why would you want a half baked letter of intent, or pay for the creation of a bespoke 'adequate' form? What an uncertain and wasteful process that serves only to benefit those that generate an income from it.

A letter of intent was never intended to say 'go' it was merely a letter to state there is an intention to place a contract with the preferred seller. So, it is the combination of insufficient terms and the fact there are standard industry forms available (such as ECC), that form my view that all too often, the use of letters of intent is negligent and actually quite unnecessary.

Focus on agreeing the terms as soon as possible if that is the stumbling block. Lock yourselves in a room until agreement is reached. If the seller commences work without all the terms agreed, even with a letter of intent in place, then the bargaining position is compromised. If emergency works occur, use ECC option E, and focus quickly on the detail of the work scope itself.

I've never advised the use of a letter of intent and never will. I loathe the flippancy of advice clients get to use them. Don't do it. Be professional, advise the use of properly thought out standard cost reimbursable contracts such as ECC Option E if you absolutely have to award today for a part of the scope to be delivered.

That's got that off my chest, any thoughts?!

Rob

Competent NEC3 ECC Project Manager (PM) Part II

What makes a competent NEC3 ECC Project Manager (PM) ?

My previous post on this I talked about the PM's duty to notify compensation events that arise from PM instructions to change the Works Information.

The essence of the compensation event process is to agree change in real time, not to park the change management process until some point in the future, which was historically the typical outcome. If change is parked, exactly what is the benefit to the parties to the contract? All it brings is uncertainly for the period it remains not agreed and can likely benefit only those who derive an income from disputes, which is not the parties themselves.

So what measures does the ECC include to force the PM to play their part in the process? Well, this is dealt with in the compensation event process and, in basic terms, forces the PM to press on with the process to reach conclusion even where the Contractor does not play their part. If the PM does not do what they should be doing eg does not assess a compensation event under clause 64.1 then the Contractor can force the issue by notification of the PM's default which may lead to a deemed accepted quotation. More about deemed acceptance another time. The issue I wanted to concentrate on was default by the Contractor in the compensation event process.

Clause 61.3 offers a time bar to those compensation events notifed by the Contractor more than eight weeks of the Contractor becoming aware of the event. The exception here is those compensation events which the PM should have notified to the Contractor but did not. So, assuming we have a notified compensation event which the PM decides is not one of the 4 matters stated in clause 61.4 then the PM should notify the Contractor the event is a compensation event and instructs the Contractor to submit a quotation.

The first hurdle to get over here is the Contractor (clause 62.3) submitting a quotation within three weeks of the PM instruction to do so. If the Contractor does not submit a quotation then it falls to the PM to assess the compensation event - see first bullet of clause 64.1. The show goes on!

If the Contractor does submit a quotation within the three weeks then within two weeks of the submission the PM replies to say 'yes, accepted', 'no not accepted and please submit a revised quotation' or 'no not accepted and I will be making my own assessment'. Assuming the last outcome, then this must happen if one of the last three bullets of clause 64.1 apply - not assessed correctly, no programme/alterations submitted or latest programme not submitted.

So, assuming a compensation event is not time barred under clause 61.3, the compensation event process forces the PM to keep the process going even where the Contractor does not play their part in eg submitting quotations on time, to the detail required or not at all. The PM cannot wait for these things to happen, the PM makes these things happen with or without the assistance of the Contractor. A lesson to the Contractor therefore is for goodness sake positively play your part in the process.

Is this a sound, sensible process, or are parties better off leaving the process of assessing compensation events until some point in the future - what do you think?

Rob

Competent NEC3 ECC Project Manager (PM) Part I

What makes a competent NEC3 ECC Project Manager (PM)?

Doing what the contract tells them to is about the best answer I can give. I cannot see anywhere in the contract (assume NEC3 Engineering and Construction Contract (ECC)) that tells any PM to be tardy, subjective (but for a few limited circumstances), waive or change any terms (of a contract they are NOT party to), do what they want, when they want, sit back and wait for things to happen etc.

The clue is in the title, the person(s) acting as PM is/are doing exactly that, acting as project manager. ECC is not about sitting back, waiting for things to happen and being reactive. It's about being proactive, using foresight and making timely decisions.

There are a whole host of responsibilities to properly get your head around when acting as PM on an ECC contract. Let's look at one, which is very different to many contracts I have seen, and that is the positive duty to notify certain compensation events to the Contractor. Most other standard contracts have a 'light the touch paper and stand back' approach ie instigate the change, wait for the Contractor to spot the change then, at some point in the future, the Contractor asks for more time and/or money as a result of this change. So properly keeping the Employer informed of the time/cost effect of such change becomes extremely difficult as you have no idea of what the Contractor may or may not ask for until such time that he actually does. Multiply this many times for many different changes and the task becomes practically impossible.

In the ECC the PM has the right to change the Works Information and this basically becomes a compensation event. Clause 61.1 then obliges the PM to postively inform the Contractor of this compensation event and instructs the Contractor to submit a quotation (which is to be all-inclusive of both time and cost). The contract even tells the PM to separate the instruction to change the Works Information from the notification that it is a compensation event - this is to make the change quite obvious, there being no surprises and kick start the ongoing final account process for each and every compensation event as soon as possible.

In turn this has to be a business benefit for both Employer and Contractor and must be a better process than parking change until some time after the end of the job then being surprised at the amount claimed.

Do you agree?

Rob