Q. Do you issue or raise an early warning?

A. Neither of these. Assuming this is NEC3 ECC, clause 16.1 requires the Project Manager (PM) or the Contractor to give an early warning by 'notifying' the other as soon as blah blah. All either party needs to do is fill in a very simple communication form (such as those produced by NEC) that says eg 'Under clause 16.1 I notify you that a Subcontractor may be going insolvent/a supplier may be delivering some key Plant and Materials later than promised/the Employer has requested we change the permanent fencing layout (yet again!)/a protest group has threatened to invade the Site....' and so on. The contract does not ask either party to say anything more than stating the matter itself that is giving concern - it does not say fix it, or somehow rank it, or submit proposals or anything other than what is it, and this needs to be properly communicated via a notification. Use the NEC Project Manager's notification form or the Contractor's notification form. PMN or CN if you like acronyms. Simples. So again, this is about properly and closely following what the contract requires you to do, no more, no less. Follow the language. Follow the processes.

Q. Do you raise or instruct a compensation event?

A. Neither of these. The answer is that you notify a compensation event (CE). Most CE's arise (in an ECC contract) because the Project Manager (PM) has instructed a change to the Works Information (WI). Hence why we call this a PMI, a Project Manager's instruction. In most instances this will be a CE that has an effect on the Prices (the lump sum or the target, etc) and so I think we try to shortcut things even further by using the phrase 'The PM instructed a CE' - what we really mean is that the PM gave an instruction which changed the WI and this instruction is also a CE which may or may not have an effect on the Prices/planned Completion. We don't seem to like the latter as it's too long so often this is turned into the former. But the former is wrong, does not accord with the contract and gets confusing. I also want people to stay inside the contract, following its provisions, that's a far better place to be than operating outside of the contract. So, the logic is.... 1. The PM gives an instruction to change the WI (clause 14.3) & let's ignore the possible obligation to notify an early warning before this! 2. Communications are in a form that can be read, copied and recorded (clause 13.1) 3. The Contractor must obey such instructions (clause 27.3) 4. The Contractor Provides the Works in accordance with the WI (clause 20.1) 5. Clause 13.7 demands that notifications which this contract requires are communicated separately from other communications 6. That brings us nicely on to the CE process. Assuming neither bullet of 60.1(1) applies, a CE arises where the PM gives an instruction to change the WI. 7. As this CE has arisen due to the PM giving an instruction then then PM should notify the CE to the Contractor at the time of the communication (ie when the PMI was given). 8. If the PM does not notify this CE (which is a bit naughty but there you go!) then the obligation falls to the Contractor to notify this CE to the PM (clause 61.3) and this will not fall foul of the time bar rule in clause 61.3 as it should have been notified by the PM but was not. So I've stretched 'The PM instructed a CE' into 8 parts but that's important. Parts 1-4 make sure the PM properly keeps the WI up to date and reflects the Employer's requirements. Part 5 gives us a basic rule that means administration of communications becomes that bit easier, although of course more communications result from this (maybe that's another thread another time...). Part 6-8 deal with the basics of getting the CE acknowledged in principle, and away you go from there. So what's the moral here? It is to follow the wording of the contract, nothing exciting there, but it is important to make sure you do what the contract requires you to do, nothing more, nothing less.

After discussing with the Contractor.......

5 brilliant words I've taken from the NEC3 Engineering and Construction Contract (ECC), clause 62.1. How many people actually use these prolifically I wonder in the management of compensation events?  What the clause actually says is...'After discussing with the Contractor different ways of dealing with the compensation event which are practicable, the Project Manager may instruct the Contractor to submit alternative quotations.'

Imagine that. Truly acting on behalf of the (your) Employer by discussing with the Contractor the fact that this particular Employer is really focused on time for this project, or cost, or whatever. Then getting a quotation for the normal resources etc for dealing with the compensation event, then an alternative (if possible) where maybe nights and/or weekends and/or double shifts/gangs or re-sequencing, or whatever, are utilised.

Then we can make a sensible decision on what's best in the circumstances. So please communicate with each other, it's a good, healthy thing and maybe we can achieve each others' objectives along the way too.

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

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

Learn to love ECC clause 14.1....

...and the equivalent in other NEC3 contracts.

To remind us, the clause says "The Project Manager's or the Supervisor's acceptance of a communication from the Contractor or of his work does not change the Contractor's responsibility to Provide the Works or his liability for his design."

So the ECC  requires the Project Manager (PM) and Supervisor to accept various things at various times:
- the PM accepts the Contractor's design (clause 21.2)
- the PM accepts a submitted Contractor's programme (clause 31.3)
- tests may be accepted by the Supervisor as being required in the WI
and so on.

The contract uses 'acceptance' and not 'approval' (the latter being legally problematic of course) and basically is saying even if the PM accepts a Contractor's design, if the design later proves to be wrong the Contractor is still liable for his design. Nothing has changed through the acceptance.

I'm not suggesting for one minute therefore that PMs/Supervisors become cavalier but we've previously discussed people's reluctance to say yes but you have the whole weight of this clause behind you. Try to say yes, work with the Contractor to say yes, possibly even give them the slight benefit of the doubt and appreciate that, if there is a problem then the Contractor is still 100% responsible to Provide the Works and 100% responsible for any design the WI states he is to design. Then if there is a problem, roll your sleeves up and get stuck into helping him fix the problem.

Don't restrict the use of early warnings.....

I've recently read an opinion that the 4 bulleted instances stated in clause 16.1 of the ECC are the only occasions the Project Manager/Contractor could notify an early warning. I don't think the contract says that at all.

For a start, the Contractor may notify any other matter which could increase his total cost (see clause 16.1), but even this is too narrow in its thinking. Regard the 4 bullets as the minimum instances an early warning must be given (this is in fact an obligation on PM/Contractor) therefore there is no maximum scenario in practice. The ECC does not say 'in these instances only' or 'do not otherwise notify' or anything like that. So why not think about notifying opportunities through the early warning process as well as the bad things..."Here's something we may be able to exploit, let's have a risk reduction meeting to discuss...."

We should use the early warning process for good and bad matters; we should of course notify the matters we must notify but make sound judgement on those we therefore may wish to notify if we believe such are worth of our time.

Student research on NEC3

Dear all,

A student is working on a dissertation entitled ‘Is The Philosophy of the NEC3 Form of Contract That of a Truly Collaborative Contract’.

The basis of his review on this subject is:
1. To evaluate and analyse the strategic, high-level procurement objectives of the UK Government;
2. Review 3 key reports into the state of construction (Rethinking Construction, Constructing the Team and Never Waste a Good Crisis);
3. Undertake primary data gathering research via a survey of people on NEC3 projects;
4. Identify whether the widely endorsed NEC3 contract is truly a collaborative contract.

In an effort to garner the true opinions of individuals with experience on projects where the NEC3 contract is or has been in use (item 3 above), he has pulled together a quick online survey (link below), which he would be very grateful if you could distribute kindly complete. This will form an integral part of his data from which he will attempt to draw conclusions and recommendations. All responses are completely anonymous and so all responses to the survey should be as honest and open as possible in order for an accurate analysis to be carried out. There are a total of 32 questions, 6 of which are optional text based responses, and the survey itself should hopefully take no more than 5 minutes to complete.

Thank you in advance for your assistance, the survey will remain open for 3 weeks.
Rob

http://freeonlinesurveys.com/s.asp?sid=onl1yyh87xceprb407231

Competent NEC3 ECC Project Manager (PM) Part III

It's been a while since we looked at this subject. It seems to be a topical question at the most but what sorts of traits/competencies should such a person have? Lots, that I can see, but a few to be thinking about are that the PM.....

• positively challenges Contractor submissions such as design/programme/cost. I'm not saying challenge for the heck of it, but being mindful of what it is the client actually is looking to procure....could there be a better way/solution that that designed by the Contractor? Does the programme look realistically achievable? Is the forecast Defined Cost realistic? Could WE do something different/better to create a more efficient outcome?
• makes sure that the PM and any of the PM delegates respond to communications in a timely manner. Late replies = compensation events! The ECC sets out precisely what is meant by timely, giving maximum periods of time for each communication. So knock spots off the time periods you have and use a QMS that is a help to logging/recording such communications, in and out.
• has one eye on the Employer - has the Employer done what he promises in the contract he will do eg payment within x weeks, free issue supply planned for y, etc?
• has another eye on the Contractor - has/is the Contractor doing exactly as he promised he would do in accordance with the contract?
• doesn't just become a proficient and competent PM overnight. It takes time, support and acknowledgement of role. An individual will have to invest into becoming that competent PM - maybe studies beyond their first degree, perhaps receives further training (see eg the new 4-day accredited PM training course), has a prolific working knowledge of the ECC, has complimentary soft skills, is perhaps mentored by their employing company if they are developing into that role, encourages, supports, offers others the opportunity to develop, and so on.

Thoughts on a postcard!

Change management - necessary/desirable

When using NEC3 ECC, you should of course ideally starting from the position of having an outstanding Works Information, with the expectation that change should be fairly minimal once the contract is awarded. It is of course a good idea to lay down a few rules in respect of post contract change management for the ECC Project Manager (PM) to comply with, whether the PM comes from in-house or a consultancy.

Apart from key things like monetary thresholds, how about getting the PM to distinguish between necessary change and desirable change? Necessary change is just that, something that absolutely must be changed (because it's wrong, or ambiguous, or inconsistent, or was missed off, and so on). Desirable change is where the PM considers it is not necessary, just would be better (aesthetics, quality, longer life, easier to maintain, and so on). This would at least give a client the chance of distinguishing between must have and nice to have changes.

'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!

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.

Use NEC to lever up health and safety

Many times I hear, health and safety is the number one priority. Yet many more times I hear that we still haven't got the O&M manuals, as-built drawings, training for my operatives to safely and properly use the new asset and so on, sometimes well after Completion (which begs the question why was Completion given!). So here's a thought - why not give this the proper attention it justifies. Define the state of Completion (assuming we are using NEC3 ECC) in the Works Information at time of tender stating exactly what you want to happen before Completion will occur - if you want all of those things then ask for them, don't budge and don't compromise on Completion or health and safety - let's actually ratchet up the importance of this through objectivity and explicit requirements.

Time risk allowance & float - NEC3 ECC programme

In NEC3 ECC there is a requirement for the Contractor to show on each submitted programme both float and time risk allowance. Is there a feeling these terms are generally understood and if not, apart from why not (!), what more can be done to help?

Using innovative KPIs with NEC3 Contracts

I was speaking with someone recently from a local authority in South Wales who advised of their use of really interesting Key Performance Indicators (KPIs) whilst using NEC3 ECC secondary Option X20. This was in respect of contractors demonstrating a positive local social impact during construction by employing people currently on job seekers allowance. The number depended on size of project.

So, does anyone have any great examples of X20 (or X12) KPIs that they consider to be innovative? Maybe there's a good article in here in due course...

Rob

Letters of intent - part 2!

I remember having a rant about just how rubbish/bad/useless etc letters of intent are and some of you agreed. See previous blog below.

http://www.blogger.com/blogger.g?blogID=491774513914518621#editor/target=post;postID=8930257740702719408

Then  we recently have Ampleforth Abbey Trust v Turner & Townsend Project Management Limited and that to me serves only to reinforce never ever ever using these damn things. There is absolutely no excuse not to use a standard form instead of a letter of intent if you absolutely must get on with something whilst we wait for ....for what, really what is the issue here, why can't people step up and do whatever they have to do to get the formal agreement signed? So, how about my golden rules for letter of intent:

1. Never ever ever use them
2. Bust a gut to get the formal agreement in place before proceeding
3. If it looks unlikely to get the agreement in place for whatever reason then really really bust a gut and do whatever you have to do to get the formal agreement in place
4. If this definitely cannot happen (which I just don't believe) then use something like NEC3 ECC to procure a bit of what you must have - use Option E if you need need some sort of random start now; Option A if you know what you want odering/doing now; Option C if you know what you want odering/doing now but there is an inherent amount of Contractor's risk in this
5. Once 4 occurs, as buyer you have definitely relinquished a bit of bargaining power - why would you want to do this? So dwell on 3 and make it happen.

What I would love to see is at least the professional bodies coming out and saying...."letters of intent are [choose from rubbish/negligent/bad practice/really rubbish]" and giving the Courts a helping hand. This of course won't happen. Lots of people make very nice incomes from the very chaos that letters of intent cause.

There, breath, rant over....

Article on getting programmes accepted

Dear all,

Link here is to a really good article on programme requirements for the NEC3 ECC with some handy tips on getting programmes accepted. Enjoy...

Rob

http://mag.digitalpc.co.uk/fvx/ces/12clr/?pn=54

Preliminaries - (a few!) watch it points.....

Many times we are asked, "where's the prelims (or preliminaries) in NEC3 Contracts?" I would say, actually what are these and why do they even exist? These seem to have developed over the years in the building industry and they seem to me to be a complete mish mash of technical matters, pricing matters, conditions of contract, constraints, pricing notes and on an on. NEC3 Contracts do not provide for documents called 'Prelimaries' or 'Prelims' but most of the matters within them are generally required, but on the correct documentation/place.

So, with some careful thought, you can use the information but I would not incorporate such a document as such into tender documents.  Here's a few reasons why, looking at the most recent 'Sample NEC Preliminaries' I came across in relation to using the NEC3 Engineering and Construction Contract (ECC):

1. Project particulars referred to - isn't this exactly the function of the ECC Contract Data except we get people such as 'client' thrown in and the Principal Contractor and CDM Co-ordinator (shouldn't that be dealt with by separate communication, as required by statute) and the beloved 'clerk of works'. Of course I know what is sort of referred to but all we are doing is creating ambiguity because we are lazy.

2. Terms like tender and contract are used ad hoc, and tendering rules are thrown in. Surely you should never accidentally or deliberately bring into a contract document some tendering rules/terms?

3.  Terms like the Site/existing buildings - isn't that the purpose of the Site Information, in the main? If the Site Information merely points to the Preliminaries as does the Works Information, there's a real risk the two will become one and you've a real problem on your hands. The contract points to the right document for the right reason, to lug everything in one pot is fraught with danger.

4. Suddenly in this particular document was thrown in details of/reference to the NEC3 Engineering and Construction Short Contract. I'll leave you to wonder why, what ....!

5. Employer and Contractor, amongst others, are normalised not italicised so are they different to the identified equivalents?

6. Within the Preliminaries was reference to the Specification which in turn includes Preliminaries. No, I don't get that either.

7. A schedule of rates was asked for to be included - why, how will this be used, where are the changes to the contract to explain what/why etc? There is then a standard price book referred to as being the basis for 'valuation' - I can see some of you shaking your head now....

8. Provisional Sums - you knew they had to feature! NEC3 Contracts make no provision at all for provisional sums, so how can they just be thrown in?

9. And so on, you get the drift and this is just a watch it note!

Take care, think about the quality of documentation you need to prepare, use the like of the ECC Works Information as a template, do not just used random so called 'Sample NEC Preliminaries' without a great deal of thought and challenge those who produce these in the first place. Then maybe we start to produce better quality tender documentation.....

Rob