Retention

Rudi Klein would be delighted to explain why retention is an out of date method of providing some security to the buyer. I still see retention included in many contracts. So, whilst I concur with Rudi, we still need to advise those using retention to make sure they are familiar with some unique provisions of (most) NEC3 contracts and how they deal with retention.

Considering the NEC3 Engineering and Construction Contract (ECC), secondary Option X16 provides for retention. So, point to note is that retention is not automatically included in the contract unless expressly stated in Contract Data part one (1st bullet). The second point is that the % figure to be held is determined by the buyer (the Employer in ECC) who states this at time of tender. Half of the retention held is released upon Completion of the whole of the works and the remainder upon the defects date. This is similar to most standard form contracts.

One difference is that Completion of any sections of the works does not result in a reduction or paying back of retention, this is linked to Completion of the whole of the works. The main feature I wanted to point out here is the retention free amount. If you think about it, on say a 2 year contract, why do we take retention each month from the Contractor when really we only want security at the back end of the contract to provide a stick to get the Contractor back to correct Defects? Who pays for the financing of such monies held? The buyer of course. Is this good value? Probably not. So, a key differentiator with retention on NEC3 contracts is that you can specify a retention free amount whereby retention is only held after the retention free amount is reached. This eases the Contractor's cash flow burden, must reduce the financing charges and therefore the price payable.

So, if one absolutely must have retention, then think both about the retention % but more importantly how much retention free amount can properly be included.

Any thoughts?

Postive cash flow anyone?

The UK construction industry in my experience is a terrible one for payment. Some of the records of payment terms are worse than archaic. Is there a worse industry around I wonder?

Why do we expect the next guy down the chain to basically fund the next guy up the chain? Can you imagine popping into your local supermarket, taking the goods and commenting you will probably pay some time in the next 100 days or so if they are lucky - unlikely (if you want to avoid arrest), but that is basically quite often how we operate.

The UK government is trying to address this and has a very noble aim (through the Fair Payment initiative) to get monies from clients all the way down to tier 3 all within 30 days of an assessment date. Of course it can be achieved, there is simply no reason at all why not. Cut through most beaurocratic processes and paying becomes straightforward. There is of course the facility of a project bank account on the right sized job, such a provision can be found on http://www.neccontract.com/.

Anyway, all of this still promotes a negative cash flow running through the supply chain. So why not conisder flipping this over and promoting positive cash flow contracts - guess what, these are usually quite a bit cheaper than the negative cash flow contract as the seller(s) no longer funds/charges the chain above.

In the NEC3 Engineering and Construction Contract (ECC) there is secondary Option X14 Advanced payment to the Contractor. Decide the amount of advance payment to be made (within 4 weeks of the Contract Date), get an advanced payment bond, decide over how many months the Contractor repays the amount and away you go.

In the private sector, ask tenderers at tender stage to price with/without the advanced payment (make it a very reasonable amount) - if you decide the saving is worth doing then go for it.

In the public sector there is some work to do. The rules are different, it appears, in that goods, works or services should not be paid for before receiving them - this surely is nonesense. This is one rule (as a UK taxpayer) I would love to change - why on earth should this rule exist, actually does anyone know precisely where it does exist?! If I can get things x% cheaper as a taxpayer with the slight risk associated, wouldn't this mean I get more bangs for my buck, isn't that best value? When Latham/Egan said we were inefficient, there was waste in the system, then surely the simple consideration of equitable payment terms can make a huge difference?

What do you think?

Rob

Student NEC research

Hi,

Another survey if you would be so kind. Some words from the student below.....

I am a student completing a study into the useage and percieved effectiveness of the NEC family of contracts within the UK construction industry. To assist in this I have developed a survey for industry bodies to complete in order to better aid the understanding of user's perceptions of the NEC.

The survey should take less than 5 minutes to complete and can reached by clicking on the link below. Your input would be greatly appreciated.

http://www.surveymonkey.com/s/JLYGYFW

Rob

NEC in use statistics?

We get quite a few queries on the use of NEC contracts - who, where, how many etc. We get such questions coming as part of student research and from potential clients in particular, looking to assess the market's knowledge of NEC before they implement NEC in their organisations.

I recall a good few years back that NEC Users' Group members were asked to feedback some brief contract particulars to help keep some sort of basic handle on NEC use, alas very few replies were received.

The only 'independent' survey of contracts in use to my knowledge comes from the RICS and this is, in my opinion, flawed to render it almost useless. I will separately blog why I feel that way soon.

Any ideas therefore as to
(1) Do we actually need some statistics on who, where etc?
(2) How do we capture reliable data, and do so both timely and efficiently?

Look forward to your thoughts.

Rob

Student dissertation

Dear all,

A questionnaire on Key Dates if you would be kind enough to contribute to the research. Some background is below.

Rob

http://www.surveymonkey.com/s/65QBFNN

I am currently studying for a Masters Degree in Construction Law and Dispute Resolution at Leeds Metropolitan University. As part of my course I am writing a dissertation on ‘The NEC ECC3 Key Dates - What do they achieve?’

It is noticeable that the NEC3 has recently gaining support and increased use, and is probable that endorsement by Government bodies has driven this. However it is generally accepted that owing to its intended use of simple language concepts and that little legal authority has at this time been offered, some aspects of the contract are potentially unclear.

In consideration of a subject for research for my Masters dissertation, I wanted to consider this potential problem with the NEC3 ECC. I have formed the opinion through literature review that the Key Date Mechanism is one of these concepts that has limited authoritative interpretation and may result in the parties to a contract being unclear about the risks they are managing under a contract containing this mechanism. With this in mind the following aim developed:

The aim of this dissertation is to consider the Key Date Mechanism under the NEC form of contract in relation to existing authority on Time and Damages mechanisms under Construction Contracts and through industry opinion.

I therefore ask if you would be willing to complete the attached questionnaire, as part of this process and should take approximately 15 minutes.

My dissertation may be made available to other students and the general public in the University Library. I will ensure your anonymity by excluding identifiable personal data from the dissertation. However, please be aware that one of your colleagues or another person who knows you have taken part in the study may be able to recognise your input from what is said. Your participation in this study is on a voluntary basis. The first question of the survey is a consent, please answer this question ‘yes’ if you wish your input to be used in this research.

Should you have any further comments with regards NEC ECC3 Key Dates, please do not hesitate to contact me.

May I take this opportunity to thank you for taking the time to complete this questionnaire, I am all aware your time is very valuable, your response if very much appreciated.

Kind Regards,

Jennifer Chadwick

Student

MSc Construction Law and Dispute Resolution, Leeds Metropolitan University

Student dissertation

Another NEC questionnaire for those with 10 mins to spare.

Thank you,

Rob

http://www.surveymonkey.com/s/NECSurvey1

ICE endorses NEC

For those of you who perhaps have missed this recent announcement, ICE has withdrawn from its own conditions of contract and will now solely endorse the NEC3 suite of contracts. There is a joint statement to this effect from ICE, ACE & CECA below. NEC is instigating transitional guidance for ICE contract users and will be available shortly - see www.neccontract.com

Rob

http://www.acenet.co.uk/joint-statement-from-ace-ceca-and-ice-ice-to-withdraw-from-ice-conditions-of-contract/126/6/1/3