nec3 introduction
DESCRIPTION
Short introduction to the NEC3 form of construction contracts. Produced by Quigg Golden LimitedTRANSCRIPT
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NEC 3: Introduction
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Introduction
• The rudiments of NEC
• New (No, really quite mature)
• Engineering (No, anything really)
• Contract (No, a contracting system)
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A Brief History of NEC1985 ICE review alternative contract strategies
1986 ICE commissioned new style of contract
1991 First consultative edition produced
1993 Edition 1 published
1994 “Constructing the Team” Latham 1994, singled out NEC for good practice
1995 Edition 2 published, all 13 Latham principles adopted
1999 Short form published
2005 Edition 3 published and existing contracts updated. New Term Service and Framework contract published
2006 June 2006 amendments
2013 April 2013 amendments
Still the New Engineering Contract?
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NEC Amendments April 2013
http://www.neccontract.com/
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Why the NEC?
• Constructing the Team - Sir Michael Latham 1994
• Rethinking Construction – Sir John Egan
1998
• Achieving Excellence – OGC 2003
• HM Treasury
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Basic Characteristics of NEC
• Contractor lead
• Mutual trust and co-operation (edition 2 onwards)
• Good management encouraged (not just rights and obligations)
• Procedure driven
• Programme given HUGE prominence
• Recognising risk and dealing with it as you go rather than
allocating blame afterwards
• Clear and distinct roles for those involved
• Minimises subjective phrases such as fair, reasonable, opinion
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Basic Characteristics of NEC
• Modular approach
• Interlocking contracts e.g. Subcontract, PSC, Adjudicator
• Logical contracts (can be described in flow charts)
• Written in simple English (and in the present tense)
• Certainty of actions and outcome
• Flexible approach allows use in multi discipline projects
and a wide range of projects
• Can be used internationally
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Using the NEC
• Works well where used properly
• Allows great flexibility in public and private sectors
• Easy to apportion design responsibility
• Use the main options to decide big issues such as pricing options
• Tailor with secondary options
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The Present Family of NEC Contracts
• NEC3 April 2013 Edition complete family
of contracts (39 documents including guidance
notes and flow charts)
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A typical project using NEC Contracts
Client
Project ManagerPSC or PSSC
Consultant SupervisorPSC or PSSC
ContractorECC or ECSC
SubcontractorECS or ECSS
SuppliersECS or ECSS
SuppliersSC or SSC
ConsultantPSC or PSSC
AdjudicatorAC
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NEC 3:Main and Secondary Options
and Alternatives
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Introduction
• Strategy for choosing the correct contract
• 6 Main Options
• Secondary Option Clauses (X, Y & W)
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Contract Strategy
• ECC main option is based on completeness of the Works Information
• Example Scenarios• Employer has fully designed the required works & requires a lump
sum price
• Employer requires Contractor to design and construct the work on a fixed sum basis
• Employer requires Contractor to design and construct the work on a fixed sum basis
• Employer requires immediate and urgent works that are not designed
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Main Option Concepts
• Activity Schedule
• Bill of Quantities
• Cost Reimbursement
• Target Cost
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Balance of risk
Contract Type Main Options
Balance of risk
Employer Contractor
PricedA
B
TargetC
D
Cost reimbursable E
Management F
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Main Options – A (1)
• Option A – Priced contract with activity schedule
• Fixed Price Lump Sum contract
• Activity Schedule
• Price Comparison
• Change Management
• The Programme
• Control and Change
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Main Options – A (2)
• Risk and Reward with Contractor
• Ideally suited to contractor’s design but can be used for Employers design
• Divided design responsibility providing the Employer’s design element is complete at time of tender
• Offers best prospects for price certainty
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Main Options – B
• Option B – Priced contract with bill of quantities• Re-measurement contract
• Bill of Quantities• Price Comparison• Changing the BoQ• Change Management
• Not suited to Contractor’s design because of reliance on bills of quantities
• Risk split Quantity/Price
• Lacks price certainty
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Main Options – C (1)
• Option C – Target contract with activity schedule • Target contract based on lump sum
• Allows Employer flexibility in developing his own design
• Target Cost• Administrative Burden• Cash flow certainty• Cost Transparency
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Main Options – C (2)
• Risk split - Contractor:• Fixed margin• Pain/gain
• Risk split – Employer:• Payment burden• Pain/gain
• Fixes some degree of certainty on price
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Main Options – D
• Option D – Target contract with bill of quantities
• Target contract bill of quantities based
• Similar price risk as Option B
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Main Options – E
• Option E – Cost reimbursable contract• Maximum flexibility in allocation of design
responsibility
• Contractor has little incentive by way of any target to minimise costs
• Not suitable if the employer is looking for price certainty
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Main Options – F
• Option F – Management contract• Not suitable for allocation of the whole of the
design responsibility to the Contractor unless placed as a ‘design & manage’ contract
• Suitable for contracts with a high reliance on specialist subcontractors who undertake their own design
• Can be arranged on the basis of lump sum contract
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Secondary Option Clauses
• You must elect to include them; No automatic incorporation
• X Clauses (15 in total in Main Contract)
• X4 – Parent Company Guarantee
• X5 – Sectional Completion
• X7 – Delay Damages
• X16 – Retention
• Y Clauses
• Y(UK)1 – Project Bank Account• Y(UK)2 – The Housing Grants Construction and Regeneration Act 1996 as
amended by the Local Democracy, Economic Development and Construction Act 2009
• Y(UK)3 – The Contracts (Rights of Third Parties) Act 1996
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Secondary Options
• X1 price adjustment for inflation
• X2 changes in the law
• X3 multiple currencies
• X4 parent company guarantee
• X5 sectional completion
• X6 bonus for early completion
• X7 delay damages
• X12 partnering
• X13 performance bond• X14 advanced payment to the
contractor
• X15 limitation of contractor’s liability for design
• X16 retention
• X17 low performance damages
• X18 limitation of liability
• X20 key performance indicators
• Y(UK)1 project bank accounts
• Y(UK)2 HGCRA as amended• Y(UK)3 contracts (Rights to Third
Parties)
• Z1
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Key Options
• W2 and Y(UK)2
• X5 – Sectional completion
• X7 – Delay Damages
• X16 – Retention
• X13 – Performance Bond
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Options using NEC3 ECCPriced Contract
eitherA with AS
or B with BoQ
Target Contracteither
C with AS or
D with BoQ
Cost ReimbursableE
ManagementF
W1
or
W2
X3 multiple currencies
if requiredX1 price
adjustment
X16 retention
as required
X2 changes in the Law
X4 parent company guarantee
X5 sectional Completion
X6 bonus for early Completion
X7 delay damages
X12 Partnering
X13 performance bond
X14 advanced payment to the Contractor
X17 low performance damages
X18 limitation of liability
X20 Key Performance Indicators
Y(UK)1, Y(UK)2, Y(UK)3Z
as required
X16 retention
as required
Main OptionDispute Option
Secondary Options
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Engineering Construction Short Contract (ECSC)
• For work that does not require all the procedures in the ECC
• Single Contract Data• Price list for PWDD and:
• Quantity changes• But not CE’s
• No express provisions for contractor design• Flexible programme requirements• No Main or Secondary Option but:
• can have “additional clauses”• includes delay damages and retention
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PSC & PSSC
• Used to appoint professionals (by Employer or Contractor)
• Designers
• Project Manager
• Supervisor
• Same Objectives as NEC Main Contracts
• Same clause structure as the NEC ECC
• No SCC or SSCC
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Professional Services Contract (PSC)
• Main Option Clauses:
• A – Priced Contract with Activity Schedule
• C – Target Contract
• E – Time Based Contract
• G – Term Contract
• Options B, D & F are not used
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When to use?
‘a simpler approach to simpler commissions’
• Choice between the PSSC & PSC should be base purely on the level of complexity and level of risk
• Non-UK heavy engineering
• Another member of NEC family• Project Manger• Supervisor • Service Manager
• Consultant on a ‘as and when needed’ basis
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PSSC –v– PSC
PSSC does not include:
• Main Option Clauses
• Secondary Option Clauses
• Sectional Completion
PSSC does include Pro-forma’s for:
• Consultant’s Offer
• Client’s Acceptance
• Price List
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