ecc intro april2013 - public · 2014-04-21 · • employer may state in contract data he will not...

NEC3: Introduction to the Engineering & Construction Contract © nec 04/2013 1

neccontract.com © nec 04/2013

NEC3: Introduction to the

Engineering and Construction

Contract (ECC)


Course agenda

• Welcome and Introductions

• Session 1 – eLearning review

• Session 2 – the ECC system and

contract strategy – the Options

• Session 3 – General provisions and Contractor’s main responsibilities

• Session 4 – Time, testing and Defects


Course agenda

• Session 5 – Payment

• Session 6 - Compensation events

• Session 7 – Other aspects of the ECC

• Session 8 – Summary & open forum



Course objectives

Delegates should:

• Understand the philosophy of NEC

• Develop skills to advise on appropriate contract strategies

• Appreciate the use of Contract Data,

Works Information and Site Information


Course objectives

Delegates should:

• Understand roles and responsibilities of key parties

• Understand important ECC clauses in particular early warning, programme, Risk Register, communications and compensation events

• Understand how to apply ECC in practice and achieve satisfactory solutions to problems


Session 1

eLearning review

• Recap of key points

– NEC characteristics

• stimulates good management

• flexible

• clear and simple

– NEC family

• for procurement of goods, works and services



NEC family

EmployerProject Manager

PSC or PSSC

Contractor

ECC

AdjudicatorAC

Supplier

SC or SSCSubcontractorECS or ECSS

Supervisor

PSC or PSSC

DesignerPSC or PSSC

Typical Employerdesigned

arrangement


NEC family

EmployerProject Manager

PSC or PSSC

Contractor

ECC

AdjudicatorAC

Supplier

SC or SSC

SubcontractorECS or ECSS

Supervisor

PSC or PSSC

DesignerPSC or PSSC

Typical design & build arrangement


Session 2 – The ECC system and contract strategy – the Options

• The Option structure is modular in form with 5 modules, normally chosen by the Employer

• ALWAYS have the core clauses and Schedules of Cost Components

• Choose ONE main Option clause (A to F) which decides the mechanism for payment

• Choose ONE dispute resolution Option clauses (W1 or W2)

• Choose as many secondary Option clauses as required (prefixed X or Y)

• Add any additional clauses (prefixed Z)



ECC structure

Core clauses

1 General

2 The Contractor’s main responsibilities

3 Time

4 Testing and Defects

5 Payment

6 Compensation events

7 Title

8 Risks and insurance

9 Termination


ECC structure

Main Option clauses are as follows:

• A - Priced contract with activity schedule

• B - Priced contract with bill of quantities

• C - Target contract with activity schedule

• D - Target contract with bill of quantities

• E - Cost reimbursable contract

• F - Management contract


ECC structure

• Activity schedule (Option A)

• Lump sum contract

• Project well defined at tender

• Activities generally defined by Contractor

• Activities priced by Contractor

• Payment on completion of defined activities

• Milestone payments by grouping activities



ECC structure

• Bill of Quantities (Option B)

• Project well defined at tender but change likely

• Standard method of measurement used

• Contractor prices items in BOQ at tender stage

• Contractor paid for quantity of work completed

• Original work is re-measured (but not necessarily changes)


ECC structure• Target cost contracts (Options C & D)

• Work must be adequately defined to establish target

• Target cost set by activity schedule (C) or bill of quantities (D)

• Contractor tenders Fee (2 types)

• Target moves with compensation events (Options C & D) and remeasurement (Option D)

• Contractor gets paid forecast Defined Cost + Fee

• Contractor is paid or pays a share of the difference between total costs and final target


ECC structure

• Cost reimbursable contract (Option E)

• Used on emergency works, where scope

undefined, experimental, research work

• Contractor tenders Fee (2 types)

• Contractor gets paid forecast Defined Cost +

Fee

• Contractor has no financial risk (except

adequacy of Fee)



ECC structure

• Management contract (Option F)

• Contractor generally organises work only

• Most work carried out by Subcontractors

• Contractor tenders prices (lump sum) and Fee (2 types)

• Contractor gets paid forecast Defined Cost + Fee

• Contractor has limited financial risk, except for adequacy of – Fee and

– prices for work he does himself


A

Contractor

Em

plo

ye

r

B

Financial

risk of main

Options

F

E

DC

ECC structure


ECC structure

• Secondary Option clauses

• 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



ECC structure• Secondary Option clauses

• X15 - Limitation of the Contractor’s liability for his design to reasonable skill & care

• X16 - Retention

• X17 - Low performance damages

• X18 – Limitation of liability

• X20 – Key Performance Indicators

• Y(UK)1 – Project Bank Account

• Y(UK)2 – The Housing Grants, Construction and Regeneration Act 1996

• Y(UK)3 – The Contracts (Rights of Third Parties) Act 1999

• Z - Additional conditions of contract


Other ECC contract documents

• Contract Data (CD) parts 1 & 2• details specifics – see generic CD included in packs

• Prices • depends on main Option chosen – include activity

schedule or bill of quantities

• Works Information (WI)• specifies and describes the works and • states any constraints• mainly specification and drawings• Supplied by Employer or Contractor (for his design)

• Site Information• describes the Site and its surroundings

• Others• eg programme, performance bond


Session 3 – General provisions and

Contractor’s main responsibilities

• General provisions

– Actions

– Identified and defined terms

– Communications

– Project Manager and Supervisor

– Early warning

• Contractor’s main responsibilities

– Providing the Works

– Contractor’s design

– People

– Working with the Employer and Others

– Subcontracting



General provisions• Actions (10.1)

• Act as stated in this contract– obliges persons to do everything the contract

states

• Act in a spirit of mutual trust and co-operation– recommended in Latham Report

– underpins all NEC contracts• legal interpretation?

• enforceability?

– Covers obligations and attitude


General provisions• Identified terms in Contract Data in italics

• Defined terms, capitalised and in 11.2

• (2) Completion (certainty of requirements)

• (5) Defect (two types)

• (7) Equipment

• (8) Fee (covers all costs not in Defined Cost (52.1))

• (12) Plant and Materials

• (14) Risk Register

• (17) Subcontractor


General provisions

• Communications (13)

• Must be in a form that can be read, copied & recorded– See example forms in packs

• Replies within period for reply or as in contract

• Notifications to be communicated separately



General provisions• Project Manager and Supervisor (14)

• Project Manager (PM) manages ECC for Employer

• PM has a great deal of authority

• PM must be even handed in matters such as assessing payment

• PM is only person who can instruct changes to WI

• PM constrained by need to give reasons if rejects a Contractor’s submission – if not in contract then Contractor is compensated

• Supervisor is checking Contractor’s compliance with the WI


General provisions

• Acceptance of any communication (programme, design etc) by the PM or Supervisor does not change the Contractor’s responsibility to Provide the Works or liability for his design (14.1)

• PM or Supervisor may delegate any actions (14.2)


General provisions

• Early warning (16) - a vital part of ECC• Contractor and PM have a duty to notify the other as

soon as they are aware of a matter which could– increase the total of the Prices

– delay Completion,

– delay meeting a Key Date or

– impair the performance of the works in use (16.1)

• Contractor may give an early warning by notifying PM of any other matter which could increase total cost

• PM enters early warning matters in Risk Register (16.1)



General provisions

• Early warning (16)• Either party may at any time instruct the other to

attend risk reduction meeting (16.2); those attending co-operate in– making and considering proposals to avoid or

reduce risk, seeking solutions, deciding actions, updating Risk Register (16.3)

• PM revises Risk Register to record decisions and issues (16.4)

• Encourages collaboration, innovation and ability to adjust to circumstances during the contract



• Providing the Works (20)

• Contractor Provides the Works in accordance

with the WI

• Contractor’s design (21)

• Contractor designs the parts of the works which

the WI states he is to design

• Default is Employer design

• Design acceptance before proceeding

• Reasons for not accepting design



• People (24)

• Contractor employs each key person stated

in Contract Data or

• Employs replacement person accepted by

PM

• Reasons for not accepting (24.1)

• PM may instruct removal of persons (24.2)




• Working with Employer and Others (25)

• Multi-contract projects are coordinated through use of Key Dates, by which stated conditions have to be met

• If the PM decides (25.3)– work does not meet Condition stated for a Key

Date by the date stated and Employer incurs additional cost

– additional cost paid by the Contractor

• Optional – no obligation to use Key Dates



• Subcontracting (26)

• If subcontracts, Contractor still responsible for Providing the Works (26.1)

• Contractor submits– name of each proposed Subcontractor to PM for

acceptance (26.2)– proposed subcontract conditions unless

• NEC contract is proposed or• PM agrees no submission required (26.3)

– proposed contract data (26.4, Options C to F)


Session 4 – Time, testing and

Defects

• Time– Starting, Completion and Key Dates

– Programme

• Testing and Defects– Searching for and notifying Defects

– Correcting Defects

– Accepting Defects

– Uncorrected Defects



Time

• Starting, Completion and Key Dates (30)

• Contractor does not start work on Site until first access date (30.1) & does work so that Completion is on or before Completion Date

• PM decides date of Completion & certifies (30.2)

• Contractor does work so that Condition stated for each Key Date is met by Key Date (30.3)

• Completion Date can only be changed by PM as a result of compensation events, or acceleration (36)


Time

• Take over (35) is not the same as Completion

• Contractor is responsible for works until take over

• Employer takes over within 2 weeks of Completion

• Employer may state in Contract Data he will not take over “early”, i.e. before Completion Date (35.1)

• Employer may take over part of works before

Completion – will be a compensation event if before Completion Date (60.1(15))


Time

• Programme (31) - very important in ECC

• Can be submitted with tender or post Contract Date (31.1)

• Accepted Programme is latest accepted by PM and includes (31.2)

– various key dates

– order and timing of operations

– order and timing of work of Employer and Others

– provisions for float, time risk allowances

– for each operation, a statement of how Contractor plans to do work identifying principal Equipment and resources

• Likely to be collection of documents which may include resource statements, information required schedules, network diagrams, bar charts

• Reasons for not accepting (31.3)



neccontract.com


Time

• Programme has to be updated regularly (32)

• Shows a number of things including the

actual progress achieved on each operation

& its effect on remaining work (32.1)

• How frequent?

– on instruction by PM

– when Contractor chooses

– interval stated in Contract Data (32.2)


Testing and Defects

• Searching for and notifying Defects (42)• Search provisions (42.1)

• Supervisor & Contractor notify each other of Defects they find (42.2)

• Correcting Defects (43)• Contractor corrects notified Defects before end

of defect correction period (43.2)

• Access required after take over to correct a Defect (43.4)



defect

correction period

defect

correction period defect

correction period

Completion defects date

before Completion

Defects notified:

before defects date

Latest issue of Defects Certificate

Testing and Defects

after Completion


Testing and Defects

• Uncorrected Defects (45)

• Contractor pays where Contractor has not

corrected Defect within defect correction period (45.1)

• Accepting Defects (44)

• Proposals that Defect not corrected (44.1)

• Quotation for reduced Prices and/or earlier Completion Date (44.2)


Session 5 – Payment

• Assessing the amount due

• Times for assessment and payment

• Schedule of Cost Components (SCC)

• Shorter Schedule of Cost Components

(SSCC)



Payment – assessing the amount due

• PM – assesses amount due at each assessment date

(50.1)– considers any application for payment Contractor

has submitted (50.4)

– gives Contractor details of assessment (50.4)• Assessments made at assessment interval• Amount due is Price for Work Done to Date (PWDD)

plus/less other amounts eg. retention, delay damages, KPIs (50.2)

• 1/4 PWDD retained if there is no first programme (50.3)



- what is PWDD for each Option?

Option PWDD

A Total of Prices for completed activities 11.2(27)

B Quantities of completed work at BQ rates

and proportions of lump sums 11.2(28)

C to F Defined Cost forecast to be paid before

next assessment date + Fee 11.2(29)



– what is Defined Cost in Option C to F?

Option Defined Cost

C to E Payments due to Subcontractors for work

subcontracted and cost of components in SCC for other work, less Disallowed Cost (11.2(23))

F Payments due to Subcontractors for work

subcontracted and prices for work done by

Contractor, less Disallowed Cost (11.2(24))



Payment – assessing the amount due –

what is Disallowed Cost in Option C to F?

Option Disallowed Cost

C to E

11.2(25)

Cost which PM decides eg

- is not justified by the Contractor’s accounts

- should not have been paid to Subcontractor

- was incurred only because Contractor did not give early warning

- correcting Defects after Completion

F

11.2(26)

As C to E plus

- payment to Subcontractor for work which CD states Contractor will do himself or Contractor’s

management


• Defined Cost includes only amounts

– calculated using rates and percentages

stated in the Contract Data

– other amounts at open market or

competitively tendered prices with deductions

for all discounts, rebates and taxes (52.1)


what is Defined Cost in Option C to F?


• All Contractor’s costs not included in Defined Cost are treated as included in Fee (52.1)

• The Fee (11.2(8)) is calculated by applying– subcontracted fee percentage to Defined

Cost of subcontracted work and

– direct fee percentage to Defined Cost of other work


what is the Fee in Option C to F?



Payment – times without Y(UK)2

PM certifies

payment

Certified

payment is

made1 week

assessment

date

3 weeks or other

period stated in CD

Interest 51.2


Payment – times with Y(UK)2

Y2.2 due

date for

payment

Y2.2 final

date for

payment7 days

assessment

date

7 days

14 days or other

period stated in CD

Y2.3 notice

to pay less

than PM’s

assessmentY2.4

suspension of

performance of

all or part of

works

Interest 51.2


• Used only in Options C to E

• Used for assessing both

– compensation events, and

– Price for Work Done to Date (PWDD)

• Contractor means the Contractor and not

Subcontractors

• An amount is included only in one cost

component and only if incurred to Provide the

Works

Payment – the SCC



• Used only for assessing compensation events– in Options A and B

– in Options C to E if PM and Contractor both agree

• In Option A or B Defined Cost is cost of the components in the SSCC whether work is subcontracted or not 11.2(22). Therefore used to assess work carried out by Contractor and Subcontractor

• In Options C to E, SSCC is not used to assess work carried out by Subcontractors

• Amount is included only in one cost component and only if incurred to Provide the Works

Payment – the SSCC


• Components– People

– Equipment

– Plant and Materials

– Charges

– Manufacture and fabrication

– Design

– Insurance

• Data completed in Contract Data Part 2

Payment – the SCC & SSCC


Session 6 - compensation events

• Definition

• Process

• Method of assessment

• Sanctions for non-compliance



Compensation events - definition

• Compensation events are

– events which if they do not arise from Contractor’sfault, entitle Contractor to be compensated for effect on the Prices, Key Dates and Completion Date

• Therefore it is important to remember that

compensation events deal with both time and

money



• Where are compensation events stated?

• 19 in subclause 60.1

• 3 in main Options B & D

• Also in secondary Options X2, X12.3(6)

& (7), X14.2, X15.2 and Y2.4

• May be additional compensation events

in secondary Option Z



• Compensation events, examples 60.1

• (1) PM gives instruction changing the WI

• (2) Employer does not allow access to and use of part of the Site

• (3) Employer does not provide something

• (5) Default by Employer or Others

• (12) Contractor encounters certain physical conditions

• (13) A weather measurement is recorded, less frequently than once in ten year



Compensation events - process

• There is a defined process to agree (or impose) the effects of a compensation event within defined time limits– Notification (61)

– Quotation (62)

– Assessment (63/64)

– Implementation (65)

• Either Party can make sure that process and time scales are adhered to



• Notification

• If the compensation event arises from PM or Supervisor– instruction, certificate, changing decision,

correcting assumption then

– PM notifies and instructs Contractor to provide quotation (61.1)

• Otherwise Contractor notifies (61.3)

• PM may also instruct quotation for proposed instruction (61.2)



• Notification

• When Contractor notifies PM replies within one week with “yes” or “no”

• Answer is “no” if PM decides event

– is Contractor’s fault,

– has not happened/will not happen,

– has no effect on Defined Cost or time, or

– is not a listed compensation event (61.4)

• Otherwise answer is “yes” and PM instructs Contractor to provide a quotation (61.4)




• Quotation

• When instructing a quotation PM may – instruct alternative quotations (after discussion

with Contractor) (62.1), and/or

– state assumptions on which quotation is to be based (61.6), if effects are unclear

• Contractor provides quotation within 3 weeks (62.3), which can be extended by agreement (62.5)



• Quotation• PM replies within 2 weeks of receipt of quotation

(62.3)• The reply is one of following (62.3)

• Accept quotation• Reject quotation, because it has not been prepared in

accordance with contract, in which case PM must– ask Contractor to provide revised quotation (with reasons),

or– tell Contractor he will make own assessment

Note PM can’t just reject• Confirm that proposed instruction will not be given



• Project Manager’s assessment (64)

• PM makes his own assessment if– Contractor has not responded within time

– PM decides Contractor has not assessed CE correctly

– No programme submitted by Contractor with quotation

– PM has not accepted Contractor’s latest programme

• PM makes assessment within the time allowed for Contractor




• Implementation

• Compensation event is implemented when– PM accepts Contractor’s quotation,

– PM notifies Contractor of own assessment, or

– Contractor’s quotation is treated as having been accepted (65.1)

• Once implemented – It is not reviewed if forecast is wrong (65.2)

– Only the Adjudicator can change it if one Party still disagrees (W1/W2)


Compensation events – method of assessment

• Change to the Prices

– Defined Cost of work already done

– forecast Defined Cost of work not yet done

– resulting Fee (63.1)

• Delay to the Completion Date

– length of time that, due to compensation event, planned Completion is later than planned

Completion shown on Accepted Programme (63.3)


Compensation events – method of assessment

• If PM and Contractor both agree, rates and lump sums may be used as a basis

for assessment (63.14 A,B,E&F, 63.13

C&D)

• Otherwise Prices or rates in the BQ or

Activity Schedule are NOT used



Compensation events - sanctions

• If Contractor does not notify of CE he is supposed to (not one to be notified by PM) within 8 weeks of becoming aware of event, he loses rights to any additional time or money (61.3)

• If PM fails to reply to Contractor’s notification of CE within 1 week, Contractor may give PM a reminder (61.4)

• If failure continues for a further 2 weeks after reminder, deemed that PM has accepted it is a CE & instructed a quotation to be provided (61.4)


Compensation events - sanctions

• If PM fails within allowed time to

– reply to quotation (62.6), or

– assess quotation (64.4)

Contractor may give reminder (62.6/64.4)

• If failure continues for a further 2 weeks after

reminder, the Contractor’s quotation is

treated as having been accepted (62.6/64.4)


Session 7 – Other aspects of the ECC

• Title

• Risks & insurance

– Employer’s risks

– Insurance

• Termination

• Dispute resolution



Title• Whatever title Contractor has to Plant and

Materials passes to Employer– when brought into Working Areas (70.2), or

– if they are outside the Working Areas, when they are marked by Supervisor (70.1)

• Objects and materials within Site (73)– PM instructs how to deal with object of value or

historic or other interest (73.1)

– Contractor has title to materials from excavation & demolition only as stated in the WI (73.2)


Risks & insurance

• Risks & insurance• 80 Employer’s risks (damage and 3rd party

claims)

• 81 Contractor’s risks (by difference)

• 83 Indemnity» Each party indemnifies the other

» Net contribution

• 84 Insurance cover – 4 No

• 85 Insurance policies

• 87 Insurance by Employer

• X18 Limitation of liability


Termination• Termination is of Contractor’s obligation to

Provide the Works (90.1)

• Contractor may terminate only for reasons in Termination Table (90.2)

• Employer may terminate for any reason (90.2)

• Stated reasons for termination (91)

• Procedures on termination (92)

• Payment on termination (93)



Dispute resolution

• 2 options, W1 and W2

• Choice is entered in Contract Data Part 1

• W1 used unless HGCRA applies

• W2 used if HGCRA applies – will concentrate

on that

• Both options use adjudication as the primary

means of dispute resolution


Dispute resolution – key points of W2

• Adjudication can be “at any time” (W2.1(1))

• Adjudicator is an independent 3rd party who can be

– named in the contract, or

– agreed or appointed when the dispute arises (W2.2)

• Adjudicator has 28 days to make his decision, which can be extended by agreement (W2.3(8))

• Adjudicator’s decision is binding but not necessarily

final (W2.3(11))

• Subcontract joinder possible by agreement (W2.3(3))


Dispute resolution – key points of W2

• Final decision is made by tribunal named in Contract Data Part 1

– Arbitration, or

– The courts (W2.4)

• Can’t use tribunal until after Adjudicatormakes decision (W2.4(1))

• Parties have 4 weeks after decision to notify disagreement with it, otherwise becomes final as well as binding (W2.4(2))



Session 8 - Summary & open forum

• Questions and answers


Were the course objectives met?

Delegates should:• Understand the philosophy of NEC

• Be able to advise on appropriate contract strategies

• Appreciate the use of Contract Data, Works Information and Site Information

• Understand the roles and responsibilities of key parties

• Understand important ECC clauses in particular early warning, programme, Risk Register, communications and compensation events

• Understand how to apply ECC in practice and achieve satisfactory solutions to problems


Next steps?

• Further training?

• NEC Users’ Group membership?

• Internal NEC champion?

• Share best practice – case

studies/Newsletter articles/document

sharing?

ecc intro april2013 - public · 2014-04-21 · • employer may state in contract data he will not...

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