nec3 contract trainning
DESCRIPTION
NEC ContractsTRANSCRIPT
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Workshop 4 – Delivering the
Contract
Colin Smyth MRICS MBA
Gary Bogle BSc (Hons) LLM MRICS FCIArb
Wednesday 20th September 2011
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Our Agenda for Today
Delivering a project under a JCT or NEC Contract
Contract Planning & Programming
Risk Management & Cost Control
Budgeting & Cost Management
Resolving Disputes
Company and Project Performance Measurement
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General Procurement
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General Procurement Methods 2007
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General Procurements Methods 2007
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Overview of the JCT
JCT Suite of Contracts
Adjudication Agreement
Collateral Warranties
Construction Management
Consultancy Agreement (Public
Sector)
Design and Build Contract
Framework Agreements
Generic Contracts
Home Owner Contracts
Intermediate Building Contract
JCT – Constructing Excellence
Contract
Major Project Construction Contract
Management Building Contract
Measured Term Contract
Minor Works Building Contract
Partnering Charter
Pre-Construction Services
Agreement
Prime Cost Building Contract
Repair and Maintenance Contract
Standard Building Contract
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SBC/Q
Appropriate for major works designed and/or detailed by or
on behalf of the Employer. The contract is based on
drawings and bills of quantities to define the quantity and
quality of the works
Where a Contract Administrator and Quantity Surveyor have
roles to play in the administration of the conditions
Variants:
Where the contractor is to design discrete parts of the work
(Contractor‟s Designed Portion)
Where the work is to be carried out in sections
By both private and local authorities
SBC/Q - 2005
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There are nine sections in the SBC/Q
outlining the provisions of this contract Section 1 - Definitions and Interpretation
e.g. Activity Schedule, Architect/CA, Health & Safety Plan
and Electronic Communications
Section 2 - Carrying out the Works
e.g. Contractor‟s Obligations, Adjustment of Completion
Date and Defects
Section 3 - Control of the works
e.g. Access and Representatives, Person-in-charge,
Architect/CA‟s Instructions
SBC Conditions (1)
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Section 4: Payment
e.g. Contract Sum and Adjustments, Certificates
and Payments, Retention and Loss and Expense
Section 5: Variations
e.g. The Valuation Rules
Section 6: Injury, Damage and Insurance
e.g. Injury to Persons or Property and Insurance
SBC Conditions (2)
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Section 7: Assignment, Third Party Rights and
Collateral Warranties
e.g. Assignment, Rights for Purchasers and Tenants,
Contractor‟s Warranties
Section 8: Termination
e.g. Meaning of insolvency, reinstatement and Corruption
Section 9: Dispute Resolution
e.g. Mediation, Adjudication and Arbitration
SBC Conditions (3)
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Overview of the NEC 3
The NEC Journey so far ……..
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The NEC3 Suite – The Contracts
The NEC Suite of Contracts:
Generic name for a family of contracts published for the Institution of Civil Engineers by Thomas Telford Ltd.
NEC 3
Engineering and Construction Subcontract
Engineering and Construction Short Contract
Engineering and Construction Short Subcontract
Professional Services Contract (PSC)
Adjudicator‟s Contract
Term Service Contract & Guidance Notes
Framework Contract
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The NEC3 Suite – The Contracts
Catalyst for NEC:
Sir Michael Latham‟s industry report
„Constructing the Team, 1994‟
Believed NEC complied with most of the
principles that the report advocated.
NEC 3 - Background
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Latham
Improving industry‟s performance
Teamwork better VFM
NEC 3 - Background
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Latham
Clients
Well informed – know what they want & take decisive
steps to achieve it
Knowledgeable but not necessarily modern in their
approach
Others are feeling their way under new administrative
arrangements
Some know nothing & need extensive help & guidance
for formulate their wishes then match them to the
available budget
NEC 3 - Background
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Latham
Client Objectives
VFM
Pleasing to look at
Free from defects on completion
Delivered on time
Fit for the purpose
Supported by worthwhile guarantees
Reasonable running costs
Satisfactory durability
NEC 3 - Background
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NEC 3 - Background
• Sir Michael Latham• Believed NEC complied with most of the principles
that the report advocated.
• Constructing the Team• A specific duty for all parties to deal fairly with each
other, and with their subcontractors, specialists and suppliers, in an atmosphere of mutual cooperation.
• Firm duties of teamwork, with shared financial motivation to pursue those objectives. These should involve a general presumption to achieve “win-win” solutions to problems which may arise during the course of the project.
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NEC 3 - Background
• Constructing the Team• A wholly interrelated package of documents which
clearly defines the roles and duties of all involved, and which is suitable for all types of project and for any procurement route.
• Easily comprehensive language and with Guidance Notes attached.
• Separation of the roles of contract administrator, project or lead manager and adjudicator. The Project or lead Manager should be clearly defined as the client‟s representative.
• A choice of allocation of risks, to be decided as appropriate to each project but then allocated to the party best able to manage, estimate and carry the risk.
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NEC 3 - Background
• Constructing the Team• Taking all reasonable steps to avoid changes to pre-
planned works information. But, where variations occur, they should be priced in advance, with provision for independent adjudication if agreement cannot be reached.
• Express provision for assessing interim payments by methods other than monthly valuation i.e. milestones, activity schedules or payment schedules. Such arrangements must also be reflected in the related subcontract documentation. The eventual aim should be to phase out the traditional system of monthly measurement or remeasurement but meanwhile provision should still be made for it.
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NEC 3 - Background
• Constructing the Team• Clearly setting out the period within which interim
payments must be made to all participants in the
process, failing which they will have an automatic
right to compensation, involving payment of interest at
a sufficiently heavy rate to deter slow payment.
• Providing for secure trust fund routes of payment.
• While taking all possible steps to avoid conflict on
site, providing for speedy dispute resolution if any
conflict arises by a pre-determined impartial
adjudicator/referee/expert.
• Providing for incentives for exceptional performance.
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NEC 3 - Background
• Constructing the Team• Making provision where appropriate for advance
mobilisation payments (if necessary, bonded) to contractors and subcontractors, including in respect of off-site prefabricated materials provided by part of the construction team.
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Emergence of NEC:
Client Dissatisfaction
Questioned if existing standard forms adequately
served the best interest of all parties
Time, cost and quality of projects
Greater need of certainty of outcome
Required appropriate allocation of risk that
other contracts did not provide
NEC 3 - Background
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NEC 3 - Background
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NEC 3 - Background
UK Construction Industry highly capable
Concern that industry is under-achieving
Low profitability
Invests too little in capital, research &
development and training
Aim of Task Force based on their
experiences in other industries
Deliver improvements in
• Quality
• Efficiency
Egan – Rethinking Construction
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Committed leadership
Focus on the customer
Product team integration
Quality driven
agendaCommitment to people
Drivers forChange
Product
development
Production of
components
Project
implementation
Partnering
the
supply chain
Improving theProject Process
5-4-7 Mantra of Rethinking Construction
Targets forImprovement
Capital cost
Construction
timePredictability
Defects
Accidents
Productivity
Turnover & profits
-10%
-10%
+20%
-20%
-20%
+10%
+10%
Egan – Rethinking Construction
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Using experience
Set ambitious targets
Effective measurement of performance
Improvement
Egan – Rethinking Construction
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An industry wide group developed a set of
simple headline Key performance Indicators
(KPIs) based on the 7 Rethinking Construction
targets but with the addition of Client
Satisfaction measures:
Product
Service
Performance
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Rethinking Construction KPI‟s
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Committed leadership
Focus on the customer
Product team integration
Quality driven
agendaCommitment to people
Drivers forChange
Product
development
Production of
components
Project
implementation
Partnering
the
supply chain
Improving theProject Process
5-6-10 Model
Targets forImprovement
Construction costConstruction time
Predictability (cost)
Client Satisfaction - P
Profitability
ProductivitySafety
SustainabilityRespect for
People
Predictability (time)
Client Satisfaction - S
Defects
Egan – Performance Measurement
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Industry
Changes in culture & structure to support
improvement
Safe working conditions
Improve management & supervisory skills at all
levels
Design projects for ease of construction
Maximum use of standard components &
processes
Egan – Rethinking Construction
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Industry
Replace competitive tendering in favour of
Long term relationships based on
• Clear measurement of performance
• Sustained improvements in quality & efficiency
Egan – Rethinking Construction
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Demonstration Projects
Leading edge organisations that demonstrate
Innovation
Change which can be measured & evaluated
Egan – Rethinking Construction
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Ambition of Rethinking Construction
50 projects
Total value £500m
Accelerating Change - Actual
400 projects
Total value of over £6bn
38% are housing projects
62% the rest of the construction industry
Egan – Rethinking Construction
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These provide examples of:
Off-site fabrication
Standardisation
Use of new technology
Sustainability
Respect for people activities
Partnering
Supply chain integration
Demonstration Projects
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Egan – Rethinking Construction
Bring together those committed to
“rethinking construction”
Encourage openness, sharing and learning
Develop benchmarking and co-operation
Demonstrate innovation and best practice
Disseminate to the whole of the industry
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Difference in NEC3 and other standard forms
of contract:
3 clear objectives:
Flexibility
Clarity and simplicity
Stimulus to good management
Cultural change
Assessment of change
Trust and cooperation
Collaboration
NEC 3 - Background
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NEC 3 - Background
3 clear objectives
• Flexibility
• Clarity and simplicity
• Stimulus to good management
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NEC 3 - Background
Objective 1- Flexibility:
• Multi-disciplinary – can be used by any
discipline in the industry
• Design – can be used for Employers design
or Contractors design, or partial design
• Pricing – 6 main options ranging from fixed
price to cost reimbursement
• Applicable – worldwide on a variety of
projects
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NEC 3 - Background
Objective 2 – Clarity and simplicity:
• Plain English which avoids excessive use of legal jargon
• Simple structure:
• short sentences,
• same format,
• no cross referencing,
• no reference to the Law
• Procedures are not open ended or conflicting
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NEC 3 - Background
• Objective 3 – Stimulus to good management:
• Encourages collaboration and forward planning
• Clear allocation of responsibilities
• Early warning procedure
• Detailed procedure for dealing with changes
• Programming facilities that is used in joint decision-
making by the contractor and project manager
Growth of NEC3:
OGC ‘recommends the use of NEC3 by
public sector construction procurers on their
construction projects’.
Office of Government Commerce 2005
Engineering & Construction Contract
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Structure of ECC:
„pick and mix‟ arrangement
9 Core Clauses
6 Main Options
• Employer must select main option
2 Dispute resolution procedures (ECC 3 only)
• Employer must select dispute resolution option
18 Secondary Options
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Engineering & Construction Contract
Structure of ECC:
9 Mandatory Core Clauses:
• 1 – General
• 2 – The Contractors main responsibilities
• 3 – Time
• 4 – Testing and Defects
• 5 – Payment
• 6 – Compensation events
• 7 – Title
• 8 – Risks and Insurance
• 9 – Disputes and Termination
Core Clauses
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Structure of ECC:
Options:
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 reimbursement Contract
F – Management Contract
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Main Options
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
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Secondary Options
Secondary Option Clauses:
X7 – delay damages
X12 – partnering
X13 – performance bond
X14 – advanced payment to the contractor
X15 – limitation of the contractors liability for
design
X16 – retention
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Secondary Options
Secondary Option Clauses:
X17 – low performance damages
X18 – limitation of liability
X20 – key performance indicators
Y(UK)2 – Housing Grants, Construction and
Regeneration Act 1996
Y(UK)3 – Contract (Rights of Third Parties)
Act 1999
Z – Additional conditions of contract
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Secondary Options
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Questions ?
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Introduction to the NEC 3 Short Contract
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NEC 3 Short Contract
Formally Launched 30 July 1999
• Not a minor works form
• No financial ceiling on value of projects
Used for contracts which
• Do not require sophisticated management techniques
• Comprise straightforward work
• Impose only low risks on both the employer and the
contractor
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NEC 3 Short Contract
• Provisions• Early Warnings
• Programmes
• Compensation Events
NB: Shortened to suit the simpler nature of the contracts
• Structure• No main options
• No secondary options
• Additional conditions can be inserted on page 3
• Price list allows for a number of pricing arrangements (lump sum or rates)
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NEC 3 Short Contract
Contents
1. Contract Data
2. Clauses
3. Index
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Programming under NEC
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Purpose of NEC Programme
Co-ordinate Works
Assess CE‟s
Monitor Progress (to learn lessons)
Maintain Focus
Identify Problems
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Short Form Programme
Clause 31 – The Contractor submits
programmes to the Employer as stated in the
Works Information
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ECC Clause 31.1
Cl 31.1 Contractor must submit a first programme within the period stated in the Contract Data
Cl 31.2 Detailed Programme
• Starting date, access dates, Key Dates & Completion Date
• Planned Completion
• Order & timing of operations
• Provision for float, time risk allowances, health & safety
Cl 31.3 Project Manager accepts or rejects
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Early Warning
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Early Warnings
Cl 16.1 – Contractor and Employer give early warnings
by notifying the other as soon as either becomes aware
of any matter which could
• Increase Prices
• Delay Completion
• Impair the works
Cl 16.2 - Contractor and Employer co-operate in making
and considering proposals and recording actions
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Compensation Events
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NEC 3 Short Contract
Compensation Events• Cl 60 – Cl 63
• Cl 60 – Reduced number of CE‟s
• 14 in total
• Provisions for dealing with change are largely same as ECC, but Contractor only notifies change!
• Cl 61 – Notifying compensation events
• Cl 62 – Quotations
• Cl 63 – Assessing
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Clause 61 – Notification (1)
• Cl 61.1 - Contractor notifies Employer if:
• He believes it‟s a CE
• Employer has not notified him
• 8 week long stop then NO COMPENSATION
• Cl 61.2 – Employer decides if it:
• Arises from a Contractor default
• Hasn‟t or won‟t happen
• Doesn‟t effect time or cost
• Isn‟t on the list
Otherwise, Employer asks Contractor for a quotation
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Clause 61 – Notification (2)
• Cl 61.3 – Employer notifies missed early warning
• Cl 61.4 - Employer may decide effect of CE is too
uncertain to reasonably forecast, so
• He makes stated assumptions
• If assumption is wrong Contractor notifies
correction
• Cl 61.5 – No notification after “defects date”
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Clause 62 – Quotations (1)
• Clause 62.1 - Quotation comprises Contractor’s
assessment with details of:
• Changes to prices
• Delay to Completion Date
• Contractor submits a quotation within 2 weeks of being
instructed or within 2 weeks of the CE notification if no
instruction was received
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Clause 62 – Quotations (2)
• Cl 62.2 – Contractor does not put a proposed
instruction or change into effect without a instruction
from the Employer first
• Cl 62.3 - Contractor submits within 2 weeks.
Employer replies within 2 weeks:
• Notifying that instruction will not be given
• Accepting; or
• Does not agree
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Clause 62 – Quotations (3)
• Cl 62.4 – If Employer doesn‟t agree with quote
• Contractor can submit a revised quotation within 2
weeks
• If Employer still doesn‟t agree with quote
• Assesses the CE
• Notifies the assessment
• Cl 62.5 – Employer can ask for alternative quotations
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Clause 63 – Assessment (1)
• Clause 63.1 – CE that only affects quantities of work shown
on Price List
• Changed quantities X Price List rates = assessment
• Clause 63.2 – Other CE‟s are assessed by forecasting the
effect upon the Defined Costs; or
• If event has already occurred, the Defined Costs due to the
event which the Contractor has incurred
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Clause 63 – Assessment (2)
• Effects on Defined Costs are assessed separately for
• People employed by the Contractor
• Plant & Materials
• work subcontracted by the Contractor and
• Equipment
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Clause 63 – Assessment (3)
• Clause 63.3 – Defined Costs are assessed at open
market or competitively tendered prices
• The following are deducted from the Defined Costs for
assessment
• Cost of events for which the contract requires the
Contractor to insure
• Other costs paid to the Contractor by insurers
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Clause 63 – Assessment (4)
• Clause 63.4 - Delay is effect of CE on the Completion
Date
• Clause 63.5 – Failure to warn, may mean reduction
• Clause 63.6 – Cost and Time risks are included
• Clause 63.7 – We assume Contractor reacts
competently and is promptly, additional cost and delay
are reasonable
• Clause 63.8 – Ambiguities are assessed in the
Contractor’s favour
• Clause 63.9 – CE can‟t be revised if a forecast upon
which is was based is later shown to be wrong
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Questions ?
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Contract Planning & Programme
Stages of Project & Types of Planning Programme
Project Stage Type of Programme Who Plans?
Overall Project Project master schedule The client or Project
Manager
Design Project master schedule Designer: Architect/
Engineer
Tender Pre-tender programme Tendering Contractors
Pre-contract Master programme
Target programme
Subcontractors’
programme Procurement
programme
The Main Contractor
Contract Stage programme
Short-term programme
As-built programme
The Main Contractor and
Subcontractors
Reasons for Overall Planning Programme
To establish a realistic project master schedule
To identify key dates or gateways at critical stages of the
project
To facilitate control of the design and tendering process
To identify potential risks to progress and avoid possible
delays to project completion and revenue generation
To facilitate the arrangement and draw-down of client
cash funding
To establish a realistic time period for the construction
stage
To monitor actual progress and take corrective action
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Microsoft Project
Project Management Software
Helps with assigning resources and tasks to a given
project
Assists in monitoring budgets, production progress and
workloads
Can help companies maximise the use of physical and
human resources on numerous production projects
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Microsoft Project
Entering Production Tasks:
The production of buildings can be broken down into a
series of tasks that must be carried out to achieve the
overall result
A task is an activity that requires a period of time or the
input of a physical or human resource, for example:
Concrete and adhesives need a certain amount of
time to cure
Pouring concrete or applying adhesives need human
input before they can cure
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Point and click
your cursor in the
first „Task Name‟
cell.
Text also appears
in the entry bar.
When you press
Return, notice this
task has been
given a duration of
1 day
Entering production tasks
If mistakes are made when entering
tasks they can be changed in two
ways.
Firstly, by clicking on the erroneous
cell, or by navigating using the arrow
keys, a wrongly entered task can be
re-entered correctly. This requires
the whole task to be re-typed.
Secondly, by clicking on the
erroneous cell, or by navigating
using the arrow keys, the entry bar
can be used to change a specific part
of the task.
Re-entering misspelled tasks
Deleting tasks
In order to delete a task, all
attributes of that task must be
deleted. The whole row must
be selected. This is done by
clicking on the number
identifier as highlighted
Deleting tasks
Note: Erect front formwork has
been deleted and all
subsequent tasks have moved
up
Note: after „Erect front
formwork‟ is deleted, the row
with the fourth task remains
highlighted.
Inserting tasks
In order to insert a task you
must select the task which is
going to become the next task
in the list.
For example, the task to be
inserted now will become task
4, so the current task 4 „Place
concrete‟ will become task 5.
Inserting tasks
Assigning task duration
Notice that the default duration applied
to each task is „1 day?‟. This shows that
the default duration is one day however
it is also asking “Is this the duration to
be assigneed to this task”?
In order to assign a different duration,
highlight the duration cell for the
specific task. Input the new duration. If
the duration is one week input 1w, if the
duration is two days input 2d and if the
duration is three hours input 3h.
Applying task duration
Notice that as the task
durations were
applied, the Gantt
chart changed to
reflect these changes.
Applying milestones
Tasks 1 and 9 are changed
to milestones by giving
them a duration of 0d as
they are specific points in
time and do not have any
duration.
Assign task relationships (1)
Notice how all
tasks have been
linked in the Gantt
Chart. To link two
or more tasks,
select the tasks in
the „Task Name‟
column.
Assigning
a
relationshi
p between
tasks can
be done in
threes
ways.
Firstly, when
tasks have
been selected
use the link and
unlink
commands
under the Edit
menu,
Secondly, when
tasks have
been selected
use the link and
unlink
shortcuts on
the Standard
menu toolbar.
Thirdly, the mouse
can be used to
link tasks by
clicking on one
task and dragging
the mouse cursor
to another task.
Assign task relationships (1)
The relationships in the previous slide are
all „series‟ relationships. This means that
they happen one-after-the-other.
There are times when tasks can be run
simultaneously, or „parallel‟
TASK 1 TASK 2
Series tasks
TASK 1
TASK 2
Parallel tasks
Parallel relationships
The predecessors
tab is used to
change tasks from
running in series
(or one-after-the-
other) to parallel.
Note that tasks 3
and 4 are now
parallel tasks that
can be carried out
at the same time.
Task 4 through 9
continue in series
with this parallel
pair (task 2 and 3).
The task
information box
can be accessed
by double clicking
on the task or
clicking on the
Task Information
shortcut on the
standard toolbar.
Network diagram
The network diagram
can be accessed by
selecting Network
Diagram under the
View menu.
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Questions ?
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Risk Management
Application of RM in Construction
RM Application stages
Initial appraisal
Outline or sketch
design
Detailed design
Contract strategy
Construction
Potential for
Risk Management
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Risk Management Framework
Risk Identification
Risk Classification
Risk Analysis
Risk Response
Risk Identification
Risk Assessment /
Classification
Risk Analysis / Evaluation
Risk Response / Control
Risk Management Process
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Risks in construction projects: How they
arise?
Decisions lead to activities which may differ from expectations
Uncertainties are the cause of differences
Information allows to foresee results
Helps the decision maker
Example: deep basement construction
Decisions Activities
Expectations
Results
Risk
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Defining Risk in Construction
Risk in construction projects
The possible occurrence of an uncertain event or outcome, which should it occur, will cause significant variations or consequencesAdditional costs (cost risk)
Delays (time risk)
Substandard quality (quality risk)
Risks occur due to risk causes or risk factors
Bad weather
Industrial action
Turbulent economic conditions, many more……..
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Nature of Risk
Risks occur as a result of poor prediction?
Measured by chance or probability of happening
3 Attributes of risk
Risk factor - Range of outcomes
• Optimistic outcome, pessimistic outcome, most likely outcome
• Only one will actually happen
Individual consequences
• Consequence of each outcome
• OO – Profit, PO – Loss
Probability
• Assess the probability of each of the outcomes occurring
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Purpose of Identifying Risks (Risk Analysis)
Identification of major risks that affect project
objectives
Possible outcomes and consequences of risks
Likelihood of project objectives being attained
Methods of controlling or accommodating risks
Increased confidence in investment decision
Provides a framework for identifying & managing
risks
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Example of Construction Risk Types
Techniques for Identification of Risk
Brainstorming
Team based: identify potential risks
Creative process: generate ideas, no criticism
List of large number of potential risks
Group output better than individual: sense of
involvement
Tree diagrams
Traces: causes, origins and consequences of risks
Multi-level analysis, graphical
Uses probability values for each risk
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Techniques for Identification of Risk
Risk Registers
List of pre-identified typical risks
Developed through consultation
example
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Risk
Sources
Source Event Effect
Example:
Risk Analysis
Quantitative evaluation of risk factors
Risk to the project
Consequences of risk
Individual risk
Combined consequences of all risks
Risk profile of the project
Possible future events and probability of occurring
Adopt strategy to deal with major risks
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Risk Analysis
Process
Risk Analysis Process
Alternatives and options
Risk attitude
Identify and classify risks
Measure the risk: quantitatively & qualitatively
Interpretation of results
Strategy to deal with risks
What risks to deal and what risks to allocate
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Example of Analysis
Likelihood of damage to adjoining buildings as a result of pile driving
Risk Measurement
Involves finding what is more risky
Different techniques used
Probability analysis
Sensitivity analysis
Simulation technique (Monte-Carlo simulation)
Scenario analysis
Correlation analysis
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Probability Analysis
How probable is the risk
Uses probability distribution against all possible occurrences of risk
Probability classified as:
Objective probability - common
Subjective probability
Defined from experience, intuition
Standard probability distributions used for interpretation
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Probability Analysis Example
Scenario:Estimate: need for connection to gas main
Full survey not done, hence, uncertainty as to the exact condition of the gas main connection costs
Typical cost of new gas main £ 2,500
Highly competitive: many sub contractors looking for work
Fixed price job
Estimate the cost of new gas mains to minimise risk to the contractor
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Probability Analysis Example
Option Price Probability Probable
Cost
A Some
modification
£5000 0.50 £2500
B No modification £2000 0.30 £600
C Substantial
modification
£15000 0.20 £3000
Risk free
estimate
£6100
Risk Response
Risk Retention
Risk Absorption
Risk Reduction Risk Transfer Risk Avoidance
Risk Response
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Risk Response Options
Retention
Not all can be transferred, not economical to do so
Consider risk reward: insurance - limited excess
provision
Reduction
Spread of risks to other parties
Sub contractors, work packages
Methods:
Education and training (staff training)
Physical Protection (e.g. sprinkler system, protective gear)
Checking & monitoring (QA)
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Risk Response Options
Transfer
Reduce the burden, not the possibility
Insurance: professional indemnity, all risk
Retention to cover residual risks
• 1-5% of contract sum
• Performance bond
Avoidance
Refusing to accept risks (non contracting)
Rescind the contract for fundamental breach
Usually avoidance occurs at early stage of projects
Use of exemption clauses
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Questions ?
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Budgeting & Cost Management
Cashflow Forecast
Cash flows for the company are usually
prepared on a contract – by – contract basis
and accumulated for the company as a whole
so as to give a complete picture of what is
happening
This helps a company to predict the minimum
and maximum cash required over the trading
year so as to arrange a comfortable working
capital facility
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Company Cash Flow for a Small Contractor
Value Forecasting Using the Bar Chart
Expenditure Forecasting
Strategies for Improving Cash Flow
At Tender Stage
These methods will bring in early money but must be done
before submitting the priced bills:
Load money into under measured items
Load money into early items such as excavation and
substructures
Load money into mobilisation items in the preliminaries
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Strategies for Improving Cash Flow
During the Contract
These methods will reduce working capital requirements:
Submit interim applications on time
Over measure the work in progress
Over value materials on site
Agree on the value of variations as soon as possible
Keep good records and submit claims early
Deal with defective work quickly to avoid delayed payment
Make maximum use of trade credit facilities
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Strategies for Improving Cash Flow
Post Contract
These methods will increase profit levels:
Submit all documentations as soon as possible
Ensure timely release of retentions by submitting
health and safety file information on time
Agree on final account as soon as possible
Collect outstanding retentions on time
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Questions ?
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Dispute Resolution
Dispute Resolution
Dispute Resolution:
Litigation
Arbitration ?
Alternative Dispute Resolution
Civil Procedure Rules 1998 – the courts are to actively
manage the process by „encouraging the parties to use an
“alternative dispute resolution” procedure if the courts
consider that appropriate and facilitating the use of such
procedure‟ r 1.4 (2) (e)
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Dispute Resolution
Alternative Dispute Resolution:
Negotiation
Mediation
Conciliation
Med-Arb
Mini Trial
Expert Determination
Adjudication
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Alternative Dispute Resolution
Features:
Third party
Is not binding unless parties agree
Consensual
Emphasis on encouraging parties to reach
settlement
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Alternative Dispute Resolution
Negotiation:
Bargaining position of the parties
Relationship between the parties
Who is undertaking the negotiation
Amount in dispute
Relative strength of case/legal argument
Personal style of negotiator
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JCT Provisions
There are 4 methods of dispute resolution:
1. Mediation
2. Arbitration
3. Adjudication
4. Litigation
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JCT Provisions
Article 7: Adjudication
If any dispute or difference arises under this Contract,
either part may refer it to adjudication in accordance with
clause 9.2
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JCT Provisions
Article 8: Arbitration
Where Article 8 applies, and subject to Article 7… any
dispute or difference between the parties of any kind
whatsoever arising out of or in connection with this
Contract, whether before, during the progress or after the
completion of abandonment of the Works or after the
termination of the contractor‟s employment, shall be
referred to arbitration in accordance with clauses 9.3 to 9.8
and the JCT 2005 Construction Industry Model Arbitration
Rules (CIMAR)
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JCT Provisions
Article 9: Legal Proceedings
Subject to Article 7 and (where it applies) to Article 8, the
English courts shall have jurisdiction over any dispute or
difference between the Parties which arises out of or in
connection with this Contract.
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JCT Provisions
Clause 9.1 Mediation:
Parties have the right to resolve dispute via Mediation -
they are not obligated to do so
A footnote directs the reader to the Guide which says
that while supporting the use of Mediation and ADR in
suitable cases the JCT did not think it appropriate to
endorse any particular method or body
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JCT Provisions
Clause 9.2 Adjudication
Parties have the right to resolve dispute via Adjudication
and JCT has adopted rules in compliance with the Scheme:
Appointment:
Adjudicator named in the contract particulars
Nominating body to be stated
The Adjudicator should have appropriate experience/
expertise
If the adjudicator does not have appropriate experience/
expertise there is provision to appoint an expert witness
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JCT Provisions
Clause 9.3 Conduct of Arbitration:
Arbitration shall be conducted in accordance with JCT 2005
– Construction Industry Model Arbitration Rules (CIMAR)
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JCT Provisions
Clause 9.5 Powers of an Arbitrator:
Power to obtain advice
Powers set out in s 38 of the Arbitration Act
Power to order the preservation of work, goods and
materials
Power to request the parties to carry out tests
Power to award security for costs
Powers to review and revise any certificate, opinion,
decision, requirement or notice and to disregard them if
need be
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NEC Provisions
Clauses W1 & W2:
Option W1 used, unless the HGCR Act 1996 applies
Option W2 is used when the HGCR Act 1996 applies
Employer states in the contract data which option applies
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NEC Provisions
Clause W1:
Specifies what disputes can be referred to
adjudication
What notifications are to be given
It allows eight weeks for the adjudicator‟s decision to
be given
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NEC Provisions
Clause W2:
W2 is compliant with the HGCR Act 1996
It is not restrictive on what disputes can be referred or
when
It allows four weeks for the adjudicator‟s decision to
be given (subject to extension by consent)
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NEC Provisions
Review by the tribunal
Tribunal should be stated in the contract data
In the event none is stated
Litigation will apply by default
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NEC Provisions
Review by the tribunal
The tribunal settles the disputes referred to it
The tribunal has power to reconsider any decision of
the adjudicator and to review and revise any action or
inaction of the project manager or the supervisor
related to the dispute
A party is not limited in tribunal proceedings to the
information, evidence (and in W1.4(4) arguments) put
to the adjudicator
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Company and Project Performance
Measurement
Centered upon projects completed during 2010
Sharp fall in profitability from 7.7% to 5%
Workloads have fallen
Margins squeezed
Previous improvements in client satisfaction sustained
Predictability of project delivery, both to cost and budget has improved further
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2011 UK Industry Performance Report
2011 UK Industry Performance Report
2011 UK Industry Performance Report
2011 UK Industry Performance Report
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2011 UK Industry Performance Report
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2011 UK Industry Performance Report
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2011 UK Industry Performance Report
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2011 UK Industry Performance Report
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2011 UK Industry Performance Report
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Questions ?
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Workshop 4 – Delivering the
Contract
Colin Smyth MRICS MBA
Gary Bogle BSc (Hons) LLM MRICS FCIArb
Wednesday 20th September 2011