Nec Form of Contract - PowerPoint

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Relational Contracts – NEC in
         Perspective
          Robert Gerrard
    Chairman, NEC Users’ Group
          November 2004

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    Relational Contracts – NEC
           in Perspective
•   Brief history of NEC
•   Philosophy and ethos of NEC
•   The NEC family
•   Key NEC characteristics
•   NEC in use


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     Brief history of NEC
• 1985 The Institution of Civil Engineers
  (ICE) Legal Affairs Committee led a
  • ‘fundamental review of alternative contract
    strategies for … design and construction with
    the objective of identifying the needs for good
    practice’
• From the review came a strong
  recommendation that it was time to look
  afresh at conditions of contract

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     Brief history of NEC
• Main reasons were
   • Proliferation of standard forms
       – Majority of projects are multi-disciplinary yet most contract
         forms are single disciplinary concept
   • High incidence of disputes and wastage of resources
     involved resolving them
   • Origins of most forms of contract before modern
     principles of project management were known
   • Perception that clients wanted greater certainty of
     achieving project objectives




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    Brief history of NEC
• ICE commissioned new style of contract
  1986 with three main aims
  • Clarity and simplicity
  • Flexibility of use
  • Stimulus to good management
• Consultative version published 1991
  • Trialled by BAA, Yorkshire Water, The Royal
    Hong Kong Jockey Club, ESKOM (South
    Africa)

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     Brief history of NEC
• 1st Edition NEC published 1993
• 1st Editions of NEC Adjudicator’s Contract and
  Professional Services Contract published 1994
• ‘Constructing the Team‟ Sir Michael Latham 1994
  - singled out NEC for good practice
• 2nd Edition NEC Engineering and Construction
  Contract 1995 - all 13 Latham principles adopted
• 1st Edition NEC Engineering and Construction
  Short Contract published 1999


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Philosophy and ethos of NEC
• Clarity and simplicity objectives
      • Written in ordinary language
      • Minimal legalistic phrases
      • Minimise subjective phrases such as ‘fair’,
        ‘reasonable’ and ‘opinion’
      • User friendly structure
      • Actions of parties defined precisely so fewer
        disputes about who does what, when and how
      • Procedural logic backed up by flow charts
      • Reasons for decisions stated

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Philosophy and ethos of NEC
• Flexibility objectives
       • Multi-disciplinary, for use in engineering or construction
         work
       • Responsibility for design can be set with either party
       • Choice of pricing mechanisms from lump sum to cost
         plus
       • Bolt on secondary options that allow the employer to
         build up the contract to suit his policies
       • Adaptable for international use




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Philosophy and ethos of NEC
• Stimulus to good management objectives
     • The most important characteristic of the NEC
     • Every procedure is designed to contribute to
       rather than detract from the effectiveness for all
       parties
     • The two principles the NEC uses to stimulate
       good management are:
        – foresight applied collaboratively mitigates problems
          and shrinks risk
        – clear division of function and responsibility helps
          accountability and motivates people


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Philosophy and ethos of NEC
 • In total, the NEC is intended to
    • provide an up to date method for employers, designers,
      contractors & project managers
        – to work collaboratively &
        – to achieve their own objectives for their work more
          consistently than other forms of contract
    • lead to a much reduced risk to the employer of cost and
      time overruns & of poor performance of the completed
      projects
    • the much increased likelihood of achieving a profit for the
      contractor, subcontractor & suppliers



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Philosophy and ethos of NEC
 • Some of the main criticisms at the time
   • Drafting not subjected to judicial interpretation –
     but does precedence guarantee certainty?
   • The use of plain English could cause difficulties
     in certainty and proper legal construction – but
     do the Courts administer contracts?




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Philosophy and ethos of NEC
 • The change in drafting philosophy
   • Small is beautiful?
      – All major forms of contract seem to expand with
        successive editions
      – The result is many conditions of contract filled with
        many terms which are rarely read and used




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Philosophy and ethos of NEC
 • The change in drafting philosophy
   • The NEC tries to describe a generic process for
     the management of problems which inevitably
     arise during a construction or engineering
     project
   • It attempts to tread a fine line between
     sufficient tightness, so that the contract
     participants follow the procedures, and
     sufficient looseness so that it can be interpreted
     in a way appropriate to the situation
     encountered

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Philosophy and ethos of NEC
• Professor Philip Capper
  • “The challenge to the construction industry
    and its advisers is not so much the NEC‟s
    suitability as a contract…but rather how
    effectively existing practices can mould to
    the change of attitude and openness to
    new approaches that the NEC demands”



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Philosophy and ethos of NEC
• Professor John Uff
  • “At the heart of the NEC is a new creed
    that Project Management techniques can
    be successfully written into a main contract
    to produce more co-operation, more
    efficiency and fewer disputes”




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Philosophy and ethos of NEC
• Professor John Uff
  • “The ICE conditions of contract proceed on
    the basis that each side looks to its own
    interest. The NEC seeks to focus the
    interest of both parties on the project.”




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           The NEC family
• NEC Engineering and Construction Contract (black
  book & merged versions - ECC), 2ed 1998 [NECD]
• NEC Engineering and Construction Short Contract
  (ECS), 1ed 1999
   • Clear English Standard award from the Plain
     English Commission
• NEC Engineering and Construction Subcontract
  (ECSC), 2ed 1995
• NEC Engineering and Construction Short
  Subcontract (Short S/C), 1ed 2001


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            The NEC family
• NEC Professional Services Contract (PSC), 2ed
  1998
• NEC Adjudicator’s Contract, 2ed 1998
• NEC partnering option X12
• Guidance Notes (ECC, PSC, Short, Adjudicator’s)
• Flowcharts (ECC, PSC, Short, Adjudicator’s)
• NEC Term Services (consultative edition, May 2002)




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                        The NEC family
    Project Manager                                     Adjudicator
       NEC PSC                  Employer
                                                   Adjudicator’s Contract

Designer (Consultant)
      NEC PSC
                                Contractor
                                                   Traditional
              Supervisor        NEC ECC            arrangement (bi-
               NEC PSC
                                                   arty partnering)


                Subcontractor                Subcontractor
                NEC Short S/C                 NEC ECSC



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                  The NEC family
Project Manager                                      Adjudicator
   NEC PSC                   Employer
                                                Adjudicator’s Contract


   Supervisor      or                           Design & build
    NEC PSC                 Contractor          arrangement (bi-
                            NEC ECC
                                                arty partnering)


  Subcontractor         Designer (Consultant)      Subcontractor
  NEC Short S/C              NEC PSC                NEC ECSC



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                        The NEC family
                        x12
    Project Manager                                     Adjudicator
       NEC PSC                  Employer
                                                   Adjudicator’s Contract

Designer (Consultant)                  x12
      NEC PSC                                      Traditional
                                Contractor         arrangement
              Supervisor        NEC ECC
               NEC PSC                             (multi-party
                                                   partnering)
                 x12                                  x12
                Subcontractor                Subcontractor
                NEC Short S/C                 NEC ECSC



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           The NEC family
• NEC Users’ Group
  •   240+ members
  •   Share best practice
  •   Newsletter
  •   Helpline
  •   Seminars, Workshop & Roadshows
  •   Consultancy
  •   Website with forum

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   Key NEC characteristics
• Actions
     • ‘Act as stated in this contract and in a spirit of
       mutual trust and co-operation’
        – It covers obligations and attitude
• Communications
     • In a form that can be read, copied & recorded
     • Replies within the period for reply




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    Key NEC characteristics
• Project Manager
      • Is the key management person on behalf of the Employer
      • PM decisions should reflect the Employer‟s business
        decisions
      • Acceptance does not change the Contractor‟s
        responsibility to Provide the Works of his liability for his
        design
      • Essential that the Project Manager is sufficiently close to
        the work and has the time and authority to carry out his
        duties effectively
      • Contractor has recourse to Adjudicator where he
        believes the Project Manager‟s actions or decisions do
        not accord with the ECC


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    Key NEC characteristics
• Early Warning
      • Contractor and Project Manager have a duty to notify
        each other if aware of a matter which could
          – increase the total of the Prices
          – delay Completion or
          – impair the performance of the works in use
      • Instruction to attend meeting, those attending:
          – consider proposals, seek solutions and decide actions
      • Benefits
          – prevention better than cure
          – proactive rather than reactive
      • Encourages collaboration, innovation and ability to adjust
        to circumstances during the contract

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   Key NEC characteristics
• Programme
    • Accepted Programme is latest accepted by
      Project Manager and includes
       – key dates
       – method statement for each operation
       – order and timing of operations
    • Likely to be a collection of documents which
      may include method statements, histograms,
      network diagrams, bar charts and the like
    • Stated reasons for not accepting


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      Key NEC characteristics
• Compensation events are
  • events which, if they occur, and do not arise from
    the Contractor‟s fault, entitle the Contractor to be
    compensated for any effect the event has on the
    Prices and the Completion Date
• Process is
  •   Notification
  •   Quotation
  •   Assessment
  •   Implementation

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   Key NEC characteristics
• Risk
  • NEC contains typical risk allocation provisions in
    compensation events and Employer‟s risk
  • Provision made to alter risk allocation pre-contract
    according to project risk register and any
    negotiation
  • Provision made post-contract to re-appraise risk
    allocation when quoting for effects of
    compensation events


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   Key NEC characteristics
• Value engineering
  • Provision made in target cost contracts
• Payment
  • Variety of payment options
  • Focus on out-turn cost
• Disputes
  • Use adjudication before arbitration or
    litigation

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                NEC in use
• Who are the users?
   • Building
       – National Health Service ProCure21, 5 years £1.4bn/year
       – BAA Heathrow Terminal 5 (£4bn)
       – Circle33 Housing Trust, Oxford University, Bristol Airport,
         Barclays Bank, Cardiff Millennium Stadium, Sainsburys
         Supermarkets
   • Civil engineering
       – Channel Tunnel Rail Link (£4.5bn), London Underground
       – Environment Agency, Highways Agency & British
         Waterways
       – Extensive local authority usage
       – Eden project


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                NEC in use
• Who are the users?
  • Utilities
      – Most UK water companies
      – National Grid Transco
      – Vodophone
  • Power
      – UKAEA
      – ESKOM (South Africa)




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            NEC in use
• Thus far…..
  • Used in more than 20 countries
  • Over 20,000 projects of £15bn+ (?)
  • No substantive case law
  • Probably responsible for generating a new
    breed of modern day forms of contract
  • Rarely is it not used subsequently by clients
  • The UK Govt believe NEC to be reasonable
    „Achieving Excellence‟ compliant


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Thank you for listening

     Any questions?




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