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- Herausgeber: John Wiley & Sons
- Kategorie: Wissenschaft und neue Technologien
- Sprache: Englisch
Addresses the daily challenges faced by contractors who use the NEC3 ECC with clear, practical and useable advice on how to solve them
Written in plain English for contractors and their staff, this book explains how the NEC3 contract works and provides answers to common questions. It presents complicated concepts in a simple, straightforward and understandable way, focusing mainly on day-to-day use. Steven Evans, an expert with thirty years of experience in construction, considers all the provisions of the contract and explains the procedures, obligations, and liabilities contained within it.
NEC3 ECC is a process-based contract based on project management best practices. The basic philosophy behind it differs radically from the more adversarial approaches embodied by traditional contracts. While the NEC3 ECC may appear quite simple on the surface, it is often misunderstood and mismanaged by its day-to-day users. Despite the clear and urgent need for expert guides for those who use the NEC3 ECC, or who are considering adopting this increasingly popular contract, available books on the subject are highly technical and written for lawyers and professional consultants—until now. Written specifically for contractors using the NEC3 ECC contract, this book is aimed specifically at a level consistent with the knowledge and experiences of contractors and their staff.
- A practical guide to the procedures in the NEC3 Engineering and Construction Contracts
- Written specifically for those using and administering the contracts—not for lawyers or professional consultants
- Considers all the provisions of the contract and explains the procedures, obligations and liabilities
- Covers all NEC3 ECC versions and variations created by the Main and Secondary Options
- Provides clear, concise, practical, and straightforward explanations of the NEC3 ECC form used by commercial and operational staff of main contractors
The Contractor's NEC3 EEC Handbook is a vital working resource for main contractors and their employees, including quantity surveyors, commercial managers, contracts managers, project managers, site managers, and estimators.
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Table of Contents
Cover
Title Page
About the Book
About the Author
1 Introduction
Ten Things You Need to Know
Author’s Note
2 The Contract
About the NEC Contract
Collaborate…or Else!
The Latham Report
The NEC3 Suite
The ECC Form
The Core Clauses
The Main Options
The Secondary Options
The Contract Data
The Schedules
Formation of the Contract
Frequently Asked Questions
3 General
Overview
Actions
Identified and Defined Terms
Interpretation and the Law
Communications
The
Project Manager
and the
Supervisor
Adding to the Working Areas
Early Warning
Ambiguities and Inconsistencies
Illegalities and Impossibilities
Prevention
Frequently Asked Questions
4 The
Contractor
’s Main Responsibilities
Overview
Providing the Works
The
Contractor
’s Design
Design of Equipment
People
Working With the
Employer
and Others
Subcontracting
Other Responsibilities
Frequently Asked Questions
5 Time
Overview
Starting, Completion and Key Dates
The Programme
Revising the Programme
Access to and Use of the Site
Instructions to Stop or Not to Start the Work
Takeover
Acceleration
Frequently Asked Questions
6 Testing and Defects
Overview
Tests and Inspections
Tests and Inspections Before Delivery
Searching For and Notifying Defects
Correcting Defects
Accepting Defects
Uncorrected Defects
Frequently Asked Questions
7 Payment
Overview
Assessing the Amount Due
Payment
Defined Cost
The
Contractor
’s Share
The Activity Schedule
The Bill of Quantities
Frequently Asked Questions
8 Compensation Events
Overview
Compensation Events
Compensation Event Procedure
Main Option Clauses
Summary of Sanctions
Other Remedies
Frequently Asked Questions
9 Title
Overview
The
Employer
’s Title to Plant and Materials
Marking Equipment, Plant and Materials Outside the Working Areas
Removing Equipment
Objects and Materials within the Site
Frequently Asked Questions
10 Risks and Insurance
Overview
Employer
’s Risks
Contractor
’s Risks
Repairs
Indemnity
Insurance Cover
Insurance Policies
If the
Contractor
Does Not Insure
Insurance by the
Employer
Frequently Asked Questions
11 Termination
Overview
Termination
Reasons for Termination
Procedures on Termination
Payment on Termination
Frequently Asked Questions
12 Dispute Resolution (W1 and W2 Adjudication
)
Overview
Option W1
Option W2
Frequently Asked Questions
13 X and Y Clauses
Introduction
The X Clauses
The Y Clauses
Frequently Asked Questions
14 Z Clauses
Overview
Additional Conditions of Contract
Frequently Asked Questions
15 Schedules of Cost Components
Overview
Schedule of Cost Components
Shorter Schedule of Cost Components
Frequently Asked Questions
Index
End User License Agreement
Guide
Cover
Table of Contents
Begin Reading
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The Contractor's NEC3 ECC Handbook
Steven C. Evans
This edition first published 2017© 2017 John Wiley & Sons Ltd
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by law. Advice on how to obtain permission to reuse material from this title is available at http://www.wiley.com/go/permissions.
The right of Steven C. Evans to be identified as the author of this work has been asserted in accordance with law.
Registered OfficesJohn Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, USAJohn Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, UK
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Limit of Liability/Disclaimer of WarrantyWhile the publisher and authors have used their best efforts in preparing this work, they make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specifically disclaim all warranties, including without limitation any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives, written sales materials or promotional statements for this work. The fact that an organization, website, or product is referred to in this work as a citation and/or potential source of further information does not mean that the publisher and authors endorse the information or services the organization, website, or product may provide or recommendations it may make. This work is sold with the understanding that the publisher is not engaged in rendering professional services. The advice and strategies contained herein may not be suitable for your situation. You should consult with a specialist where appropriate. Further, readers should be aware that websites listed in this work may have changed or disappeared between when this work was written and when it is read. Neither the publisher nor authors shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
Library of Congress Cataloging‐in‐Publication data applied for
ISBN: 9781119137498
Cover design by WileyCover images: (Main image) © usssajaeree/Gettyimages; (Background image) © James Miller / EyeEm/Gettyimages
About the Book
When delivering seminars on NEC3 contracts, it was clear that there existed a general lack of knowledge and understanding of how the contract worked and how the relevant personalities were supposed to act. The NEC3 suite differs from many other standard forms of contract and, for that reason, tends to cause misunderstanding and confusion.
Although there were books available about NEC3 contracts, including the NEC’s own Guidance Notes, what seemed to be missing was a hands‐on guide for those people who used the contract on a daily basis. A guide explaining what needs to be done, how various parts of the contract fit together and how to be aware of the risks and the pitfalls.
That is where this book comes in; it is not intended to be a legal guide to NEC3 ECC and it will rarely make reference to case law or statute. Instead, it is a clear, concise, nuts and bolts guide for those users of the contract who just want to get on with it and not be bogged down in theory or legalese.
That being said, due to the inherent ambiguity within some of the clauses, occasionally I have had to resort to presumptions about how a particular provision may operate in practice and how it may be interpreted in the courts. In those cases, I have sought to explain my reasoning.
All comments and narrative in this book apply to the version of the NEC3 ECC current at the date of publication – this being up to and including the April 2013 amendments.
I hope the book is found to be useful and I welcome any feedback or discussion.
Steven C. Evans BSc(Hons) LLB(Hons)FCIArb FAMINZ(Arb) FFAVE(Master) FRICS FCIOB FCInstCES [email protected]
About the Author
Steven C. Evans has worked in construction for almost 30 years. He started as an on‐site trainee quantity surveyor for a top‐tier multinational contractor, moved on to managing surveyor for a medium‐sized UK‐based contractor, and finally switched careers to work in dispute resolution and avoidance. Steven has a wealth of practical experience to supplement his legal knowledge and qualifications.
Steven is currently director of a construction consultancy in the UK and in Australia and divides his time between both countries.
Steven has represented a range of clients from the smallest builder to the largest multinational in dispute resolution forums such as adjudication, arbitration and mediation. He has acted as an adjudicator, arbitrator and expert witness and lectured on matters of contract, commercial management, dispute resolution and similar topics on hundreds of occasions both in the UK and internationally.
1Introduction
Ten Things You Need to Know
On the first reading of any of the contracts in the NEC3 suite it is readily apparent that there are noticeable differences between them and the many other, standard and more traditional, forms of contract available to the construction supply chain. Possibly because of these differences, the contents of the NEC3 contracts tend to be the cause of misunderstanding, which in turn leads to problems in their use.
By way of an introduction, and as an aid to understanding, listed below are, in the Author’s opinion, the top ten things you need to know before using the NEC3 ECC, and before reading this book:
The NEC3 ECC is not a Partnering
contract. It can be made into a Partnering contract by the inclusion of secondary Option X12; without X12, it is simply a contract that promotes and requires collaborative working.
Collaboration
is not optional; there are real and effective sanctions in place to ensure the Parties work together to minimise risk and maximise efficient construction. The Parties, the
Project Manager
and the
Supervisor
must collaborate…or else.
Whilst collaboration will naturally reduce disputes
, the NEC3 ECC recognises that they will occur and actively encourages early submission to adjudication
any disagreement that may arise between the Parties. This effectively means that disputes will not perpetuate and the Parties can quickly resolve their issues and move on. Main Option W1, in particular, provides strict timescales within which disagreements must be referred to adjudication.
Adjudication
is compulsory for dispute resolution in the first instance. The Parties are prevented from submitting a dispute to a
tribunal
(i.e. court or arbitration) unless and until it has first been referred to, and decided in, adjudication. Indeed, at least under main Option W1, it would seem a dispute does not exist until it is referred to adjudication.
As adjudication
is compulsory in the first instance, very few NEC3 ECC disputes arrive in court and so very little court guidance exists as to how the various contractual provisions should be interpreted. When the courts have considered disputes under NEC3, one judge made the comment that the contract was “a triumph of form over substance”. This is not exactly a resounding endorsement.
The terms and conditions are not as clear or as simple as they claim to be. The short sentences and simple phraseology often lead to ambiguity, complexity and confusion where none should exist. It can be a difficult contract to understand and apply.
Changes and variations, or compensation events as they are called in NEC3 ECC, are assessed on the basis of the effect of the event on both the cost and the date the
Contractor
planned to complete the
works
. If there is a Bill of Quantities or an Activity Schedule, those documents are ignored when making an assessment. Terminal float is owned by the
Contractor
.
Compensation events
can go down as well as up. Their name is a misnomer as it suggests there will always be a positive payment to the
Contractor
in compensation for a change or some other effect of an event. That is not the case; some compensation events will also result in a reduction in Prices.
There is no separate design and build
form; if the
Contractor
is to design any of the
works
, the Works Information simply has to state that. If that is the case, then secondary Option X15 must be incorporated, otherwise the design by the
Contractor
must be fit for purpose.
It is a contract that is often misunderstood and misapplied, which is unfortunate as, despite some of the criticism above, it is a fundamentally worthy contract filled with provisions that focus on fairness, reasonableness and the effective and efficient completion of the project to the benefit of the Parties.
Author’s Note
Those familiar with the NEC3 suite of contracts will know that terms with a specific meaning either have Capitalised Initials or are in italics. Those with Capitalised Initials are defined terms and are generally (but not always) defined in clause 11.2. Those in italics are identified in the Contract Data (either part 1 or part 2).
Throughout this book I have continued that theme.
On occasion, I have directly quoted parts of the NEC3 ECC where it will aid comprehension, but generally I assume that readers will have a copy of the contract to hand for reference. When explaining a particular provision, I refer to the relevant clause number, sometimes in brackets, to aid that reference.
Generally, I devote an entire chapter to a Section of the NEC3 ECC; this makes some chapters much longer than others, but, I hope, will assist in easy reference for those readers who simply want to “dip in” to read about a particular part of the contract.
Throughout, I have referred to the Project Manager, the Employer, the Contractor, the Supervisor etc. as “he”. This follows the convention within the NEC3 suite of contracts and to quote the NEC3:
…words in the singular also mean in the plural and the other way around and words in the masculine also mean in the feminine and neuter.
2The Contract
About the NEC Contract
Construction contracts are complex, adversarial and onerous. This has always been the case. But, in 1986 the Institute of Civil Engineers sought to change that by commissioning the development of a new form of contract that had clearer language, better allocation of risk and responsibility, an increase in collaboration and reduced opportunities for claims.
From that commission, in 1993 the New Engineering Contract was first issued and from the outset it was clearly different in style, content and risk allocation to other standard forms.
Its characteristics were claimed to be:
Clarity and Simplicity
The contracts are written using short sentences, with clear objectives. Typical construction terminology such as ‘extension of time’ is missing; vague notions such as ‘practical completion’ give way to a defined state of Completion. The contract is short and to the point.
But there is a downside to this; fewer words equate to greater ambiguity. Legal interpretation has been difficult because guidance from the courts is almost non‐existent, not least because adjudication is compulsory in the first instance, so very few disputes arrive at court. When they have arrived, the courts have tended to be critical.
There are extensive, officially produced Guidance Notes and Flow Charts, but these are expressly excluded from being used to assist in legal interpretation. Also, to a casual or first‐time user of the contracts, the Guidance Notes and Flow Charts are often as confusing as the contract itself, sometimes saying nothing more than the clause they seek to provide guidance on, but using more words.
Many say it is more a procedure manual than a contract.
Flexibility
The contracts are designed for use internationally with little or no amendment, for a wide range of projects from the smallest to the largest and for a wide range of pricing mechanisms from lump sum to cost plus. The secondary Options allow an Employer to construct a near bespoke contract to suit his needs from a menu of standard clauses and then add additional conditions of contract as ‘Z clauses’ that are specific to his requirements.
Stimulus to Good Management
One of the cornerstones of the NEC philosophy is that the contracts should be an aid to good management, to effective and efficient construction, rather than a barrier to it.
The NEC suite of contracts places a great deal of emphasis upon early and effective communication, risk management and project management to the extent that it introduces, occasionally significant, sanctions against those Parties who ignore these requirements.
When used properly, there are many reports that it successfully achieves those aims.
Collaborate…or Else!
The NEC suite ensures collaboration by the existence of real and effective sanctions against the Parties should they fail to comply with the various obligations under the contracts that are deemed to be the cornerstone of good and effective management. It is not just a question of the Parties wanting to work together; the NEC suite ensures the Parties do work together.
The Latham Report
It is often thought that the NEC suite of contracts was born out of the Latham Report; that is not the case, the Latham Report was published in 1994, one year after the first edition of the NEC.
The Report, called Constructing the Team, identified key issues that Latham believed should be adopted in all construction contracts, as follows:
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.
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 comprehensible 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.
Taking all reasonable steps to avoid changes to pre‐planned works information. However, where variations do 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; that is, 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.
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.
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.
The NEC contract current at the time of the report included eight of the above and the publication of NEC2 in 1995 encompassed all 13.
The growth of NEC3 has been significant; it is now the ‘go‐to’ contract for many publicly funded projects in the UK, generally due to its adoption by the Government.
It is used in over 60 countries worldwide and there is little doubt that its popularity and use will continue to rise.
The NEC3 Suite
NEC3 contains a suite of contracts, of which the Engineering and Construction Contract (ECC) (the subject of this book) is just one. There are also forms of contract for subcontractors, suppliers, professionals, adjudicators and so on.
The contracts follow the same style and section numbering and contain similar section headings, differing only in respect of their specific application, for example Section 2 in the Engineering and Construction Subcontract, the ECS, is titled ‘The Subcontractor’s Main Responsibilities’, whereas in the ECC it is ‘The Contractor’s Main Responsibilities’.
Contracts
The contracts comprising the NEC3 suite are as follows:
NEC3 Engineering and Construction Contract (ECC);
NEC3 Engineering and Construction Contract Option A: Priced contract with Activity Schedule;
NEC3 Engineering and Construction Contract Option B: Priced contract with Bill of Quantities;
NEC3 Engineering and Construction Contract Option C: Target contract with Activity Schedule;
NEC3 Engineering and Construction Contract Option D: Target contract with Bill of Quantities;
NEC3 Engineering and Construction Contract Option E: Cost reimbursable contract;
NEC3 Engineering and Construction Contract Option F: Management contract;
NEC3 Engineering and Construction Subcontract (ECS);
NEC3 Engineering and Construction Short Contract (ECSC);
NEC3 Engineering and Construction Short Subcontract (ECSS);
NEC3 Professional Services Contract (PSC);
NEC3 Professional Services Short Contract (PSSC);
NEC3 Term Service Contract (TSC);
NEC3 Term Service Short Contract (TSSC);
NEC3 Supply Contract (SC);
NEC3 Supply Short Contract (SSC);
NEC3 Framework Contract (FC);
NEC3 Adjudicator’s Contract (AC).
This book deals exclusively with the NEC3 Engineering and Construction Contract (ECC), although, as many provisions are common across all the contracts in the suite, this book may also prove useful for those other contracts.
Flow Charts and Guidance Notes
The NEC also produces flow charts, guidance notes and strategies to assist in the understanding and use of the suite of contracts, as follows:
NEC3 Engineering and Construction Contract Guidance Notes;
NEC3 Engineering and Construction Contract Flow Charts;
NEC3 Engineering and Construction Short Contract Guidance Notes and Flow Charts;
NEC3 Professional Services Contract Guidance Notes and Flow Charts;
NEC3 Professional Services Short Contract Guidance Notes and Flow Charts;
NEC3 Term Service Contract Guidance Notes;
NEC3 Term Service Contract Flow Charts;
NEC3 Term Service Short Contract Guidance Notes and Flow Charts;
NEC3 Supply Contract Guidance Notes;
NEC3 Supply Contract Flow Charts;
NEC3 Supply Short Contract Guidance Notes and Flow Charts;
NEC3 Framework Contract Guidance Notes and Flow Charts;
NEC3 Adjudicator’s Contract Guidance Notes and Flow Charts;
NEC3 Procurement and Contract Strategies;
NEC3 How to write the ECC Works Information;
NEC3 How to use the ECC communication forms;
NEC3 How to write the PSC Scope;
NEC3 How to use the PSC communication forms;
NEC3 How to write the TSC Service Information;
NEC3 How to use the TSC communication forms;
NEC3 How to use BIM with NEC3 Contracts.
It must be remembered that both the Flow Charts and the Guidance Notes expressly state within their contents that they are not legal documents and neither should they be used for the legal interpretation of the meaning of the NEC3 ECC.
In other words, whilst the documents can help in users’ understanding of the contracts’ provisions, an adjudicator or court may take a completely different view, and they very often do.
The ECC Form
As stated on its front cover, the Engineering and Construction Contract should be used for the appointment of a contractor for engineering and construction work, including any level of design responsibility, from none to fully contractor designed.
On that last point, the NEC3 suite does not contain a separate design and build form; the ECC can be made into a design and build contract simply by adding the obligation to design all or parts of the works to the Works Information.
The contract is constructed by first selecting one of the main Option clauses, A to F, which provides the core clauses. To that is added a dispute resolution Option, either W1 or W2, and any number of the X or Y secondary Option clauses. Finally, bespoke clauses can be written and included as additional conditions of contract at secondary Option Z.
The Employer completes the Contract Data part 1 and sends that, along with any other documents such as the Works Information and the Site Information, to the tendering contractors. Those contractors complete the Contract Data part 2 and return it, as their tender, to the Employer. Upon the Employer communicating its acceptance of a tender to the successful Contractor, the contract is made.
A contract can also be made by the execution by deed or signature on a form of agreement. None of the contracts in the NEC3 suite contains a form of agreement, but a sample form is included in the NEC3 ECC Guidance Notes.
The Core Clauses
The core clauses are common across all main Options and can be found in nine sections, as follows:
General;
Contractor
’s Main Responsibilities;
Time;
Testing and Defects;
Payment;
Compensation Events;
Title;
Risks and Insurance;
Termination.
The Main Options
The main Options, from which the Employer selects only one when preparing the Contract Data part 1, differ primarily in their payment provisions and their allocation of financial risk.
Generally, Option A provides a greater risk for the Contractor and a lesser risk for the Employer. The Contractor is required to compile the activity schedule and provide fixed lump‐sum Prices for each item. The responsibility for compilation of the schedule and the accuracy of the prices is therefore the Contractor’s.
At the other end of the scale, generally Option E provides a lesser risk for the Contractor and a greater risk for the Employer. The Contractor is generally reimbursed his cost providing it falls under the definition of Defined Cost and is not Disallowed. Clearly, most of the financial risk will lie with the Employer. The only financial risk carried by the Contractor is the sufficiency of the Fee.
There is no main Option for design and build. If the Employer requires the Contractor to design all or part of the works, or, more precisely, to be responsible for the design of all or part of the works, then it is stated in the Works Information. It is also prudent to incorporate secondary Option X15 which reduces the Contractor’s liability to using ‘reasonable skill and care’ in designing the works. A failure to incorporate X15 will result in the Contractor’s liability for his design being ‘fit for purpose’. This is unlikely to be helpful for either Party.
Each main Option has its own clauses that apply in addition to the core clauses. NEC publishes separate and stand‐alone NEC3 ECC contracts for each main Option, and in those documents the main Option clauses are incorporated into the core clauses and highlighted in bold.
NEC also publishes a ‘black book’ ECC which includes all of the main Option clauses. In that document, the main Option clauses are separate to the core clauses.
The characteristics of each of the main Options are summarised below. Details of each of the main Options’ operative provisions are dealt with in later chapters.
Option A – Priced Contract with Activity Schedule
Option A contains an Activity Schedule prepared by the Contractor and which divides the work into as many discrete activities as the Contractor wishes. The Contractor is paid for an activity when he completes that activity and is reimbursed for compensation events based on the effect of the compensation event on his Defined Cost and to which is added the Fee. The Activity Schedule is not used to assess compensation events unless the Contractor and the Project Manager agree.
There is no contract price as such (the total of the Prices is simply the sum of all the items in the activity schedule); the Contractor simply Provides the Works in accordance with the Works Information and is paid in accordance with the Activity Schedule.
The contract does not offer a definition of Activity Schedule other than to point to a location as to where it can be found. The contract does, helpfully, say what the Activity Schedule is not: it is not Works Information and it is not Site Information (54.1). Accordingly, if the Employer happens to include the Activity Schedule within the Works Information document (which happens a lot), it will have no effect as ‘it is not Works Information’.
A further point, as the Contractor is only paid for an activity when that activity is completed, it is to the benefit of the Contractor’s cash flow that he produces as detailed an Activity Schedule as possible. A single activity covering a multitude of time‐consuming works would result in the Contractor having to wait until all those works were done before he received any payment.
This has resulted in Activity Schedules being so long as to make them akin to material lists. The downside for the Contractor in doing this can be found in clause 31.4, which requires him to provide information showing how each activity on the Activity Schedule relates to the operations on each programme which he submits for acceptance.
This can lead to unwieldy programmes, resulting in time‐consuming programme updates and compensation event assessments.
Accordingly, Employers have resorted to including Z clauses that seek to limit the Activity Schedule to a set number of pages, or even to producing the Activity Schedule themselves (presumably at risk if it is proved to be wrong).
A more realistic option may be to include a Z clause that permits payment to the Contractor for part completion of activities on the Activity Schedule.
Option B – Priced Contract with Bill of Quantities
Option B contains a Bill of Quantities prepared by the Employer in accordance with a stated (in the Contract Data part 1) standard method of measurement and priced by the Contractor. The Contractor is paid for the quantity of work he carries out at the rate in the Bill of Quantities. He is reimbursed for compensation events based on the effect of the compensation event on his Defined Cost and to which is added the Fee. The Bill of Quantities is not used to assess compensation events unless the Contractor and the Project Manager agree.
There is a school of thought that the Bill of Quantities is not actually remeasurable, as the NEC3 ECC is missing a clause expressly making such a statement. Whilst the Price for Work Done to Date, in clause 11.2(28) states that it is the total quantity of work completed for each item in the Bill of Quantities multiplied by the rate, it can be argued that ‘total quantity’ deals with apportionment of the quantities in the bill for that particular item rather than remeasurement, as this clause deals with interim payments rather than ascertaining a final value of the work.
This does seem to be a somewhat strained interpretation and would be contrary to clause 60.4, which makes a compensation event out of a significant difference between the final total quantity of an item and the originally stated quantity. If remeasurement was not possible, this clause would have no meaning.
Accordingly, it would seem that, by reference to clause 60.4, the intent of the contract is that of remeasurement and any ambiguity in clause 11.2(28) would be resolved in that direction.
Option C – Target Contract with Activity Schedule
Option C contains an Activity Schedule prepared by the Contractor which divides the work into as many discrete activities as the Contractor wishes. The Contractor is paid by reimbursement of his Defined Cost, to which is added the Fee. A compensation event is assessed as the effect on the Defined Cost, to which is added the Fee, and which then adjusts the total of the Prices on the Activity Schedule.
The Activity Schedule is not used to assess compensation events unless the Contractor and the Project Manager agree.
The final total of Defined Cost plus the Fee is compared to the final total of the Prices on the Activity Schedule. If the final Defined Cost plus the Fee is higher, the Contractor pays a share of the overspend to the Employer. If the total of the Prices is higher, the Employer pays a share of the saving to the Contractor. This is called the Contractor’s share (clause 53).
As is quite clear, the Parties are only concerned with the total of the Prices on the Activity Schedule (for the assessment of the Contractor’s share); unlike main Option A, the number of items within the Activity Schedule is largely irrelevant (unless the Parties agree to value compensation events using the Activity Schedule).
As will be seen later, this Option creates a significant administrative burden, particularly on the Project Manager. He is tasked with forecasting the costs the Contractor will incur before the next assessment date in order to assess the amount due to the Contractor in interim valuations. He must then check that forecast against the actual cost incurred by the Contractor by checking the records the Contractor makes available to him.
This contract is often referred to as a pain/gain; the Parties share the pain in the event of an overspend and share in the gain in the event of an underspend. The amount of pain or gain shared by the Parties is set out in a reasonably complicated calculation within the Contract Data part 1.
It is possible to set up the contract such that the Contractor takes 100% of the pain and 0% of the gain; this effectively makes the contract into one with a guaranteed maximum price. It is likely that such a set‐up would be contrary to the general philosophy of the NEC3 suite, but not unenforceable.
Option D – Target Contract with Bill of Quantities
Option D contains a Bill of Quantities prepared by the Employer in accordance with a stated (in the Contract Data part 1) standard method of measurement and priced by the Contractor. The Contractor is paid by reimbursement of his Defined Cost, to which is added the Fee. A compensation event is assessed as the effect on Defined Cost, to which is added the Fee, and this adjusts the Total of the Prices on the Bill of Quantities. The work the Contractor carries out is measured and multiplied by the rate. The total of these items is called the Total of the Prices.
Bills of Quantities are not used to assess compensation events unless the Contractor and the Project Manager agree.
The final Defined Cost plus the Fee is compared to the final Total of the Prices; if the final Defined Cost is higher, the Contractor pays a share of the overspend to the Employer. If the Total of the Prices is higher, the Employer pays a share of the saving to the Contractor. This is called the Contractor’s share (clause 53).
Unlike the Activity Schedule in Option C, the detail of the Bill of Quantities remains as relevant as in Option B, as the works must be remeasured. This creates a greater administrative burden, as not only does the Project Manager have to undertake the assessment of the payment due to the Contractor at each assessment date as in Option C above, he also has to measure all the works.
This contract is often referred to as a pain/gain; the Parties share the pain in the event of an overspend and share in the gain in the event of an underspend. The amount of pain or gain shared by the Parties is set out in a reasonably complicated calculation within the Contract Data part 1.
It is possible to set up the contract such that the Contractor takes 100% of the pain and 0% of the gain; this effectively makes the contract into one with a guaranteed maximum price. It is likely that such a set‐up would be contrary to the general philosophy of the NEC3 suite, but not unenforceable.
Option E – Cost Reimbursable Contract
Option E contains neither an Activity Schedule nor a Bill of Quantities. The Contractor is paid by reimbursement of his Defined Cost, to which is added the Fee including compensation events.
There is no incentive for the Contractor to minimise his cost, indeed, on the basis that he is paid a Fee percentage on top of the Defined Cost, it can be argued that this contract encourages expenditure.
For that reason, this main Option is often used only as a last resort.
Option F – Management Contract
Option F contains neither an Activity Schedule nor a Bill of Quantities. The Contractor engages and manages Subcontractors to do all of the works apart from those stated in the Contract Data part 2 that he will do himself. He is paid by reimbursement of his Defined Cost plus the Fee including compensation events plus for his own work at the amounts stated in the Contract Data.
W Clauses
The dispute resolution clauses are further main Option clauses. Option W contains two dispute resolution procedures named W1 and W2. They are mutually exclusive; either can apply but (generally) not both.
In its heading, it is stated that W1 is used unless the United Kingdom Housing Grants, Construction and Regeneration Act 1996 (and its amendments) (‘the Act’) applies.
Immediately, there seems to be a problem. Whilst the above‐mentioned Act is UK‐wide, the part dealing with construction contracts applies only to England, Wales and Scotland, not Northern Ireland, which has its own, equivalent, legislation.
On that basis, it is unclear whether W1 should be used in Northern Ireland, as, whilst the Act applies in whole, the provisions relating to adjudication do not. However, as the equivalent Northern Ireland legislation also makes void any adjudication procedure which is non‐compliant with its provisions, any attempt to use W1 would simply result in its failure.
On that basis, and notwithstanding what it says in the contract, W2 would be most appropriate to use in Northern Ireland.
A greater difficulty would arise in the case of works on, for instance, the Isle of Man. It is not part of the UK and the Act does not apply there, so it would seem at first that W1 is most appropriate; however, the Crown dependency has its own equivalent and identical legislation which would render W1 void. As with Northern Ireland above, W2 would be most appropriate.
Where it does apply, W1 contains a detailed and progressive dispute resolution process stipulating who can bring an action and when and setting out detailed timescales for the submission of evidence and the deciding of the dispute.
However, as mentioned above, as it is not compatible with the minimum requirements of a construction adjudication provision, as set out by the above‐mentioned Act, it cannot be used where the Act (or similar and equivalent legislation) applies, as it would be struck out.
For that reason, the NEC3 ECC requires the selection of W1 or W2. That being said, there is no reason why the Parties could not have both, albeit that W1 may have to be renamed as something other than ‘adjudication’ and either Party would always have the option to use W2 in preference to W1 at any time.
As for W2, in its heading it is stated that it is used in the United Kingdom where the Housing Grants, Construction and Regeneration Act 1996 applies.
As mentioned above, this may cause selection problems where construction works are undertaken in, for example, the Isle of Man. In that case, it is neither in the United Kingdom nor does the Act apply; however, as the Isle of Man’s equivalent legislation is almost identical to the Act, W2 would be the most appropriate selection.
Whilst this sounds like an over‐analysis, it shows that this is more complex and requires more consideration than simply taking the guidance in the contract at face value.
W2 contains a detailed dispute resolution process entirely compliant with the Act along with additional processes and procedures and timing limits on the submission of information and evidence to the Adjudicator.
In either W1 or W2, any dispute must be referred or decided in adjudication before it can be taken to a tribunal.
The Secondary Options
X Clauses
The X clauses are the Employer’s opportunity to build a bespoke contract to reflect his own particular requirements and those of the project. None of the X clauses by default apply and they must be selected and referenced within the Contract Data part 1. More detailed explanation of the X clauses is provided in Chapter 13 – X and Y Clauses.
The X clauses are:
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 the
Contractor
’s liability of his design to reasonable skill and care;
X16 Retention;
X17 Low performance damages;
X18 Limitation of liability;
X20 Key Performance Indicators.
Y Clauses
The Y(UK) clauses are specific to the UK. More detailed explanation of the Y clauses is provided in Chapter 13 – X and Y Clauses.
The Y clauses suffer from similar problems to those outlined for W1 and W2 above. Y(UK)2 incorporates the payment provisions of the Housing Grants, Construction and Regeneration Act 1996 into the contract for works in the UK. However, Northern Ireland (also in the United Kingdom) uses its own equivalent legislation which is not taken into account.
In addition, the Contracts (Rights of Third Parties) Act 1996 does not apply in Scotland.
Care should be taken in constructing the contract in these areas of the UK to ensure the relevant legislation is reflected.
The Y(UK) clauses are:
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 1996.
Z Clauses
Apart from Z1.1, which explains how the Z clauses are incorporated into the contract, the Z clauses are blank; this is the opportunity for the Employer to add specific and bespoke clauses of his own to suit his particular circumstances or those of the project. This section has become somewhat controversial, as, inevitably, it is used to include terms and conditions drafted to be onerous to the Contractor and to transfer risk (often misplaced and unnecessary) onto the Contractor’s shoulders.
Whilst those that promote NEC3 will say that Z clauses should be used sparingly and only where necessary, often the Z clauses take up more space than the core clauses of the NEC3 ECC.
More detailed explanation is provided in Chapter 14 – Z Clauses.
The Contract Data
At it suggests, the Contract Data contains data that are specific to the contract and set out such information as the identity of the Parties, the Project Manager, the starting date and completion dates, the total of the Prices, the Fees and many other provisions to enable the contract to function effectively.
It comprises two parts:
Part 1:
This is effectively the tender enquiry and is completed and provided by the
Employer
. It is akin to an appendix to an enquiry setting out the specifics of the contract.
Part 2:
This is effectively the
Contractor
’s tender and is completed by him. However, it is not entirely unheard of for the
Employer
to pre‐fill some of the information, such as setting the Fee percentages as nil. In such circumstances, the
Contractor
is equally as bound as if he had completed the information himself.
A statement at the start of each of the parts suggests that completion of the data in full is ‘essential’ to create a ‘complete contract’. This is a peculiar statement as not all the data are of a type considered to be essential elements of a contract; neither do all the data need to be completed for the ECC terms to operate successfully, and neither do all the data need to be completed in all circumstances.
What this means is unclear; it may well mean that unless the Contract Data are completed fully then a contract has not and cannot be made. If that was the case, it would be an unfortunate interpretation, as it would be almost impossible to make a ‘complete contract’.
The Schedules
The Schedules are used generally, depending on the main Option chosen, to assist in the assessment of Defined Cost for the purposes of:
Assessing the amount due to the
Contractor
; and
Assessing compensation events.
Excluding Subcontractors under main Options C to E and excluding main Option F entirely, a cost is only a Defined Cost if it is a component in the relevant Schedule of Cost Components. If it is not a component, then it is assumed that such a cost is part of the Fee and not recoverable by the Contractor.
In other words, the Schedules divide costs between those that are separately recoverable and those that are deemed included in the Fee.
The Schedule of Cost Components
The main Schedule of Cost Components is a detailed document which, for each component, prescribes precisely which costs can be recovered by the Contractor.
It is used in main Options C to E to assess the amount due to the Contractor at the assessment dates and to assess the value of compensation events.
The Shorter Schedule of Cost Components
The Shorter Schedule of Cost Components is a more streamlined and simplified version used to value compensation events under main Options A and B.
If the Contractor and Project Manager agree, the Contractor can use the Shorter Schedule to value compensation events under main Options C to E.
In addition, the Project Manager uses the Shorter Schedule of Cost Components when he is required to assess a compensation event under main Options C to E.
Neither Schedule of Cost Components is used in main Option F.
More detail on the Schedules of Cost Components is included in Chapter 15 – Schedules of Cost Components.
Formation of the Contract
Offer and Acceptance
Unlike almost all other standard forms of contract, the NEC3 ECC does not include a form of agreement page. There is no space within the contract that the Parties are required to sign in order to make a contract.
Instead, in its unamended form, formation of the contract occurs when the Employer communicates to the Contractor an acceptance of his offer (the offer being the tender and comprising completion of the Contract Data part 2).
There are some disadvantages to this, setting aside any ambiguity in relation to the existence or timing of an agreement, primarily that this will create a ‘simple’ contract which provides only for six years of latent defect liability. To extend that to 12 years, as is often required, will need the contract to be made by deed.
Attestation
For Parties that require a signed contract or for those that want to execute as a deed, the NEC3 ECC Guidance Notes contain a sample attestation page which the Parties can use if they wish. Alternatively, the Parties can use their own, bespoke form of agreement.
Necessary Contract Documents
For the NEC3 ECC to operate correctly, the following documents will be necessary, as a minimum:
Contract Data parts 1 and 2;
Conditions of Contract with main Option, dispute Option and secondary Options stated;
Works Information;
Site Information;
Contractor
’s pricing document (e.g. Activity Schedule or Bill of Quantities).
Each of these documents is considered in detail in later chapters.
Frequently Asked Questions
Must a Contractor use the NEC3 subcontract for his Subcontractors?
There is no express requirement that the Contractor engages his Subcontractors under an NEC contract; however, two issues arise if he does not:
The
Project Manager
may reject the subcontract terms if they do not include a statement that the Parties to the subcontract act in a spirit of mutual trust and cooperation.
Accurate assessment of compensation events under main Options A and B may be difficult if access cannot be gained by the
Contractor
to the detail of the Subcontractor’s costs.
Which of the main Options is the best to use?
Each of the main Options serves a particular purpose, with the Contractor’s financial risk generally reducing from main Option A to main Option E. The best one to use is that which fits the Employer’s requirements.
What is the difference between Works Information and Site Information?
Site Information contains information about the Site as it is before the works commence; it cannot be changed.
Works Information contains all the information the Contractor requires to construct the works, including drawings, specifications, access restrictions, programme requirements etc. Works Information can be changed by an instruction from the Project Manager.
What are the consequences of the Activity Schedule being bound into a document entitled Works Information?
Although this is sometimes said to cause problems, in practice there are no consequences. Clause 11.2(19) defines Works Information as information that either specifies or describes the works or states any constraints on how the Contractor Provides the Works and is where the Contract Data says it is or in an instruction from the Project Manager.
Accordingly, a document identified in the Contract Data as containing the Works Information may also contain other information, such as the Activity Schedule, but only the information that satisfies the definition above will be Works Information.
To put this matter beyond doubt, clause 54.1 states that information in the Activity Schedule is not Works Information or Site Information.
How does the ECC deal with provisional sums?
The simple answer is that it doesn’t. Unlike many standard forms, the NEC3 suite makes no provision whatsoever for provisional sums, and any provisional sums included in the Works Information, Activity Schedule or Bill of Quantities will generally fail, for the simple reason that the ECC contains no mechanism by which the provisional sum amount can be omitted and replaced with an alternative valuation.
Any omissions (like additions) are assessed as the effect on the Defined Cost plus the Fee rather than the rate in the Activity Schedule or Bill of Quantities.
What are the consequences of the method of measurement not being stated in the Contract Data part 1?
Clause 60.5 requires that the Project Manager corrects any mistake in the Bill of Quantities which is a departure from the rules for item descriptions and for division of the work into items required by the method of measurement. Any such correction is a compensation event.
Clause 63.13 provides that if any change in the Bill of Quantities as a result of a change in the Prices due to a compensation event requires items to be added to the Bill of Quantities, such items shall be compiled in accordance with the method of measurement.
If there is no method of measurement stated, then there are no rules from which the Bill of Quantities can depart and so no correction can be required under clause 60.5 and, if there is no correction, there is no compensation event.
Similarly, any items added to the Bill of Quantities by a compensation event cannot be compiled in accordance with the method of measurement, as there is none.
In both of the above scenarios, any Bills of Quantities or items added to the Bills of Quantities would be entirely ad hoc.
3General
Overview
The first section of the contract, not so helpfully entitled ‘General’, contains the first clause, common to all contracts in the NEC3 suite and numbered clause 10. This often leads those who first read the contract to wonder, ‘where are clauses 1 to 9?’
They do not exist. The contracts in the NEC3 suite number their clauses based on sections: the first clause is clause 10 as it is in Section 1; the first clause in Section 2 is clause 20; the first in Section 3 is clause 30 and so on.
The Sections (core and main Option clauses) are generally the same across all contracts in the NEC3 suite, differing only by virtue of the specifics of the particular contract, and are, in the case of the ECC:
General;
Contractor
’s Main Responsibilities;
Time;
Testing and Defects;
Payment;
Compensation Events;
Title;
Risks and Insurance;
Termination.
Section 1 of the core clauses deals with such things as definitions, interpretations, communications etc.; that is, generally those provisions that do not fall under any of the other dedicated Sections.
Actions
‘Actions’ contains just one clause, which is repeated at the beginning of all contracts in the NEC3 suite and sets out the NEC3 philosophy that underpins all the contracts:
The Employer, the Contractor, the Project Manager and the Supervisor shall act as stated in this contract and in a spirit of mutual trust and cooperation.
This is easier said than done. Indeed, it is easier said than understood in terms of what it means in the context of the law.
Before looking at the detail of the clause and its implications, it is first worth taking a detailed look at the individuals named in this clause: the Employer, the Contractor, the Project Manager and the Supervisor.
Along with the Adjudicator, these are the only people or organisations identified in the Contract Data parts 1 and 2 and the only ones who have specific obligations, rights and liabilities under the contract.
The Employer
The Employer’s role is primarily that of legal Party to the contract along with the Contractor. He engages the Project Manager and the Supervisor to manage the contract for him and has little involvement in the day‐to‐day running of the project. Clauses 14.3 and 21.3 make that clear: the former providing that only the Project Manager can give an instruction to change the Works Information and the latter requiring the Contractor to obey only instructions issued by the Project Manager or the Supervisor.
That is not to say the Employer has no obligations or is unable to wield any power; his express obligations (excluding those things that the Employer ‘may’ do) are summarised in the clauses below:
10.1
Act as stated in the contract and in a spirit of mutual trust and cooperation.
13.1
Communicate in the language of the contract and in a form which can be read, copied and recorded.
13.7
Communicate notifications required by the contract separately from other communications.
14.4
Notify the
Contractor
before engaging a replacement
Project Manager
or
Supervisor
.
22.1
Use the
Contractor
’s design for any purpose connected with the
works
unless stated otherwise in the Works Information.
25.2
Provide services and ‘other things’ as required by the Works Information.
33.1
By the later of the access date and the date on the latest Accepted Programme, allow the
Contractor
access to and use of each part of the Site so he can Provide the Works.
35.1
Take over the
works
no later than two weeks after Completion is certified by the
Project Manager
.
35.2
Take over any part of the
works
he uses before Completion unless for a reason in the Works Information or to suit the
Contractor
’s method of working.
40.2
Provide any materials, facilities and samples for any tests and inspections as required by the Works Information.
43.4
After takeover and before the issue of the Defects Certificate, allow the
Contractor
access to the
works
for the purpose of correcting a Defect.
51.1
Pay the amount certified or notified as due to the
Contractor
.
51.2
Pay the amounts certified as due within three weeks of the assessment date (or by the final date for payment under Y2.2 if Y(UK)2 applies), and pay interest on any late payments or wrong assessments.
53.2/53.6
Pay his share of the saving to the
Contractor
.
83.1
Indemnify the
Contractor
against claims that arise from the
Employer
’s risks.
84.1
Provide insurance as required by the Contract Data part 1.
85.1
Bear any cost for events which are at his risk and not recovered from an insurer.
85.3
Comply with the terms of insurance policies.
90.1
Notify the
Project Manager
, with reasons, before terminating the
Contractor
’s obligation to Provide the Works.
90.2
Follow the procedures in the termination table if he intends to terminate the
Contractor
’s obligation to Provide the Works.
90.4
Pay the amount of the final payment certified by the
Project Manager
.
W1.2(1)
Appoint the
Adjudicator
under the NEC
Adjudicator
’s Contract.
W1.2(3)
Choose a new
Adjudicator
jointly with the
Contractor
.
W1.3(1)
Notify and refer disputes as per the adjudication table.
W1.3(3)
Include the referral information to be considered by the
Adjudicator
and provide more information within four weeks of referral.
W1.3(5)
Comply with instructions from the
Adjudicator
.
W1.3(6)
Provide a copy of any communication with the
Adjudicator
to the
Contractor
.
W1.3(9)
Proceed as if the matter in dispute is not disputed while a dispute is being decided.
W2.2(1)
Appoint the
Adjudicator
under the NEC
Adjudicator
’s Contract.
W2.3(1)
Notify the
Contractor
of a dispute before referring it to the
Adjudicator
.
W2.3(1)
Send a copy of the notice of adjudication to the
Adjudicator
if he is named in the Contract Data.
W2.3(2)
Refer a dispute, with a copy to the
Contractor
, to the
Adjudicator
within seven days of the notice of adjudication.
W2.3(2)
Provide, with the referral, all information on which the
Employer
