Introduction to the Engineering ad Construction Contract

Charla sobre contratos NEC

1. Introduction to the Engineering and Construction Contract (ECC) Delivering real value

2. Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 2 NEC4: Introduction to the Engineering and Construction Contract (ECC) Introduction and housekeeping Fire alarms Toilets Breaks and lunch Who am I? Who are you?

3. Course agenda Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 3 Welcome and introductions Session 1 – Overview of the NEC and ECC Session 2 – Using the ECC : t he contract strategy Session 3 – Managing the contract : the ECC processes Session 4 – Summary and open forum

4. Course objectives Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 4 Delegates should Describe the philosophy of NEC and the behaviours needed to ensure success Provide advice on appropriate contract strategies Appreciate the use of Contract Data, Scope and Site Information Define the roles and responsibilities of key parties Apply important ECC clauses such as early warning, programme, communications and compensation events

5. Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 5 Session 1 – Overview of the NEC

6. The NEC principles and family - review Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 6

7. The NEC principles Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 7 NEC is a family of standard contracts, each of which has these characteristics stimulates good management can be used in wide variety of commercial situations, for wide variety of types of work and in any location a clear and simple document - using language and structure which are straightforward and easily understood

8. Flexibility Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 8 Multi-disciplinary Responsibility for design by either party Choice of pricing mechanisms from lump sum to cost plus Bolt on secondary Options that allow a Client to build up the contract to suit Allocate risks to suit For international use

9. Clarity and simplicity Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 9 Ordinary language Minimal legalistic phrases Minimised subjective phrases such as ‘fair’, ‘reasonable’ and ‘opinion’ Reasons for decisions stated User friendly structure

10. Stimulus to good management Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 10 Perhaps the most important objective. Every procedure is designed to contribute to, rather than detract from effectiveness for all parties Founded on two principles foresight applied collaboratively mitigates problems and shrinks risk clear division of function and responsibility helps accountability and motivates people

11. Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 11

12. User guides Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 12 For all contracts Vol 1 Establishing a procurement and contract strategy Vol 3 Selecting a supplier For the ECC Vol 2 Preparing an engineering and construction contract Vol 4 Managing an engineering and construction contract Flow charts for the ECC - electronic only

13. Client Project Manager PSC or PSSC Contractor ECC Adjudicator DRSC Supplier SC or SSC Subcontractor ECS or ECSS Supervisor PSC or PSSC Designer PSC or PSSC Typical Client designed arrangement Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 13

14. Project Manager PSC or PSSC Supplier SC or SSC Subcontractor ECS or ECSS Designer PSS or PSSC Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 14 Adjudicator DRSC Contractor ECC Typical design & build arrangement Supervisor PSC or PSSC Client

15. When to use the short form? Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 15 Engineering and Construction Short Contract (ECSC) is for use with contracts which do not require sophisticated management techniques comprise straightforward work and impose only low risks on both the Client and the Contractor Not necessarily low financial value Not necessarily short duration

16. When to use the short form? Differences Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 16 Only price based – equivalent to ECC Option A and B No options – but includes X18 - limitation of liability, in part Y(UK)2 - Housing Grants, Construction & Regeneration Act 1996 Most of the procedures, but less of the detail Fewer compensation events Either Party can notify compensation events, but Contractor submits quotation when notifying one Contractor assesses amount due

17. The Engineering and Construction Subcontract (ECS) Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 17 ECS is designed to be a back-to-back contract with ECC ECC Client, Project Manager and Supervisor all become ECS Contractor ECC Contractor becomes ECS Subcontractor Most references to contract now refer to subcontract Some timescales may change, for example for communication and payment More detail in "Preparing an Engineering and Construction Contract – chapter 7” Engineering and Construction Short Subcontract works in the same manner with the Engineering and Construction Contract

18. A new culture Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 18 Teamwork “The Parties (the Client and the Contractor), the Project Manager and the Supervisor act in a spirit of mutual trust and co-operation” (10.2) Subcontractors “A reason for (the Project Manager ) not accepting the subcontract documents is that …. they do not include a statement that the parties to the subcontract act in a spirit of mutual trust and co-operation” (26.3) Multiparty collaboration “The Partners collaborate as stated in the Partnering Information and in a spirit of mutual trust and co-operation” (X12.3(1))

19. ECC people Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 19 People in contract, defined by their role Client Contractor Project Manager Supervisor Senior Representatives ) or members of Adjudicator ) Dispute Avoidance Board Others ( eg designers, CDM principal designer, statutory authorities) These two are the Parties to the contract

20. Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 20 Session 2 – Using the ECC : the contract strategy

21. The ECC structure Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 21 The ECC structure is modular in form with 5 modules, normally chosen by the Client ALWAYS have the core clauses choose ONE main Option clause (A to F) which decides the mechanism for payment and the relevant schedule of cost components choose ONE dispute resolution Option clauses (W1, W2 or W3) choose as many secondary Option clauses as required (prefixed X or Y) add any additional clauses (prefixed Z)

22. Core clauses Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 22 1 General 2 The Contractor’s main responsibilities 3 Time 4 Quality management 5 Payment 6 Compensation events 7 Title 8 Liabilities and insurance 9 T ermination

23. Main Option clauses Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 23 A - Priced contract with activity schedule B - Priced contract with bill of quantities C - Target contract with activity schedule D - Target contract with bill of quantities E - Cost reimbursable contract F - Management contract

24. Activity Schedule (Option A) Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 24 Lump sum contract Project well defined at tender Activities usually defined by Contractor Activities priced by Contractor Payment on completion of defined activities Milestone payments by grouping activities Activity Schedule can be adjusted by Contractor to reflect Scope

25. Bill of Quantities (Option B) Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 25 Project well defined at tender but change likely Standard method of measurement used Contractor prices items in Bill of Quantities at tender stage Contractor paid for quantity of work completed Original work is re-measured (but not necessarily changes)

26. Target cost contracts (Options C & D) Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 26 Work must be adequately defined to establish target Target cost set by activity schedule (C) or bill of quantities (D) which Contractor prices at tender Contractor tenders Fee Target moves with compensation events (Options C & D) and remeasurement (Option D) Contractor gets paid forecast Defined Cost + Fee Contractor is paid or pays a share of the difference between total costs and final target, at the end of the contract

27. Cost reimbursable contract (Option E) Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 27 Used for example for emergency, experimental, research work where work poorly defined at tender work subject to extensive change Contractor tenders Fee Contractor paid forecast Defined Cost + Fee Contractor has no financial risk (except adequacy of Fee)

28. Management contract (Option F) Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 28 Contractor generally organises work only Most work carried out by Subcontractors Contractor tenders prices (lump sum) and Fee Contractor gets paid forecast Defined Cost + Fee Contractor has limited financial risk, except for adequacy of Fee and prices for work it does itself

29. A Contractor Client B F E D C Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 29 Financial risk of main Options Depends on pain / gain mechanism

30. Dispute resolution clauses Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 30 W1 - for adjudication, where the HGCR Act 1996 does not apply W2 - for adjudication, where the HGCR Act 1996 applies W3 - where a Dispute Avoidance Board is used

31. Secondary Option clauses Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 31 X1 - Price adjustment for inflation X2 - Changes in the law X3 - Multiple currencies X4 - Ultimate holding company guarantee X5 - Sectional Completion X6 - Bonus for early Completion X7 - Delay damages X8 - Undertakings to the Client or Others X9 - Transfer of rights

32. Secondary Option clauses Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 32 X10 - Information modelling X11 - Termination by the Client X12 - Multiparty collaboration X13 - Performance bond X14 - Advanced payment to the Contractor X15 - The Contractor’s design X16 - Retention X17 - Low performance damages X18 - Limitation of liability

33. Secondary Option clauses Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 33 X20 - Key Performance Indicators X21 - Whole life cost X22 - Early Contractor involvement Y(UK)1 - Project Bank Account Y(UK)2 - The Housing Grants, Construction and Regeneration Act 1996 Y(UK)3 - The Contracts (Rights of Third Parties) Act 1999 Z - Additional conditions of contract

34. Contract documents Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 34 Contract Data parts one ( Client ) and two ( Contractor ) details specifics – see template Contract Data included in delegate packs Prices depends on main Option chosen – include activity schedule or bill of quantities Scope specifies and describes the works states any constraints on how Contractor Provides the Works mainly specification and drawings supplied by Client or Contractor (for design) Site Information describes the Site and its surroundings

35. Other documents Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 35 With Contract Data if Option X12 is chosen - Partnering Information if Option X20 is chosen - incentive schedule In Scope if Option X4 is chosen - ultimate holding company guarantee if Option X8 is chosen - undertakings to the Client or Others if Option X13 is used - performance bond

36. Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 36 Session 3 – Managing the contract : the ECC processes Sections 1-9 1 2 3 5 6 4 9 8 7

37. Session 3.1 – General provisions Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 37 Actions Identified and defined terms Communications Project Manager and Supervisor Early warning Contractor’s proposals 1 1

38. Actions Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 38 Act as stated in this contract (10.1) obliges persons to do everything the contract states Act in a spirit of mutual trust and co-operation (10.2) covers obligations and attitude

39. Identified and defined terms Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 39 Identified terms in Contract Data are in italics Defined terms, capitalised and in 11.2 (1) Accepted Programme (2) Completion (certainty of requirements) (3) Completion Date (5) Corrupt Act (6) Defect (two types) (7) Defects Certificate (8) Early Warning Register

40. Identified and defined terms Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 40 (9) Equipment (10) Fee (covers all costs not in Defined Cost (52.1)) (11) Key Date (14) Plant and Materials (16) Scope (17) Site (18) Site Information (19) Subcontractor (20) Working Areas

41. Communications Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 41 Must be in a form that can be read, copied and recorded (13.1) see simple examples in delegate packs Use of a “communication system” (13.2) Replies within period for reply or as in contract (13.3) Notifications and certificates to be communicated separately (13.7)

42. Project Manager and Supervisor Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 42 Project Manager ( PM ) manages ECC for Client PM has a great deal of authority PM must be even handed in matters such as assessing payment PM is only person who can instruct changes to Scope PM constrained by need to give reasons if PM does not accept a Contractor’s submission – if reason not in contract then Contractor is compensated Supervisor checks Contractor’s compliance with the Scope

43. Project Manager and Supervisor Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 43 Acceptance of any communication (programme, design etc ) by the PM or Supervisor does not change the Contractor’s responsibility to Provide the Works or liability for its design (14.1) PM or Supervisor may delegate any actions, giving details of delegation (14.2) PM may give instruction changing the Scope or a Key Date (14.3)

44. Early warning Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 44 Contractor and PM have a duty to notify the other as soon as they are aware of a matter which could increase the total of the Prices delay Completion delay meeting a Key Date or impair the performance of the works in use (15.1) or adversely affect the creation or use of the Information Model (X10.3) PM or Contractor may give an early warning by notifying the other of any other matter which could increase Contractor’s total cost PM enters early warning matters in Early Warning Register (15.1)

45. Early warning Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 45 PM prepares and issues first Early Warning Register within one week of starting date (15.2) PM instructs first early warning meeting within two weeks of starting date Either party may at any time instruct the other to attend later early warning meeting Further early warning meetings occur when instructed by a party and no longer than intervals stated in Contract Data

46. Early warning Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 46 A Subcontractor attends if attendance will assist (15.2) Those attending co-operate in making and considering proposals to avoid or reduce effects, seeking solutions, deciding actions, reviewing and perhaps removing matters from Early Warning Register (15.3) PM revises Early Warning Register to record decisions and issues within one week (15.4) Encourages collaboration, innovation and ability to adjust to circumstances during the contract

47. Contractor’s proposals Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 47 Contractor may propose changes to Client’s Scope which reduces the total of the Prices (16.1) If the PM accepts the proposal, the PM issues an instruction changing the Scope (16.2) For Option A and B, the benefit is shared by the value engineering percentage (63.12) if the change is to Client’s S cope and the total Defined Cost is reduced by the compensation event The PM does not change the Scope as proposed unless it accepts the quotation

48. Session 3.2 - Contractor’s main responsibilities Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 48 Providing the Works Contractor’s design People Working with the Client and Others Subcontracting 2 2

49. Works Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 49 Providing the Works (20) Contractor Provides the Works in accordance with the Scope

50. Design Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 50 Contractor’s design (21) Contractor designs the parts of the works which the Scope states it is to design default is Client design design acceptance before proceeding reasons for not accepting design Using the design (22) Contractor owns its rights (22.1) unless Option X9 adopted Design liability Contractor may have limited design liability (Option X15)

51. People Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 51 The Contractor employs each key person stated in Contract Data or employs replacement person accepted by PM (24.1) Reasons for not accepting (24.1) PM may instruct removal of a person (24.2)

52. Working with Client and Others – Key Dates Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 52 Contractor co-operates with Others (25.1) Multi-contract projects are coordinated through use of Key Dates, by which stated conditions have to be met If the PM decides (25.3) work does not meet Condition stated for a Key Date by the date stated and Client incurs additional cost the additional cost is paid by Contractor Optional – no obligation to use Key Dates

53. Subcontracting Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 53 If subcontracts, Contractor still responsible for Providing the Works (26.1) Contractor submits for all Options name of each proposed Subcontractor to PM for acceptance (26.2) proposed subcontract documents except pricing information unless NEC contract is proposed, unamended except for changes in main contract, or PM agrees no submission required (26.3) Contractor additionally submits for Options C to F proposed pricing information (26.4)

54. Session 3.3 - Time Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 54 Starting, Completion and Key Dates Programme Access, stopping and starting work 3 3

55. Starting, Completion and Key Dates Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 55 Contractor does not start work on site until first access date and does work so that Completion is on or before Completion Date (30.1) PM decides date of Completion and certifies within a week (30.2) Contractor does work so that condition stated for each Key Date is met by Key Date (30.3) Completion Date can be changed by PM as a result of compensation events, acceleration (36) and accepting Defects (45.2)

56. Take over Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 56 Take over (35) is not the same as Completion Contractor is responsible for works until take over Client takes over within 2 weeks of Completion unless Client has stated in Contract Data it will not take over “early”, i.e. before Completion Date (35.1) Client may take over part of the works before Completion – will be a compensation event if before Completion Date (60.1(15)) PM certifies take over of part of the works within one week

57. Programme Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 57 Can be submitted with tender or after Contract Date (31.1) Programme includes (31.2) various dates order and timing of operations order and timing of work of Client and Others provisions for float, time risk allowances for each operation, a statement of how Contractor plans to do work identifying principal Equipment and resources Likely to be collection of documents which may include resource statements, information required schedules, network diagrams, bar charts

58. Accepting programme Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 58 Programme must be accepted or not accepted by PM within two weeks of submission Reasons for not accepting (31.3) If PM does not notify acceptance or non-acceptance Contractor may notify PM of failure if no action by PM , programme is treated as accepted Accepted Programme is latest programme accepted by PM (11.2(1))

59. Updating programme Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 59 Programme has to be updated regularly (32) Shows a number of things including the actual progress achieved on each operation and its effect on remaining work (32.1) How frequent? on instruction by PM when Contractor chooses at interval stated in Contract Data (32.2)

60. Access, and stopping and starting work Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 60 Client allows Contractor access to the Site (33.1) PM can instruct Contractor to stop or not start work (34.1) PM must then give instruction to re-starting or start work or remove work from Scope Compensation event (60.1(4)) and termination event (91.6). Consider whether fault of Contractor

61. Session 3.4 – Quality management Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 61 Quality management system Tests and inspections Searching for and notifying Defects Correcting Defects Accepting Defects Uncorrected Defects 4 4

62. Quality management system Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 62 Contractor has a quality management system (40.1) Contractor provides a quality policy statement and quality plan (40.2) PM accepts quality policy statement and quality plan An instruction to correct a failure in the plan is not a compensation event (40.3)

63. Tests and inspections Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 63 Contractor and Supervisor inform each other of tests (41.3) Contractor pays the cost of any repeat test or inspection required because a Defect was found (41.6)

64. Defects Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 64 Searching for and notifying Defects (43) search provisions (43.1) Supervisor and Contractor notify each other as soon as they find Defects (43.2) Correcting Defects (44) Contractor corrects notified Defects before end of defect correction period (44.2) access required after take over to correct a Defect (44.4)

65. defect correction period defect correction period defect correction period Completion defects date before Completion Defects notified: before defects date Latest issue of Defects Certificate after Completion Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 65 Defects timetable

66. Defects Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 66 Uncorrected Defects (46) if not corrected within defect correction period the PM assesses cost to Client of correcting it and Contractor pays amount (46.1) Accepting Defects (45) proposals that Defect not corrected (45.1) quotation for reduced Prices and/or earlier Completion Date (45.2) if quotation accepted, PM changes Scope, Prices and Completion Date accordingly accepts the revised programme

67. Session 3.5 - Payment Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 67 Assessing the amount due Times for assessment and payment Schedule of Cost Components (SCC) 5 5

68. Assessment timetable Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 68 Assessments made by the PM (50.1) First assessment no later than the assessment interval after the starting date Normal assessments made at assessment interval until the Supervisor issues the Defects Certificate or the PM issues a termination certificate Final assessment no later than four weeks after Defects Certificate or thirteen weeks after termination certificate (53.1)

69. Payment process – assessment timetable Completion starting date final assessment assessment interval continues until Defects Certificate within 4 weeks Defects Certificate within assessment interval assessments Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 69

70. Assessment Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 70 PM assesses amount due at each assessment date (50.1) considers an application for payment Contractor has submitted (50.2) certifies payment within 1 week of each assessment date (51.1) Contractor submits an application for payment before each assessment date Application includes details of how amount has been assessed, in form stated in Scope

71. Assessment Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 71 If Contractor submits application, amount due is Price for Work Done to Date (PWDD) plus/less other amounts eg . retention, delay damages, KPIs (50.3) If Contractor does not submit an application, amount due is lesser of amount PM assesses and amount due at the previous assessment date (50.4) One quarter (25%) of PWDD retained if there is no first programme (50.5)

72. Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 72 Price for Work Done to Date Option PWDD A Total of Prices for completed activities 11.2(29) B Quantities of completed work at Bill of Quantities rates and proportions of lump sums 11.2(30) C to F Defined Cost forecast to be paid before next assessment date + Fee 11.2(31)

73. Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 73 Defined Cost for PWDD Option Defined Cost C to E Cost of components in SCC, less Disallowed Cost (11.2(24)) F Payments due to Subcontractors for work subcontracted and prices for work done by Contractor , less Disallowed Cost (11.2(25))

74. Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 74 Disallowed Cost Option Disallowed Cost C to E 11.2(26) Cost which, for example, is not justified by the Contractor’s accounts should not have been paid to Subcontractor was incurred only because Contractor did not give early warning correcting Defects after Completion F 11.2(27) As C to E plus payment to Subcontractor for work which Contract Data states Contractor will do itself or Contractor’s management

75. Defined Cost Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 75 Defined Cost includes only amounts calculated using rates and percentages stated in the Contract Data other amounts at open market or competitively tendered prices with deductions for all discounts, rebates and taxes (52.1) Defined Cost can be “finalised” so it is not revisited (50.9)

76. Fee Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 76 All Contractor’s costs not included in Defined Cost are treated as included in Fee (52.1) The Fee is calculated by applying the fee percentage to the amount of Defined Cost (11.2(10))

77. PM certifies payment Certified payment is made 1 week assessment date 3 weeks or other period stated in CD Interest 51.2 Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 77 Payment – times without Y(UK)2 Note that for final assessment, the Contractor may issue the assessment

78. Y2.2 due date for payment Y2.2 final date for payment 7 days assessment date 7 days 14 days or other period stated in CD Y2.3 notice to pay less than PM’s assessment Y2.5 suspension of performance of all or part of works Interest 51.2 Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 78 Payment – times with Y(UK)2 PM certificate -Y2.2 notice of payment Note that for final assessment, the Contractor may issue the assessment

79. Final assessment Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 79 PM assesses final amount due and certifies final payment no later than four weeks after Defects Certificate or thirteen weeks after termination certificate (53.1) If PM does not make assessment, Contractor may make and issue assessment (53.2) Assessment of final amount is final unless a Party disputes it (53.3)

80. Schedule of Cost Components Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 80 Only used in Options C to E Used for assessing both compensation events and Price for Work Done to Date (PWDD) An amount is included only in one cost component and only if incurred to Provide the Works

81. Schedule of Cost Components Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 81 Components people Equipment Plant and Materials Subcontractors charges manufacture and fabrication design insurance Data completed in Contract Data part two

82. Session 3.6 – Compensation events Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 82 Definition Process Method of assessment Short Schedule of Cost Components (SSCC) Sanctions for non-compliance 6 6

83. Definition Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 83 Compensation events are events which if they do not arise from Contractor’s fault, entitle Contractor to be compensated for effect on the Prices, Key Dates and Completion Date Therefore it is important to remember that compensation events deal with both time and money

84. Definition Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 84 Where are compensation events stated? 21 in clause 60.1 3 in main Options B and D, in clauses 60.4 to 60.6 also in secondary Options X2, X12.3(6) & (7), X14.2, X15.2 and Y2.5 may be in Contract Data part one may be additional compensation events in secondary Option Z Some decisions/instructions specifically not compensation events – for example whole life cost changes to Scope (X21.5)

85. Compensation events Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 85 Compensation events, examples 60.1 (1) PM gives instruction changing the Scope (2) Client does not allow access to and use of part of the Site (3) Client does not provide something (5) default by Client or Others (12) Contractor encounters certain physical conditions (13) a weather measurement is recorded, less frequently than once in ten years

86. Process Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 86 There is a defined process to agree (or impose) the effects of a compensation event within defined time limits Both PM and Contractor can make sure that process and time scales are adhered to A separate process for instructing quotations for proposed instructions (65)

87. Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 87 The compensation event process

88. PM notifies CE PM can request alternative quotes (62.1) New CE if assumptions change Time/cost freeze as long as no further CE affects works Implementation PM assessment (64.1) (if required) Deemed acceptance after two weeks from Contractor advising no decision received (64.4) Deemed acceptance after two weeks from Contractor advising no decision received (62.6) PM states if any assumptions to be used (61.6) Deemed acceptance after two weeks from Contractor advising no decision received (61.4) 8 Week time bar - for certain CEs (61.3) Should early warning have been given? (63.7) <3 Weeks <1 Week Contractor issues quote Instruct quote (61.2/4) PM decision <3 Weeks <2 Weeks PM reply (62.3) accept/reject/self-assess IS THERE A CE? IMPLEMENTATION PM ASSESSMENT INSTRUCT QUOTATION C notifies CE PM DECISION CONTRACTOR ASSESSMENT 88 Yes Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC

89. Notification Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 89 If the compensation event arises from PM or Supervisor giving instruction or notification issuing certificate or changing earlier decision then PM notifies compensation event at time of communication (61.1) PM includes in notification instruction to Contractor to provide quotation (61.2) Otherwise Contractor notifies (61.3)

90. Notification Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 90 When Contractor notifies, PM replies within one week with “yes” or “no” Answer is “no” if PM decides event is Contractor’s fault has not happened/is not expected to happen is not notified in time has no effect on Defined Cost, Completion or meeting a Key Date or is not a listed compensation event (61.4) Otherwise answer is “yes” and includes PM instruction to Contractor to provide a quotation (61.4)

91. Sanctions (1) Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 91 Contractor inaction if Contractor does not notify of compensation event it is supposed to (not one to be notified by PM ) within 8 weeks of becoming aware of event, it loses rights to any additional time or money (61.3) PM inaction if PM fails to reply to Contractor’s notification of compensation event within 1 week, Contractor may give PM a reminder (61.4) if failure continues for a further 2 weeks after reminder, deemed that PM has accepted it is a compensation event and has instructed a quotation to be provided (61.4)

92. Quotation Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 92 When PM notifies the event as a compensation event, included in notification is an instruction to Contractor to provide quotation When instructing a quotation PM may instruct alternative quotations (after discussion with Contractor ) (62.1) and/or state assumptions on which quotation is to be based (61.6), if effects are unclear Contractor provides quotation within 3 weeks (62.3), which can be extended by agreement (62.5)

93. Assessment Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 93 Change to the Prices actual Defined Cost of work done by dividing date forecast Defined Cost of work not yet done by dividing date resulting Fee (63.1) Dividing date if arising from instruction or notification, certificate, or changed decision, then date of communication by PM or Supervisor otherwise date of notification of compensation event (63.1) Which Schedule of Cost Components for Defined Cost?

94. Calculating Defined Cost for compensation events Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 94 Short Schedule of Cost Components (SSCC) only used in Options A and B amount is included only in one cost component and only if incurred to Provide the Works same headings as SCC people at People Rates SCC used in Options C to E

95. Assessment Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 95 If PM and Contractor both agree, rates and lump sums may be used as a basis for assessment (63.2) Otherwise Prices or rates in the Bill of Quantities or Activity Schedule, or from anywhere else, are NOT used Prices are not reduced for a compensation event that reduces Defined Cost unless specifically stated (63.3)

96. Assessment Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 96 Delay to the Completion Date length of time that, due to compensation event, planned Completion is later than planned Completion shown on Accepted Programme current at dividing date (63.5) Delay to a Key Date length of time that, due to compensation event, planned date when Condition will be met is later than date shown on Accepted Programme current at dividing date (63.5)

97. Decision by PM Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 97 PM replies within 2 weeks of receipt of quotation (62.3) The reply is one of following (62.3) accept quotation not accept quotation, because it has not been prepared in accordance with contract If reply is non acceptance, the PM must instruct Contractor to provide revised quotation (with reasons) or tell Contractor it will make own assessment Note PM cannot just issue non acceptance

98. Sanctions (2) Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 98 If PM fails within allowed time to reply to quotation Contractor may notify reminder (62.6) If there was more than one quotation, notification identifies the preferred quotation If failure continues for a further 2 weeks after reminder, the Contractor’s quotation is treated as having been accepted (62.6)

99. PM’s assessment Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 99 PM makes assessment if Contractor has not responded within time PM decides Contractor has not assessed compensation event correctly no programme or alterations to programme submitted by Contractor with quotation PM has not accepted Contractor’s latest programme (64.1) PM makes own assessment within the time allowed for Contractor (64.3)

100. PM’s assessment Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 100 PM assesses the programme for the remaining work in assessment of compensation event if there is no Accepted Programme the Contractor has not submitted a programme or alteration to the programme for acceptance PM has not accepted Contractor’s latest programme for a reason stated in the contract (64.2)

101. Sanctions (3) Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 101 If PM fails within allowed time to assess quotation Contractor may notify reminder (64.4) If there was more than one original quotation from Contractor , notification identifies the preferred quotation If failure continues for a further 2 weeks after reminder, the Contractor’s original quotation is treated as having been accepted (64.4)

102. Implementation Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 102 Compensation event is implemented when PM accepts Contractor’s quotation PM notifies Contractor of own assessment or Contractor’s quotation is treated as having been accepted (66.1) Once implemented the Prices, Completion Date and Key Dates are changed accordingly (66.2) the assessment is not revised (even if wrong) except as permitted by the contract (66.3) only the Adjudicator or tribunal can change the assessment if one Party still disagrees (W1/W2/W3). The Dispute Avoidance Board cannot change the assessment

103. Proposed instructions Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 103 PM may instruct a quotation for proposed instruction (65.1) Contractor submits quotation within three weeks (65.2) Quotation assessed as compensation event PM accepts quotation and notifies instruction instructs a revised quotation or notifies quotation not accepted If not accepted notification is a compensation event, so Contractor gets paid for quotation (60.1(20)) PM may still issue instruction and normal compensation event process is followed (65.3)

104. Session 3.7 – Title Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 104 Title Use of material 7 7

105. Title and use of material Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 105 Whatever title Contractor has to Plant and Materials passes to Client when brought into Working Areas (70.2) or if they are outside the Working Areas, when they are marked by Supervisor (70.1) Objects and materials within Site PM instructs how to deal with object of value or historic or other interest (73.1) Contractor has title to materials from excavation and demolition unless stated otherwise in the Scope (73.2) Contractor only has restricted use of material supplied by Client (74.1)

106. Session 3.8 – Liabilities and insurance Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 106 8 8

107. Liabilities and insurance Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 107 80 Client’s liabilities (damage and 3 rd party claims) 81 Contractor’s liabilities unless stated as being the Client’s 82 Recovery of costs each Party pays for events for which they are liable net contribution 83 Insurance cover – 4 No 84 Insurance policies 86 Insurance by Client X18 Limitation of liability

108. Session 3.9 – Termination and dispute resolution Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 108 9 9

109. Termination Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 109 Termination is of Contractor’s obligation to Provide the Works (90.1) A Party may terminate only for reasons in Termination Table (90.2) Client may terminate for any reason with Option X11 Stated reasons for termination (91) Procedures on termination (92) Payment on termination (93)

110. Dispute resolution Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 110 3 options, W1, W2 and W3 Choice is entered in Contract Data part one W1 or W3 used unless HGCRA applies W2 used if HGCRA applies – will concentrate on that W1 and W2 use adjudication as the primary means of dispute resolution W3 uses a Dispute Avoidance Board established at the start of the contract

111. Key points of W2 Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 111 Adjudication can be “at any time” (W2.2(1)) Parties may refer dispute to the Senior Representatives first, by agreement (W2.1(1)) Adjudicator is an independent 3 rd party who can be named in the contract, or agreed or appointed when the dispute arises (W2.2) Adjudicator has 28 days to make decision, which can be extended by agreement (W2.3(8)) Adjudicator’s decision is binding but not necessarily final (W2.3(11)) Subcontract joinder possible by agreement (W2.3(3))

112. Tribunal Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 112 In W2, final decision is made by tribunal named in Contract Data part one arbitration or the courts (W2.4) Cannot use tribunal until after Adjudicator makes decision (W2.4(1)) Parties have 4 weeks after decision to notify disagreement with it, otherwise becomes final as well as binding (W2.4(2)) W1 and W3 are similar

113. Session 4 – Summary and open forum Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 113 Questions and answers

114. Were the course objectives met? Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 114 Delegates should Understand the philosophy of NEC Develop skills to advise on appropriate contract strategies Appreciate the use of Contract Data, Scope and Site Information Understand roles and responsibilities of key parties Understand important ECC clauses such as early warning, programme, communications and compensation events

115. Next steps? Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 115 Further training? NEC Users’ Group membership? Internal NEC champion? Share best practice – case studies/Newsletter articles/document sharing?

116. Contact us  [phone]  [email protected] One Great George Street, London SW1P 3AA neccontract.com Delivering real value