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European Bank for Reconstruction and

Development

NEC Contracts

neccontract.com © nec 07/2011

NEC Contracts

Peter Higgins

NEC Group

22 July 2011

Agenda

• Introduction to the NEC system

• Key features of the NEC - delivering client requirements


• Clarity, Flexibility, Stimulus to good management

• Experience in the use of the NEC

• Implementation of NEC

About the ICE

• Established 1818

• First President Thomas Telford (1820 – 1834)

• 85,000 members spanning 164 countries

• 12 offices worldwide


• 12 offices worldwide

ICE Role in Contract Writing

1945 - 1st Edition of ICE Conditions of Contract1955 – 4th Edition of ICE Conditions of Contract

adopted for International use and published as the FIDIC Contract

2001 – 7th Edition of ICE Conditions of Contract


2001 – 7 Edition of ICE Conditions of Contract

1991 - First publication of NEC contract1995 – 2nd Edition of NEC contract2005 – 3rd Edition of NEC family of contracts

2011 – Support for ICE conditions withdrawn

NEC family of contracts

NEC is a comprehensive project management tool

• Engineering and Construction Contract & Subcontract• Short Contract & Subcontract

• Professional Services Contract

• Term Service Contract


• Term Service Contract• Short Contract

• Supply Contract• Short Contract

• Framework Contract

• Adjudicator’s Contract

NEC family

• Guidance Notes & Flow Charts

• To support all the NEC3 contracts


• NEC Procurement and Contract Strategies

• A guide for users in application of NEC3 contracts in different procurement and contract strategies


NEC family

EmployerProject Manager

PSCAdjudicator

AC

Typical design &


Contractor

ECC

Supplier

SC or SSC

Subcontractor

ECS or ECSS

Supervisor

PSC

Designer

PSC

Typical design &

build arrangement

Contract choice

Contract EBRD current NEC options

Construction work FIDIC 1st/HarmonisedNECOther approved

NEC ECCNEC ECC Short

Goods MDB NEC Supply


Goods MDB NEC SupplyNEC Supply Short

Plant supply & installation

World Bank 1995 NEC ECCNEC ECC Short

Consultancy FIDICInternal

NEC PSC

Asset operation/management

NEC TSCNEC TSC Short

People in the NEC contracts

• Project Manager

• Employer’s representative

• Duty to certify


• Supervisor

• Responsible for quality

• Adjudicator

• Dispute review expert

NEC contract design

• Defines the actions of the parties needed to manage the contract successfully

• Defines the obligations of the parties, so that when a dispute arises, the arbitrator


that when a dispute arises, the arbitrator or court can identify responsibilities

ECC payment options

• Lump sums (activity schedule)

• Bill of quantities

• Target (with activity schedule/ bill of


• Target (with activity schedule/ bill of quantities)

• Cost reimbursement

• Management

Financial risk allocation

target


Employer ContractorFINANCIAL RISK

cost reimbursable

lumpsum

measurement

NEC – the contracts


NEC Key Concepts

• Clarity of document

• Flexibility of use

• Stimulus to good management


• Stimulus to good management

Key Concepts - Clarity

• Uses language and procedures which are straightforward and easily understood

• Present tense defines actions of parties not liabilities


not liabilities

• Minimal subjective judgements

• Minimal legal jargon

• Procedural logic backed up by flow charts

Language

The Employer shall indemnify and hold harmless the Contractor, the Contractor’s Personnel, and their respective agents, against and from all claims, damages, losses and expenses (including legal fees and expenses) in respect of (1) bodily injury, sickness,


expenses) in respect of (1) bodily injury, sickness, disease or death, which is attributable to any negligence, wilful act or breach of the Contract by the Employer, the Employer’s Personnel, or any of their respective agents, and (2) the matters for which liability may be excluded from insurance cover, as described in sub-paragraphs (d)(i), (ii) and (iii) of Sub-Clause 18.3 [Insurance Against Injury to Persons and Damage to Property].

NEC

Each Party indemnifies the other against claims, proceedings, compensation and costs due to an event which is at his risk.


From the starting date until the Defects Certificate has been issued, the risks which are not carried by the Employer are carried by the Contractor.

FIDIC imperative

• The Contractor shall commence the execution of the Works as soon as is reasonably practicable after the Commencement Date, and shall then


Commencement Date, and shall then proceed with the Works with due expedition and without delay.

• The Contractor shall complete the whole of the Works, and each Section (if any), within the Time for Completion for the Works or Section (as the case may be)

NEC present tense

• The Contractor does not start work on the Site until the first access date and does the work so that Completion is on or before the Completion Date.


before the Completion Date.

Subjective judgements

Extension of time for weather - FIDIC

• exceptionally adverse climatic conditions


NEC approach

• a weather measurement is recorded the value of which, by comparison with the weather data, is shown to occur on average less frequently than once in ten years.

Key Concepts - Flexibility

• Multi-disciplinary

• Complete family of contracts

• Design & build - any mix allowed


• Design & build - any mix allowed

• Risk allocation - by employer - not fixed by contract

• International application of contract

Multi-disciplinary

• Engineering and Construction Contract

• suitable for all types of construction

• Professional Services


• suitable for all consultancy services

• Term covers any service

• Supply of any goods

Design & build

• Any extent of design permitted• minor – culvert crossing• major – EPC contract

• Employer provides design specification


• Employer provides design specification• Contractor provides design proposals at tender if required

• Contractor provides design details for acceptance as required

• Contractor takes risk of change in his design needed to meet Employer design specification

International application

His Honour Humphrey Lloyd QC considers that there are no real barriers to the NEC3 Engineering and Construction Contract being used internationally.


internationally.

His Honour Humphrey Lloyd QC was a judge of the

UK Technology and Construction Court in London

from 1993 to 2005 and has been a member of the

Commission on International Arbitration of the

International Chamber of Commerce (ICC) since

1980

Key concepts - stimulus to good management

• Stimulates good management of

• the relationship between the parties


• the work in the contract

• Examples in contract

• programme

• early warning

• notification of compensation events

Relationships in construction contracts

yesterday

Confrontation

today

Cooperation

tomorrow

Partnering


Confrontation

Disputes

Claims

Cooperation

Active project management

Positive profitability

Partnering

Mutual objectives

Success

NEC relationships

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 co-operation.


mutual trust and co-operation.

Programme

• Programme provided at tender or after award as required

• Active project management tool• Includes allowances for float and risk, method statement


statement• Regular updates

• Shows work done to date• Shows proposed timing of work to be done at date of revision

• Currently accepted programme used for assessments• previous programmes only relevant for as built records

Early Warning

• Notification by both parties• change in cost or delay

• impairment of the works

• Meeting


• Meeting• cooperate to seek solutions in joint interest

• Action to manage events, not react to them

• Record actions in Risk Register

Compensation events

• List of events in contract

• Sole means of changing price/programme

• Payment and delay assessed together


• Payment and delay assessed together

• Project Manager decides how to deal with event

• Assessed at time of event

• Transfers risk to Contractor of future effects of event

Managing NEC contracts

• contract is project management based

• contract provides project management system

• contract provisions simple to follow


• intended to be read by project manager

• procedures need to be followed

• contract is not left in the drawer

• training in project management likely to help

FIDIC & NECFIDIC NEC

Language traditional imperative present tense defines actions

Flexibility limited selection of clauses main & secondary options

Additional requirements particular conditions Z clauses

Pricing fixed price or measurement fixed, measurement, target, cost, management

Management of contract

designed to allocate liabilities

detailed management procedures and responsibilities


neccontract.com

contract liabilities procedures and responsibilities

Relationships adversarial approach co-operative approach

Programme Initial programme accepted Regularly updated programmes accepted

Changes Variations priced at bill rates Compensation events based on forecast cost

Claims time & cost claimed separately

time & cost assessed together & balance decided by PM

Claim assessment Records of cost Priced in advance as compensation events

Dispute resolution DAB - Arbitration Adjudicator - Tribunal

People in the NEC contracts

FIDIC NEC

Engineer Project Manager


Resident Engineer/ Inspector

Supervisor

Dispute Adjudication Board

Adjudicator

Choice of forms

FIDIC NEC

Building and Engineering Works Engineering and Construction Contract

Plant and Design-Build Engineering and Construction Contract

EPC/Turnkey Projects Engineering and Construction Contract


Short Form of Contract Engineering and Construction Short contract

Dredgers Contract Engineering and Construction Short contract

Client Consultant Model Services Agreement Professional Services Contract

Sub-Consultancy Agreement Professional Services Contract

Term Service Contract

Supply Contract

Framework Contract

Risk allocation options

Type of work FIDIC NEC

Works contract -admeasurement

Edition 1/ Harmonisedconditions

ECC bill of quantities option

Works contract –payment against work

Edition 1/ Harmonisedconditions with schedule

ECC lump sum option


payment against work completed

conditions with schedule of payments

Target price - ECC target options

Cost reimbursable - ECC cost reimbursable option

Management - ECC management option

Examples of NEC in use

• South Africa – ESKOM power supply contracts, Pebble Bed Modular Nuclear Reactor contract

• India - Hydrerabad and Delhi airports works contracts

• Philippines - new British Embassy in Manila


• Philippines - new British Embassy in Manila• South Africa – eThekwini water and sanitation project

• England – all public sector construction work• New Zealand – Meridian Energy power works, Christchurch airport

• Hong Kong government – several pilot contracts

British Embassy, Warsaw Poland

Al Raha development UAE$10bn

Durban Pier South Africa $120m


Halley VI ice station Antarctica $22mEngland – Channel Tunnel Rail Link $6bn

IMPLEMENTATION OF NEC


IMPLEMENTATION OF NEC

Implementation tools

• Standard Tender Documents and User’s Guide

• Contract preparation & procurement on web based electronic document compiler, or under licence for in house server

• Web based contract management system

• Extensive and proven direct and online training packages


• Extensive and proven direct and online training packages

• Dedicated user group support

• Online access to funders and recipients providing information and guidance

• seminars & workshops

• helpdesk providing technical support

Standard Tender Documents and User’s Guide

• EBRD contracts and documents• Works• Supply• Plant


• Plant

• NEC version standard tender document and User’s Guide covering all aspects of project• Engineering and Construction/ Short Contract• Supply/ Short Contract• Professional Services Contract• Term Service/ Short Contract


neccontract.com

Example of support service

• Assistance to UK Government

• NEC group provides training & support to all public sector users

• Standard additional government clauses


• Standard additional government clauses drafted

Government endorsement

• UK government recommends the use of NEC3 by public sector construction procurers on their construction projects


• NEC one of four forms of contract permitted for S Africa work

Summary

NEC is

• clear and can be used for all types of work

• integrated between all levels in the procurement chain.

• free of legal association of any jurisdiction


• suitable for international use

• strong project and programme management systems

• proven track record

Following the NEC philosophy leads to a successful project

Further information

• NEC integration into MDB standard bidding document

• integration into EDRB standard tender documents

• Access to current user group


• Access to current user group

• Access to eLearning module

• Electronic copy of contract

• Further briefing/ advice through a dedicated consultant

NEC CONTRACTS


Questions?