NEC / ICE contract term comparison

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APPENDIX ELEVEN
COMPARISION OF NEC TERM SERVICE & ICE TERM CONTRACTS
NEC Term Service Contract
ICE Term Version
Places greater emphasis on seeking final agreement earlier, rather than on the
accuracy of cost determination.
Places greater emphasis on protecting the legal positions of the parties, rather
than on the resolution of their differences.
Part of the NEC family of documents.
Based on the “traditional” form of ICE Contract.
Currently only available in draft form, with publication scheduled for “late
2003”, possibly April 2004.
Currently in its first edition, published in September 2002.
Requires the parties work together in a “spirit of mutual trust and cooperation”. A failure to do so is a breach of contract.
Does not formally require the parties work together in a “spirit of mutual trust
and co-operation”, but acknowledges the benefits of team working.
Contains clear mechanisms and response times, designed to stimulate good
management by both parties to the contract.
Lacks the proactive management procedures of the NEC TSC.
The NEC’s “Early Warning” and “Compensation Event” mechanisms are used
to resolve matters amicably and quickly, thus avoiding or minimising the
development of adversarial attitudes by both parties.
This form has no formal mechanisms that encourage the parties to work
together to resolve problems, or resolve disputes quickly.
The Contract is administered, on behalf of the Employer, by the Service
Manager.
The work is supervised and certified by the Engineer, who is appointed by the
Employer.
As far as is known, no NEC Contract has gone to Court or Arbitration in its
ten-year history, because of its successful dispute resolution mechanisms.
The ICE forms are supported by a long history of case law.
Written for clarity using straightforward language and simple structure.
Lacks the clarity and simplicity of the NEC TSC.
Written to deliver a stated service, which is maintaining an asset in its existing
state for a given price, (although Task Orders may be used to deliver small
improvements) rather than the delivery of a project or series of projects.
Written to allow the Employer to obtain fixed prices for a wide range of
activities for which there is a general need, but where the quantity of the need
is uncertain, and to “call off” these activities as necessary by issuing Works
Orders.
APPENDIX ELEVEN
COMPARISION OF NEC TERM SERVICE & ICE TERM CONTRACTS
Payment may be made through one of the following options:
Priced Contract (Admeasurement)
Target Cost Contract
Cost Reimbursable Contract
Payment is based on admeasurement, but can include:
Lump sum payments for defined elements of work
Cost plus arrangements for ill-defined work
Certain defects, such as omitted services, can be handled through reduced
payments
There is no facility to handle certain defects, such as omitted services, through
reduced payments.
Can, with the use of NEC Option X12, be made compliant with the
recommendations of The CIC document “Guide to Project Team Partnering”
Cannot be made compliant with the recommendations of The CIC document
“Guide to Project Team Partnering”
Does not comply with the Housing Grants, Construction and Regeneration Act
1996.
Does comply with the Housing Grants, Construction and Regeneration Act
1996.
APPENDIX TWELVE
COMPARISON OF MF/1 AND NEC TERM SERVICE CONTRACTS
Introduction
The MF/1 is a form of contract that is quite widely used for the supply and erection of all forms
of electrical, mechanical and electronic equipment. It has been continually developed and has
been widely used for the local authority lighting for many years. It is published jointly by the
Institution of Electrical Engineers (lEE) and the Institution of Mechanical Engineers (IMechE)
and is endorsed by the Association of Consulting Engineers. The main objective of the contract
form appears to be to ensure the fair and equitable behaviour of both parties to the contract.
The MF/1 is part of the joint IMechE/IEE MF family of Model Form contracts, consisting of:
MF/1 Home or overseas contracts for the supply of electrical, electronic or mechanical
plant - with erection (it includes a form of subcontract).
MF/2 Home or overseas contracts for the supply of electrical, electronic or mechanical
plant (it includes a form of subcontract and a form of supervision contract).
MF/3 Home contracts for the supply of electrical and mechanical goods.
MF/4 Terms and conditions for the engagement of engineering consultants.
Observations
Although the MF/1 was amended (4th Edition) in 2000, the last major revision took place in 1988.
It was first launched in 1903 and, although it has continually evolved since, it is not based on
what is generally accepted today as best practice. The authors advise that, at present, they have
no plans to modify the form to introduce partnering procurement concepts.
An Engineer is appointed and paid by the Employer to manage work under the MF/1 and has a
duty to act fairly between the parties, when, for example, valuing variations. In this respect it is
very similar to the traditional ICE forms and, as such, has been known to stimulate adversarial
behaviour between the parties. The MF/1 uses conventional legal language with the use of ‘shall’
to impose obligations.
The MF/1 is intended for the construction of new work, not term maintenance. The payment
options are therefore restricted to lump sum payments or, by means of a set of standard
amendments, bills of quantities. There is no facility to pay for services provided to date, as in the
NEC Term Service Contract.
APPENDIX TWELVE (Cont)
COMPARISON OF MF/1 AND NEC TERM SERVICE CONTRACTS
Aspect of Contract
The contracting culture
Comparisons between the NEC TSC and MF/1
NEC TSC
MF/1
The language, layout and management systems Based on traditional relationships, defensive
are unquestionably ‘modern’ in approach and risk management and seeks conservative,
commitment to best practice. It will therefore incremental improvement. It will appeal to
particularly appeal to clients who are actively clients who have not had problems in the
pursuing best value for money and continuous past and are comfortable in using a
improvement.
document familiar to the contracting parties.
Working together
Makes working together ‘in a spirit of mutual
trust and co-operation’ an obligation. While it is
difficult to force people to co-operate if they don’t
want to, this ‘up-front’ declaration in the first
clause of the contract does seem to be effective in
encouraging co-operative working.
Managing the contract
The Project Manager is the client’s agent, and the The Engineer acts independently under a
client has total flexibility in how the project number of clauses. This can limit flexibility
management is organised.
and client control, and real contractor
benefits
are
often
illusory.
The contract procedures are designed to
encourage looking ahead to solve problems and
reduce risks, on the basis that it is only possible to
plan to manage what happens in the future, not
what has already happened.
MF/1 does not have any equivalent clause
and if users want to emphasise co-operation,
they will need to amend the contract or
write a partnering process into the contract.
Contract procedures are based on traditional
liability driven incentives to perform. There
is no procedural obligation to jointly solve
problems.
APPENDIX TWELVE (Cont)
COMPARISON OF MF/1 AND NEC TERM SERVICE CONTRACTS
Aspect of Contract
NEC TSC
Certainty of outcome — no nasty Early warning process requires either party to
surprises
notify the other promptly if they become aware of
something that will increase cost, delay the
programmes, or impair performance of the
service. This is an extremely powerful tool to
ensure both parties have, at every stage, the best
possible understanding of the likely performance
of the service.
MF/1
There is no equivalent here and without
such an obligation there is no need for either
party to help the other. With goodwill this
need not necessarily be a problem, but there
is no incentive for the parties to exhibit
goodwill. The omission of such a
requirement in the MF/1 is not helpful.
Variations (which are not limited by value) and
claims have a common procedure in the NEC
TSC and are known as ‘compensation events’. A
logical process of notification, assessment,
acceptance, and implementation is included.
Compensation events are intended to be priced as
soon as possible after they occur, in ‘real time’ so
that for complex events both parties can
participate in managing costs that have yet to be
incurred. Once a compensation event is accepted,
the price is not normally varied, and hence both
parties are aware of the final price as early as is
possible.
Variations may be instructed provided the
contract price does not change by more than
15%. Unless the contract has a relevant
schedule of prices, the Engineer has to
decide on a ‘reasonable’ price. If work is
instructed before a price is determined, the
Contractor must keep records. There is no
requirement for the Engineer to value
variations promptly and valuation may be
delayed until the work is complete.
APPENDIX TWELVE (Cont)
COMPARISON OF MF/1 AND NEC TERM SERVICE CONTRACTS
Aspect of Contract
NEC TSC
A list of acceptable compensation events lets both
parties see where risks lie. ‘Claims’ that are not on
the list of compensation events will not be valid.
Compensation events must be notified promptly
and go through the same real time cost/method/
product assessment process as for variations. Thus
both parties have the earliest understanding of
final contract costs and can influence resolution of
the problems created by the event leading to the
‘claim’.
MF/1
Claims are required to be notified to the
Employer within 30 days of circumstances
arising which may lead to the claim. The
Contractor is then required ‘as soon as
reasonably
practicable’
after
the
notification, and not later than the end of the
last defects liability period, to give full
details of the claim. There is no method
assessing the claim provided and in practice
details the claim may often not be known by
the Employer until the end of the contract.
Payment
The NEC TSC payment process assumes a regular
assessment of the payments due to the Contractor,
but the outcome from this varies between the main
pricing options. Thus an Employer can choose
between paying lump sums for completion of
defined activities through to regular cost
reimbursement. The target cost option provides
regular cost reimbursement of cost incurred with
an end of contract exchange of the resulting
pain/gain share.
MF/1 uses special conditions to allow
interim and progress payment, or by
measurement. It is presumed that employers
will often need to amend the model text to
meet their particular requirements. Fewer
options are provided and these are less
integrated into the contract than for the NEC
TSC.
Force majeure
The NEC TSC does not use or define ‘force Force majeure is defined and parties may be
majeure’ and except as provided by the excused of performance.
compensation event procedure, risks rest with the
party affected.
APPENDIX TWELVE (Cont)
COMPARISON OF MF/1 AND NEC TERM SERVICE CONTRACTS
Aspect of Contract
Settling disputes
General
conditions
specification
versus
NEC TSC
The NEC processes are specifically designed to
prevent disputes before they arise, but if this fails
an arbitration procedure is included. As there is
no provision for adjudication, modification will
be necessary if the Housing Grants, Construction
and Regeneration Act 1996 (HGCR) applies.
Options chosen by the Employer pre-contract
allow ‘appeal’ to a tribunal. The tribunal may be
any pre-selected form of dispute resolution
(including arbitration). Many users choose to go
straight to the courts, and select ‘litigation’ as the
tribunal.
MF/1
If the Contractor disputes instructions, etc.
of the Engineer, MF/1 provides for the
Engineer to promptly respond with reasons.
The response is binding unless referred to
arbitration. Arbitration is provided for all
disputes between Employer and Contractor.
There is no provision for adjudication
except in the UK if the HGCR Act applies,
when a special condition is available.
the Designed as a generic document and does not
include
industry
or
project
specific clauses, which are provided as
needed by the Employer in the Works
Information (i.e. the specification).
MF/1 is for use with electrical, electronic,
and mechanical plant. As such it contains a
number of clauses that are technology
specific.
APPENDIX TWELVE (Cont)
COMPARISON OF MF/1 AND NEC TERM SERVICE CONTRACTS
The use of a conventional specification, prepared for use with the MF/1 Conditions of Contract, as part of an NEC TSC
Service Information section requires, inter alia, the following matters to be reviewed:
Testing
The NEC TSC clauses provide for testing but MF/1 has two key clauses dealing with
service specific requirements must be written in tests: ‘Tests on completion’ provides for
the Service Information, together with full basic testing while ‘Performance tests’
technical details of the tests.
gives the arrangements for deciding if
performance criteria have been reached.
The NEC core does not distinguish performance While more detailed than the NEC, MF/1
tests as such, as they are considered part of the still requires full technical details of the
generic ‘tests’, but a secondary option provides tests to be written in the specification.
damages for low option performance.
Software
The NEC TSC, by intent, does not treat software
as being distinct from other intellectual property
required to allow a product to be used. If
technology specific provisions need to be made
these become part of the Service Information.
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