NEC 3: Introduction
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Introduction
• The rudiments of NEC
• New (No, really quite mature)
• Engineering (No, anything really)
• Contract (No, a contracting system)
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A Brief History of NEC
1985
ICE review alternative contract strategies
1986
ICE commissioned new style of contract
1991
First consultative edition produced
1993
Edition 1 published
1994
“Constructing the Team” Latham 1994, singled out NEC for good
practice
1995
Edition 2 published, all 13 Latham principles adopted
1999
Short form published
2005
Edition 3 published and existing contracts updated. New Term
Service and Framework contract published
2006
June 2006 amendments
2013
April 2013 amendments
Still the New Engineering Contract?
NEC Amendments April 2013
http://www.neccontract.com/
Why the NEC?
• Constructing the Team - Sir Michael Latham
1994
• Rethinking Construction – Sir John Egan
1998
• Achieving Excellence – OGC 2003
• HM Treasury
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Basic Characteristics of NEC
• Contractor lead
• Mutual trust and co-operation (edition 2 onwards)
• Good management encouraged (not just rights and obligations)
• Procedure driven
• Programme given HUGE prominence
• Recognising risk and dealing with it as you go rather than
allocating blame afterwards
• Clear and distinct roles for those involved
• Minimises subjective phrases such as fair, reasonable, opinion
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Basic Characteristics of NEC
• Modular approach
• Interlocking contracts e.g. Subcontract, PSC, Adjudicator
• Logical contracts (can be described in flow charts)
• Written in simple English (and in the present tense)
• Certainty of actions and outcome
• Flexible approach allows use in multi discipline projects
and a wide range of projects
• Can be used internationally
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Using the NEC
• Works well where used properly
• Allows great flexibility in public and private
sectors
• Easy to apportion design responsibility
• Use the main options to decide big issues
such as pricing options
• Tailor with secondary options
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The Present Family of NEC Contracts
• NEC3 April 2013 Edition complete family
of contracts (39 documents including guidance
notes and flow charts)
A typical project using NEC Contracts
Client
Project Manager
PSC or PSSC
Adjudicator
AC
Consultant Supervisor
PSC or PSSC
Consultant
PSC or PSSC
Contractor
ECC or ECSC
Subcontractor
ECS or ECSS
Suppliers
ECS or ECSS
Suppliers
SC or SSC
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NEC 3:
Main and Secondary Options
and Alternatives
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Introduction
• Strategy for choosing the correct contract
• 6 Main Options
• Secondary Option Clauses (X, Y & W)
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Contract Strategy
• ECC main option is based on completeness of the
Works Information
• Example Scenarios
• Employer has fully designed the required works & requires a lump
sum price
• Employer requires Contractor to design and construct the work on
a fixed sum basis
• Employer requires Contractor to design and construct the work on
a fixed sum basis
• Employer requires immediate and urgent works that are not
designed
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Main Option Concepts
• Activity Schedule
• Bill of Quantities
• Cost Reimbursement
• Target Cost
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Balance of risk
Contract Type
Main
Options
Balance of risk
Employer
A
Priced
B
C
Target
D
Cost reimbursable
E
Management
F
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Contractor
Main Options – A (1)
• Option A – Priced contract with activity schedule
• Fixed Price Lump Sum contract
• Activity Schedule
• Price Comparison
• Change Management
• The Programme
• Control and Change
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Main Options – A (2)
• Risk and Reward with Contractor
• Ideally suited to contractor’s design but can be used
for Employers design
• Divided design responsibility providing the
Employer’s design element is complete at time of
tender
• Offers best prospects for price certainty
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Main Options – B
• Option B – Priced contract with bill of quantities
• Re-measurement contract
• Bill of Quantities
• Price Comparison
• Changing the BoQ
• Change Management
• Not suited to Contractor’s design because of reliance on
bills of quantities
• Risk split Quantity/Price
• Lacks price certainty
Main Options – C (1)
• Option C – Target contract with activity schedule
• Target contract based on lump sum
• Allows Employer flexibility in developing his own
design
• Target Cost
• Administrative Burden
• Cash flow certainty
• Cost Transparency
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Main Options – C (2)
• Risk split - Contractor:
• Fixed margin
• Pain/gain
• Risk split – Employer:
• Payment burden
• Pain/gain
• Fixes some degree of certainty on price
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Main Options – D
• Option D – Target contract with bill of quantities
• Target contract bill of quantities based
• Similar price risk as Option B
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Main Options – E
• Option E – Cost reimbursable contract
• Maximum flexibility in allocation of design
responsibility
• Contractor has little incentive by way of
any target to minimise costs
• Not suitable if the employer is looking for
price certainty
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Main Options – F
• Option F – Management contract
• Not suitable for allocation of the whole of the
design responsibility to the Contractor unless
placed as a ‘design & manage’ contract
• Suitable for contracts with a high reliance on
specialist subcontractors who undertake their own
design
• Can be arranged on the basis of lump sum
contract
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Secondary Option Clauses
•
You must elect to include them; No automatic incorporation
•
X Clauses (15 in total in Main Contract)
•
•
X4 – Parent Company Guarantee
•
X5 – Sectional Completion
•
X7 – Delay Damages
•
X16 – Retention
Y Clauses
•
Y(UK)1 – Project Bank Account
•
Y(UK)2 – The Housing Grants Construction and Regeneration Act 1996 as
amended by the Local Democracy, Economic Development and
Construction Act 2009
•
Y(UK)3 – The Contracts (Rights of Third Parties) Act 1996
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Secondary Options
• 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 contractor’s
liability for design
• X16 retention
• X17 low performance damages
• X18 limitation of liability
• X20 key performance indicators
• Y(UK)1 project bank accounts
• Y(UK)2 HGCRA as amended
• Y(UK)3 contracts (Rights to Third
Parties)
• Z1
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Key Options
• W2 and Y(UK)2
• X5 – Sectional completion
• X7 – Delay Damages
• X16 – Retention
• X13 – Performance Bond
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Options using NEC3 ECC
if required
W1
Target Contract
either
C with AS
or
D with BoQ
X2 changes in the Law
X3 multiple
currencies
Priced Contract
either
A with AS
or
B with BoQ
X4 parent company
guarantee
X1 price
adjustment
X5 sectional Completion
X16
retention
X7 delay damages
X12 Partnering
as required
or
W2
Cost Reimbursable
E
X13 performance bond
X14 advanced payment to
the Contractor
X17 low performance
damages
X16
retention
as required
X18 limitation of liability
X20 Key Performance
Indicators
Y(UK)1, Y(UK)2, Y(UK)3
Z
Management
F
Main Option
X6 bonus for early
Completion
as required
Dispute
Option
Secondary Options
Engineering Construction Short Contract (ECSC)
• For work that does not require all the procedures in
the ECC
• Single Contract Data
• Price list for PWDD and:
• Quantity changes
• But not CE’s
• No express provisions for contractor design
• Flexible programme requirements
• No Main or Secondary Option but:
• can have “additional clauses”
• includes delay damages and retention
PSC & PSSC
• Used to appoint professionals (by Employer
or Contractor)
• Designers
• Project Manager
• Supervisor
• Same Objectives as NEC Main Contracts
• Same clause structure as the NEC ECC
• No SCC or SSCC
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Professional Services Contract (PSC)
• Main Option Clauses:
• A – Priced Contract with Activity Schedule
• C – Target Contract
• E – Time Based Contract
• G – Term Contract
• Options B, D & F are not used
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When to use?
‘a simpler approach to simpler
commissions’
• Choice between the PSSC & PSC should be base
purely on the level of complexity and level of risk
• Non-UK heavy engineering
• Another member of NEC family
• Project Manger
• Supervisor
• Service Manager
• Consultant on a ‘as and when needed’ basis
PSSC –v– PSC
PSSC does not include:
• Main Option Clauses
• Secondary Option Clauses
• Sectional Completion
PSSC does include Pro-forma’s for:
• Consultant’s Offer
• Client’s Acceptance
• Price List
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