Contract Practice - NEC full

Question 1

What are the key updates from NEC3 to NEC4?

Answer 1

NEC4 has introduced two new contracts: 1. Design Build and Operate (DBO) Contract, and 2. Alliance Contract (ALC). The Risk Register is now the ‘Early Warning Register’. ‘Employer’ is now ‘Client’ and ‘Works Information’ is now ‘Scope’. A 4-week period for dispute escalation and negotiation has been introduced. ‘Partnering’ is now ‘Collaboration’. There is only one fee percentage, and contractors must submit applications for payments. All contracts are now written gender neutrally.

Question 2

What does NEC stand for?

Answer 2

New Engineering Contract.

Question 3

What does ECC stand for?

Answer 3

Engineering and Construction Contract.

Question 4

Please can you give me an overview of the NEC4 ECC contract?

Answer 4

The NEC4 ECC contract is suitable for any sector, promotes cooperation and fair risk allocation, and includes six main options (A - F). It emphasizes clarity, flexibility, and requires early warnings from parties.

Question 5

What are some advantages of using the NEC4 ECC contract?

Answer 5

Advantages include clarity and simplicity, flexibility and adaptability, collaboration and communication, strong risk allocation and management, and mechanisms for dispute avoidance and resolution.

Question 6

What are the 6 main options under the NEC4 ECC contract?

Answer 6

Option A: Priced contract with activity schedule. Option B: Priced contract with bill of quantities. Option C: Target contract with activity schedule. Option D: Target contract with bill of quantities. Option E: Cost-reimbursable contract. Option F: Management contract.

Question 7

Can you provide an overview of Option A?

Answer 7

Option A involves a priced activity schedule suitable for well-defined scopes. Payments are based on completed activities, and the contractor assumes risk for delivering at agreed prices.

Question 8

Can you provide an overview of Option B?

Answer 8

Option B is a priced contract with a bill of quantities. It quantifies work items with specified quantities and prices, suitable for accurately quantified projects.

Question 9

Can you provide an overview of Option C?

Answer 9

Option C is a target contract with an activity schedule, allowing shared financial risk between client and contractor, motivating cost-efficient delivery.

Question 10

Can you provide an overview of Option D?

Answer 10

Option D is a target cost contract with a bill of quantities, similar to Option C but uses a BoQ instead of an activity schedule.

Question 11

Can you provide an overview of Option E?

Answer 11

Option E is a cost-reimbursable contract ideal for projects with undefined scopes, where the contractor is paid actual costs plus an agreed fee.

Question 12

Can you provide an overview of Option F?

Answer 12

Option F is a cost-reimbursable management contract where the contractor acts as a management contractor, and the client pays actual amounts to suppliers plus a fee.

Question 13

Which NEC4 ECC main option carries the least financial risk for the employer?

Answer 13

Option A, as it is a fixed price contract.

Question 14

Which NEC4 ECC main option carries the most financial risk for the employer?

Answer 14

Option E, as the contractor is reimbursed for actual costs incurred plus a fee.

Question 15

What are secondary options under NEC4 ECC?

Answer 15

Secondary options (X, Y, Z) are optional clauses that can be applied to the contract, with X and Y being pre-written and Z being bespoke amendments.

Question 16

What are the X Clauses under the NEC4 ECC contract?

Answer 16

X Clauses include: X1 (Price adjustment for inflation), X2 (Changes in law), X3 (Multiple currencies), X4 (Ultimate holding company guarantee), X5 (Sectional completion), X6 (Bonus for early completion), X7 (Delay damages), X8 (Undertakings), X9 (Transfer of rights), X10 (Information Modelling), X11 (Termination by the client), X12 (Multiparty collaboration), X13 (Performance bond), X14 (Advanced payment), X15 (Contractor’s design), X16 (Retention), X17 (Low performance damages), X18 (Limitation of liability), X20 (Key performance indicators), X21 (Whole life cost), and X22 (Early contractor involvement).

Question 17

What are the options for dispute resolution under NEC4 ECC?

Answer 17

Options W1, W2, and W3 provide formal dispute resolution, with W1 requiring initial referral to senior representatives and W3 allowing for a Dispute Avoidance Board.

Question 18

What are Z clauses?

Answer 18

Z clauses are bespoke amendments that allow parties to agree on additional terms specific to a project.

Question 19

What problems can potentially arise when drafting Z clauses into the contract?

Answer 19

Poorly drafted Z clauses can conflict with core clauses, impacting the contract’s effectiveness. They should be drafted by knowledgeable individuals.

Question 20

What is ‘scope’ under NEC4 ECC contracts?

Answer 20

Scope refers to the extent and boundaries of the required works, including specific activities and deliverables the contractor is responsible for.

Question 21

Which of the NEC ECC contracts are design & build contracts?

Answer 21

The NEC ECC contract can be suitable for contractors with no design responsibility or full design responsibility, as defined in the scope.

Question 22

What is ‘site information’ under NEC4 ECC contracts?

Answer 22

Site information describes past and present site conditions, including subsoil investigations, survey information, and details about underground and above-ground services.

Question 23

What are compensation events?

Answer 23

Compensation events are events not caused by the contractor that change the cost or time needed to complete the work, potentially entitling the contractor to more time or money.

Question 24

Does the NEC contract have relevant events and relevant matters like JCT?

Answer 24

No, NEC contracts address these issues under the single heading of compensation events.

Question 25

What are compensation events?

Answer 25

Compensation events are events which are usually not the fault of the contractor and change the cost of the work, or the time needed to complete it. As a result, the prices, key dates or the completion date may be reassessed, and in many cases, the contractor will be entitled to more time or money.

Question 26

Does the NEC contract have relevant events and relevant matters like JCT?

Answer 26

No, NEC contracts deal with these issues under the single heading - compensation events. Compensation events deal with both time and money.

Question 27

Where are compensation events (CEs) detailed in the NEC4 ECC contract?

Answer 27

Compensation events are dealt with under clause 60.1. ## Footnote Examples include: The PM gives an instruction to change the scope, the client does not allow access to the site, the project manager or the supervisor does not reply to a communication from the contractor within the period required by the contract, the project manager gives an instruction for dealing with an object of value found within the site, and the project manager certifies take over of a part of the works before both completion and the completion date.

Question 28

What happens if the contractor notifies a compensation event 12 weeks after becoming aware of the event?

Answer 28

The contractor is not entitled to a change in the prices, the completion date, or a key date. Clause 61.3 requires the contractor to notify a compensation event within eight weeks of becoming aware of the event. ## Footnote Exceptions apply if the event arises from the project manager or the supervisor giving an instruction or notification, issuing a certificate, or changing an earlier decision.

Question 29

What are the different types of float on a NEC4 ECC programme?

Answer 29

Total float, time risk allowance, terminal float.

Question 30

Can you explain what total float is?

Answer 30

The time an activity can be delayed without delaying planned completion (or critical path). Available to the client or contractor to use on a first-come, first-served basis. ## Footnote For example, activity F could be delayed by 3 weeks prior to effecting the planned completion milestone; the total float for this activity is therefore 3 weeks.

Question 31

Can you explain what time risk allowance is?

Answer 31

This is the float added to activities to allow for the risk of delays arising or non-productive time occurring. It is 'owned' by the contractor and cannot be used to mitigate the effect of a compensation event. ## Footnote For example, an activity might take 3 weeks and 2 days to complete assuming optimal circumstances and conditions. Time risk allowance is added to the activity to allow for events such as downtime or poor weather; therefore, the activity might be programmed as 4 weeks.

Question 32

Can you explain what terminal float is?

Answer 32

The duration between planned completion and the contractual completion date. This is also 'owned' by the contractor and cannot be used to mitigate the effect of a compensation event. ## Footnote The example below shows 1-week terminal float.

Question 33

How can the completion date be changed?

Answer 33

By a compensation event or acceleration.

Question 34

How can the planned completion date be changed?

Answer 34

Anything can change it. ## Footnote For example, the contractor could be delayed in completing activities, or the works could be going faster than originally anticipated.

Question 35

With reference to the contractor's programme, how does NEC differ from JCT?

Answer 35

The programme is not a contract document under JCT; under NEC it is. The programme plays a significant role in the NEC contract; one of its key functions is to assist with the compensation event assessment process.

Question 36

What are early warning notices?

Answer 36

The early warning process is a mechanism for both parties to identify potential problems with the project. The contract emphasises that both parties (contractor and project manager) are obliged to notify the other as soon as they become 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. ## Footnote The early warning process is detailed under clause 15.