NEC4: Engineering and Construction Contract Option C: Target Contract with Activity Schedule

Product Information

NEC4 introduces a new dispute resolution procedure involving discussions between parties' senior representatives over a three-week period, based on submissions and producing a list of issues. This process is compulsory if option W1 is selected, or can be used by agreement if option W2 is selected. Note that the form states that submissions can be up to 10 sides of A4 with supporting documents, but hopefully parties will use these provisions sensibly. All compensation events are also assessed based on defined cost plus fee. The only difference between options C and E is that option C has the target mechanism and the consultant’s share, which depends on how well the consultant does compared with the target total of the prices. The purpose of this is to encourage the client and consultant to collaborate and jointly manage risks and jointly reduce the defined cost during delivery of the service.

The NEC disallowed costs provisions have been drafted carefully as part of the overall allocation of risk and to achieve a commercial balance which motivates both parties and aligns their interests. If not used correctly or if amended, that commercial balance is disrupted and the incentives for better performance under ECC Options C, D and E contracts will be less effective. As with all NEC4 contracts, the parties to a PSC are required to act in a ‘spirit of mutual trust and co-operation’ and give early warnings of anything that could affect time, cost or usefulness of the service so it can be mitigated without delay. The NEC4 Engineering and Construction Contract (ECC) is the main works contract in the NEC4 suite of collaborative, flexible and clearly written contracts for built environment procurement. There have been four editions, the first in 1993, the second in 1995, the third in 2005 and the most recent in 2017. [6] The NEC3 was launched in 2005 and it was amended in April 2013. The NEC Users' Group, with over 400 members worldwide, brings together organisations and individual users of the NEC contract suite to exchange knowledge and best practice. [7] History [ edit ]

Sectors and what we do

Each of the different contracts listed above comes with its own set of guidance notes and flowcharts which should aid understanding of the intent of the drafted clauses. The guidance notes expand on each clause to give extra substance and intent of the original drafters as to how a clause should be understood and interpreted. The flowcharts then map out each of the main processes within each contract and demonstrate how it should operate and what to do next if a party has or has not carried out the next contractual action.

This option is a cost reimbursable option. Unlike Option E, this option is tailored towards the management contractor procurement route. NEC's history started in 1986 when Martin Barnes was commissioned to start drafting a contract to stimulate good project management. The first edition of NEC was launched in 1993. NEC2 arrived two years later, in 1995. NEC2 was used to build the High Speed 1 railway, between London and the Channel Tunnel. [ citation needed] Target cost contracts can be beneficial where the scope of work is not fully defined or where the risks anticipated are greater than usual.NEC is famed for its use of short, plain English, and the new contracts incorporate changes in terminology. They are now gender neutral with some considered changes in emphasis. For example, the 'employer' is now the 'client', and 'works information' is now the 'scope'. This creates consistency across the suite. Clause 52.4, the ‘open book’ clause, allows the service manager to access the records required to be kept. This may present a problem for the consultant, especially if the service manager (new to NEC4 PSC and carrying out a role similar to the project manager in ECC) is an employee of a competitor. The consultant is very likely at least to want to put a confidentiality agreement in place (this is not provided for in NEC4 PSC). The details of defined cost are set out in the SCC. Defined cost in the SCC

SCC 3 states, ‘The following components of the cost of support people and office overhead... A charge for support people and office overhead costs calculated by applying the overhead percentage stated in the Contract Data to the total of people items 11, 12 and 13. The charge includes provision and use of people, accommodation, equipment, supplies and services required to provide the office and to support people providing the service.’ So the warning note under Option C is that while cost management is important to interim valuations and cash flow during the project the proper and accurate management of value, in terms of identifying, pricing and agreeing change is also vital to a successful project outcome. In simple terms the Bill of Quantities is produced by breaking the project down into a number of items, and then stating the expected quantity of each item that is anticipated to be required. Contract data part 1 will identify the method of measurement (the measurement techniques followed) that has been used to create the Bill of Quantities. The Contractor will then be able to state a unit rate based on that quantity, and by multiplying the quantity by the rate will give a projected cost of that line item. The sum of all the line items added together represents the overall tender price (the Prices). The Bill of Quantities can also include single lump sum items where the rate will be a single amount. The Contractor will state within contract data part 2 where within their submission the completed Bill of Quantities is, which will form an integral part of the signed contract. Theagreedcumulativecostisthendeductedfromtheamountpreviouslypaidunderthecontract. Thisamountisthenpaidtothecontractor. Suitable for any construction based contract between an Employer and a Contractor. It is intended to be suitable for any sector of the industry, including civil, building, nuclear, oil and gas, etc. Within the ECC contract there are six family level options, from which the Employer is to choose the most suitable and offer the best option/value for money on that project:Clause 16 introduces a brand new value engineering provision. This allows the contractor to propose changes that reduce the cost of the works in exchange for a proportion of savings as specified in the contract. A new clause 74 gives the contractor the right to use client materials, but only to "provide the works". That right can also be made available to a subcontractor. Core Clause 8: liabilities and insurance Under NEC, there are 7 different options for procuring work. This article will provide descriptions of how each option works and explore the pros and cons to establish which option works best for you. Briefly, the options are titled as follows: However, when bidding, it is logical for the bidder to set the fee percentage based on the mark-up they wish to receive on subcontractors They will then set the overhead percentage to ensure that their required mark-up on real cost of people is achieved. This would consider whether and which expenses are allowed and that the defined cost of people and the amount for the charge for support people and office overhead costs are subject to the fee percentage. Within those percentages the consultant will also have to make allowances for disallowed cost. In the tender document the client should make clear how it is going to take these percentages into account in tender evaluation. Conclusions The NEC4 Engineering and Construction Contract (ECC) Option C is the target cost main works contract with an activity schedule. It can include any level of design, and is ideal for more complex or larger projects where the client and contractor are willing to share project financial risk in a fully collaborative way.

This is an abbreviated version of the ECC contract and most suitable when the contract is considered "low risk" (not necessarily low value) on a project with little change expected. This contract is still between the employer and contractor but does not use all of the processes of the ECC making it simpler and easier to manage and administer. a new head of disallowed cost, applicable to costs incurred only because a failure to notify the PM of preparation for and conduct of adjudication with a subcontractor or supplier. Finally, the contractor’s tendered fee percentage has to include for anything missing in the SCC or SSCC, such as: insurance premiums; people whose normal place of work is not within the working areas unless they happen to be working in the working areas (other than those doing manufacture and fabrication or design outside the working areas); disallowed cost (in options C, D and E); and profit. SummaryFirstly, subcontractors will no longer be appointed until they are accepted by the client and, if required, the subcontract documents are also accepted. NEC3 did not require approval of subcontract forms if NEC contracts were used. NEC4 adds that NEC contracts "must not [be] amended other than in accordance with the additional conditions of contract". This means the client can set limits on acceptable amendments.