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NEC Form of Contract - Planning Responsibilities

11 replies [Last post]
Mon, 2007-11-05 07:21
Mike Duce
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NEC/3 Form of Contract 2005

Just wondered if anyone could list out in simple terms what is expected from the planner on a project using the above contract.

Many thanks
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Fri, 2008-03-14 08:20
#1
Andrew Flowerdew
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Just to say, yes the papers are interesting but they are only the authors opinion, not necessarily the law of the land.
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Fri, 2008-03-14 08:18
#2
Andrew Flowerdew
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Ben,

I think you have got it pretty spot on although a compensation event is those events that are defined as such in cl 60 and none others.

I agree with your thoughts on mitigation and float and yes, terminal float is owned by the contractor under NEC. It’s one of the few contracts to address this question.
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Fri, 2008-03-14 08:08
#3
BEN MAYLE
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Andrew,

Very interesting papers, definately worth knowing!

Se,

Thanks for the response. My view on your query is as follows:

Just to confirm, a compensation event is any event that affects quality, cost or time for which the Contractor does not assume the risk for.

In my view, the term ’mitigation’ is only that the contractor makes every effort to manage the delay properly (i.e. not to make the impact or cost of the delay worse than necessary). It is not an obligation of the Contractor to ’accelerate’ subsequent works to overcome the impact of a delaying event, resulting in an increased level of risk on the programme in the assessment of compensation events. Quotations for acceleration can be subsequently requested by the PM (see clause 36.1) once fair entitlement has been established.

In terms of the CE assessment and float; when forming a CE quote the Contractor may put forward alternative quotes for undertaking the works/events covered under that CE, maybe with different cost and programme implications. In terms of float, any free or total float should be utilised to overcome the effects of a CE, therefore entitled to completion is therefore shown againts critical activities.

It is worth noting that under this form of contract any ’time risk allowance’ (i.e. the allowance the contractor includes within the activity duration for risk) is not available for the client to overcome the impact of a CE’s; likewise, terminal float (i.e. any period between the Planned Completion Date and the Completion Date) is also in essence ’owned’ by the contractor.
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Thu, 2008-03-13 13:11
#4
Andrew Flowerdew
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Two interesting papers on NEC3 (and FIDIC) can be found on the Society of Construction Law website:

The rise and rise of Time Bar Clauses..... Hamish Lal

Variations, Time Limits and Unanticipated consequences ..... Ronan Champion
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Thu, 2008-03-13 13:03
#5
Se de Leon
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Hi guys,

Very interesting topic.

Does the Compensation Event means that all mitigation measures(float, delay mitigation, cost mitigation etc.) by the contractor have already been exhausted prior to submitting CE? Is this part of CE(mitigation measures)?
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Thu, 2008-03-13 11:57
#6
Oliver Melling
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I think contractors have 8 weeks to notify the client in the case of realising an CE is needed.

In the case of client CE’s, i think the contractor has 3 weeks to submit their price and the client has one week to reply.

After 1 week if no reply comes, then the CE price is assumed correct.

These timescales are enforcable in court, but in reality you may find that they aren’t always the best approach when trying to have a good client/contractor relationship!

In project with a large amount of change then submitted costed impact programmes for every individual change is not plausable, therefore global changes can be agreed for smaller CE’s and only CE above a certain value need detailed estimates.
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Mon, 2008-03-03 07:03
#7
Andrew Flowerdew
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Ben has got it right and has flagged up a common problem - the timescale do all that is required under the NEC. The contracts intention is good but on most contracts the timescales are not met for a variety of reasons. Often the CE’s are not settled until the end of the contract just like in the old days. Contractors and Contract Administrators are both at fault for too many reasons to list here.

What the contract intends is that a CE is priced by the Contractor and accepted by the Employer as the project goes along and in a short timescale. Each CE should be viewed as a mini "tender" - not everything may be known and risks should be priced. Just like any tender, some the contractor will make good money on and the contractor will lose money on others. Getting a Contract Administrator to agree the price of the risks is often a major hurdle that prolongs things. Alot want to wait and see what happens but that is not the intention of the contract.

Whatever the case, the idea is that the CE is dealt with quickly and not revisited later even if priced wrongly, (limited exceptions). The parties therefore know quickly and with some certainty what the money and time implications are which is good for both the Employer and the Contractor. The Employer has a much better idea of what the project is going to end up costing and the Contractor gets paid for the work quicker improving his cashflow.

That’s the idea but it doesn’t seem to happen that often in practice
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Thu, 2008-02-28 09:01
#8
BEN MAYLE
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Wasi,
I am currently working on NEC3, so other versions may be different, not really sure.

1. I dont believe the NEC contract actually defines what the period is. The period should be agreed and included within the contract data part1 prior to the project commencing. From issue of the programme, the PM has 2 weeks to respond and either accept or not accept (although this is a maximum period and preferably discussions should be had prior to this). In my experience this process has generally worked, however find if the programme is rejected, the reasons can generally be remedied for the following issue (ours is on a monthly basis). It is not in the interest of the project not to have an accepted programme as this brings its own problems for CE assessments etc.

2. I would tend to agree with you that on complex events it is often very difficult to complete a propper assessment within two weeks, especially if it involves multiple subcontractor works. Under NEC3 this period can be extended by agreement with the PM if necessary. I am of the view that your CE assessment is a quotation for works of which the PM needs to accept in some manner or form for the works to progress. If detail is unclear then a suitable risk allowance should be included within the quotation. From this point, if agreed, the Contractor resumes the risk; i.e. if it quoted programme affect was wrong then the Contractor may benefit or could lose out. There shouldnt be means for a second bite of the cherry.

Incase your’e interested, if you look on the NECusers website and they run training courses. I went on the ’Programme Workshop’ which I would highly recomend to anyone working with the programme under NEC.
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Thu, 2008-02-28 06:44
#9
Wasi Raza
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Ben has put it down together quite well. I want to raise a few questions to everybody involved in forensic analysis and compensation events under the NEC contract to be answered based on their own experience.

1. Periodic Programmes for acceptance - Am i right in saying that the NEC contract defines the period as 1 month? That means a new programme is taken out every month. How many here have done it successfully and have managed to get the programme accepted in time before the next one is due?
2. Compensation events - The 2 week period of notification & analysis. Has anybody here managed to fully analyze the time impact of a complex compensation event in 2 weeks time? In my experience, impacts of compensation events usually unfold as we go and the first programme to include the impact is based on very limited knowledge of the event and hence cannot guarantee agreement by the PM. If more programmes are submitted at a later stage when the full impact is known which show a different ’planned completion date’, it might result in the PM loosing confidence in planning or that the 2 week notification period has gone by and hence no entitlement to EOT.
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Wed, 2008-02-13 08:48
#10
BEN MAYLE
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Mike,

As Andrew noted the principles of NEC3 is for proactive programme management. The key driver for this process is the Early Warning process, enabling potential problems to be raised and resolved early. Any changes to cost or programme for which the client holds responsibility (i.e design change/ other delays to the works) are covered within the Compensation Event (CE) process.

From a planning/programme side:
- Accepted Programme. The programme indicates all planned works, fully networked to identify any float and critical path. The programme identifies both the ’Completion Date’ (i.e. the contract completion date) and a ’Planned Completion Date’ (i.e. when the Contractor predicts the completion of the works. You should also issue written statements of how you intend to compelte the works, including resources etc. This programme, being the ’Accepted’ programme is in essence your contract programme.
- Programmes for Acceptance. The programme for acceptance is reissued periodically indicating progress acheived, the effect of compensation events and any other changes you wish to make. By rescheduling the programme this indicates the Contractors Planned Completion (this may be different from the completion date depending upon progress). The Project Manager then, hopefully, accepts this programme which then becomes the new accepted programme.
- Compensation Events. From notification of a CE the planner is to assess the impact of the Event againts the Accepted programme to advise of any required change to the programme and alteration to the planned completion of the works. Please note, it is the impact to ’Planned Completion’ that provides the Contractors entitlement to alter the ’Compeltion Date’, once agreed with the PM.

Just a small word of warning, if there is a high level of design change on the project, it becomes VERY adminstrative on the planning side.

Ben
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Tue, 2007-11-06 20:26
#11
Andrew Flowerdew
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In a nutshell - plan the project proactively, regularly and accurately update the programme, identify delays upfront and warn the client (whoever’s they may be)and agree things as the project progresses.

Well that’s the intention, whether the intention has made it into the words of the contract remains to be seen!
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