ROBERT GERRARD NEC USERS’ GROUP SECRETARY
This is a selection of recent questions to the NEC Users’ Group helpline and answers given. In all cases it is assumed there are no amendments that materially affect the standard NEC3 contract referred to.
Activity schedule and programme changes Question We have an NEC3 Engineering and Construction
Contract (ECC) option A (priced contract with activity schedule) project on site where the programme has been changed. Our funding is time-critical and we are questioning how we can best release payments. Considering subclause 32.1, can the project manager and contractor mutually agree to revise the activity schedule to co-ordinate with the accepted revised programme, including splitting original contract activities within the activity schedule and tasks within the revised programme into two sub-activities, for example ‘delivery of materials on site’ and ‘final complete installation’?
Answer The main ways to change the activity schedule
are as a result of a compensation event (subclause 63.12) or if the contractor changes its planned method of working (subclause 54.2). Neither of these instances apply in this case. The only way you can achieve what you require
is if the employer and contractor agree to change the contract and it is confirmed in the way set out in subclause 12.3.
Subcontractor’s retention in target cost contracts Question We are working on an ECC option C (target
contract with activity schedule) contract and the project manager is not including the amounts of retention we have deducted from payments to subcontractors in his assessments of the price of work done to date. Subclause 11.2(29) defines the price for work done to date as defined cost which will have been paid by the contractor before
>>> A similar series of questions could result if you
did not take into account any other changes that occurred since the last accepted programme. Consider the following examples.
■ A programme has been issued for acceptance and it is 1 week before it may be accepted, yet today we have to put in a quotation for a compensation event. Do we use the ‘old’ programme or the ‘new’ programme?
■ The contractor has 3 weeks to produce a quotation, does it use the accepted programme at the start of that 3 week process or, if 1 day before it goes in, a new one is accepted, does it change the quotation?
■ You are assessing two compensation events at the same time – both of which are on
the critical path. If you assess the first one and that impacts planned completion, do you then use that programme to assess the impacts of the second, or simply assess it against the original ignoring the effects of the first?
■ What if the accepted programme shows in situ concrete and you have since changed to precast units, which completely changes the programme?
Follow the same principle All of the issues and questions listed above are
dealt with if you always follow the same principle: whenever you become aware of a compensation event, you take the accepted programme at that point, and take into account any progress and
change that occurred up until that point. I think this subject is an example where
future revisions of the contract can be tightened up so that the parties have an even clearer understanding of how compensation events should be assessed. In the meantime as an industry we have to
make the best of the words that we have. We should come to a recognised consensus that what I have proposed in this article is the only logical
and, more importantly, contractual way for both parties to assess compensation events in order to get the fairest result each time. ●
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the next assessment date. In turn, defined cost in subclause 11.2(23) states that defined cost is the amount of payments due to subcontractors for work which is subcontracted without taking account of amounts deducted for retention. We believe the project manager is doing this
as the secondary option clause X16 for retention has not been included in our contract, but we are including it in our subcontracts. We therefore would be paid monies that we have not paid if he did not deduct amounts deducted for retention from our subcontract payments. What do you think?
Answer We consider that the project manager is
incorrect. The amount that you are paid for the subcontractor is the amount before deduction of retention, as stated in subclause 11.2(23). It is irrelevant whether or not your main contract has
Basis of cost in assessing compensation events Question We are working on an ECC option C contract
where the project manager has issued an instruction to change the works information. This constitutes replacing an item of furniture with one of a different specification. The project manager notified this as a compensation event and instructed us to submit a quotation. We have submitted our quotation on the basis of change of actual cost, but the project manager believes that it should be assessed on an add/omit basis. Could you please advise the correct method of assessment?
Answer Compensation events are assessed based upon
the effect that they have upon defined cost – see subclause 63.1. In basic terms, you will therefore need to forecast what the defined cost of the works will now be with the compensation event and from that you deduct the forecast of what the defined cost would have been without the compensation event. What you have in the activity schedule is irrelevant in this calculation. Instead you add or subtract the amount you come up with to the amount in the activity schedule to arrive at a revised figure for this activity. If you have made a mistake in pricing the original item, then that gain or loss is preserved; compensation events have a neutral effect in that respect.
Defined cost after completion Question We have an ECC option C contract which is nearing completion. The contractor’s planned
completion is some weeks in advance of the completion date. Completion is likely to happen on or around planned completion and the project manager will certify completion within one week of completion. When does defined cost cease to be incurred or payable? Is it when the project manager has decided the date of completion, or some other date? If for example the contractor still has commercial staff managing the contract within the working areas after completion, is this defined cost?
Answer Much depends on precisely what the staff are
doing. If, and to the extent that, they are correcting defects then such cost will be disallowed – see the fourth main bullet of subclause 11.2(25). Otherwise, it will generally be paid. Those staff do though need to be providing the works (as defined by subclause 11.2(13)), otherwise they are disallowed – see seventh main bullet of subclause 11.2(25). Those people also need to be either working in the working areas or have the working areas as their normal place of work. The contractor will likely have to clear and make good the area of its temporary compound, close down any remaining subcontractor and supplier accounts as best it can, and so on.
Responsibility after take over Question What effect does certifying take over for part of
the works have on the contractor’s insurances and liability? We have an ECC option A (priced contract with activity schedule) where vandalism and anti- social behaviour have increased in recent months. As a result of this, the contractor is keen to protect itself at the earliest opportunity.
Answer Take over of all or any part of the works occurs
when the employer starts using that part (or all), unless that use is for a reason stated in the works information or to suit the contractor’s method of working – see subclause 35.2. One of the employer’s risks listed in subclause
80.1 is loss of or wear or damage to any part of the works that has been taken over (fourth main bullet). Until take over, the contractor is responsible for this (subclause 81.1) and has to insure it (subclause 84.2). Take over is therefore important because once any part of the works is taken over, the contractor is not liable for damage unless the contractor causes it. ●
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