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NEC4: The good, the bad, and the ugly, Part 2: Engineering & construction contract clause changes webinar, 21 November 2017

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NEC4: The good, the bad, and the ugly
Part 2: Engineering & construction contract clause changes webinar
Tuesday 21 November 2017
APM Contracts and Procurement Specific Interest Group (SIG)

presented by Dr Jon Broome
hosted by John Lake
APM Contracts and Procurement SIG previous Chair and Chair respectively

Published in: Business
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NEC4: The good, the bad, and the ugly, Part 2: Engineering & construction contract clause changes webinar, 21 November 2017

  1. 1. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Welcome to …. NEC4 : The good, the bad & the ugly. Part 2 : changes to the Engineering & Construction Contract (ECC) Presenter : Jon Broome jon@leadingedgeprojects.co.uk www.jonbroome.com +44 (0) 07970 428 929 setting | projects up for | success leading edge projects consulting ltd
  2. 2. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Objectives For both Part 1 and Part 2 :  To identify and review the changes made as well as highlighting changes that have not been made.  To express an opinion on what is good (most of the changes); bad (really ‘could do better') & ugly (the few clangers they have dropped).  Part 1 focussed on “the contract strategy changes” e.g. new members of the family, main & secondary options, including dispute clauses.  Part 2 focusses on “changes in Engineering & Construction Contract (ECC)” with attention on the payment, programme, early warning and compensation event clauses.
  3. 3. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Agenda for Part 2 1. 3½ changes to the Payment provisions. 2. One big change to Accepted Programme clauses. 3. Changes to the early warning clauses. 4. Changes to the compensation event clauses : 2 new ones, lots of positive tweaks and one that just isn’t. 5. A quick look at the revised ScheduleS of Cost Components (if time).
  4. 4. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Context of comments  Very easy to criticise what others have done.  So put any negative comments in context : o most of what has changed is for the GOOD. o NEC3 is already a good contract.
  5. 5. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Payment (1½)  New clause 50.2 makes it mandatory for the Contractor to submit an application before each assessment date, with details and “in the form stated in the Scope.” No known problem with contractors not submitting applications ! What happens if no form stated in Scope ?  New clause 50.4 says that if does not submit an application by this date, then gets lesser of either : o previous months amount due; or o the amount due this month. Seems very harsh sanction for perhaps being a day late. What happens if it isn’t “in the form stated” … which could be changed during the contract ? Seems very open to abuse.
  6. 6. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Payment (2)  New Final Assessment core clause 53.  Not needed if Parties are operating the contract as written as compensation events implemented on a rolling basis.  In reality, many projects don’t achieve this AND new clause creates finality i.e. don’t have an on-going potential liability.  How does it work ? 1. PM makes final assessment after Defects Certificate issued. 2. If PM does not do this, Contractor issues own assessment to the Client (no time limit). 3. Either way, if the other agrees with it paid within 3 weeks. 4. If don’t, then can reach agreement and amount changed OR have to start the dispute process within 4 weeks.
  7. 7. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Payment (3)  New ‘progressive assessment’ clause 50.9 in options C-F for Defined Costs.  Idea is to stop a Client ‘re-evaluating’ Defined Costs towards end of a contract to Contractor’s detriment.  How does it work ? 1. Contractor notifies PM that a ‘part of Defined Cost’ is ready for inspection. 2. PM has 13 weeks to inspect and response is acceptance, or notification that further records required or of errors. 3. Contractor has 4 weeks from notification to rectify. 4. PM then has 4 weeks from ??? to accept or notifies correction.
  8. 8. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com The Accepted Programme  Minor change at end of clause 31.2 : programme issued for acceptance has to be in form stated in Scope e.g. particular software. Unnecessary change – see 4th bullet of clause 32.1.  New para in clause 32.1 says if Project Manager does not respond within the 2 weeks allowed for acceptance, the Contractor may notify this.  If the Project Manager still does not respond within a further one week, then ’treated’ as accepted.
  9. 9. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Early warning clauses  Main changes : o Now clause 15 o Early Warning Register (EWR) instead of confusing Risk Register o Regular early warning meetings at interval stated in Contract Data o Encourages a Subcontractor to attend a risk reduction meeting if it would assist in deciding actions. o At an early warning meeting, actions are reviewed & updated.
  10. 10. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Early warning clauses : contractual contradictions  Risk vs Issues register ? o is it an simplified ’Risk Register’ for “any matter which could” (clause 15.1) occur. So if ’is’ occurring then shouldn’t notify it; o but EWR records “the way in which the effects of the matter are to be avoided or reduced” – clause 11.2(8). Could argue doesn’t matter as if ‘is’ happening and a CE, then dealt with via CE process, but CE process is for liability. But what if ‘is’ occurring, is not a CE & PM can help ?  Does the EWR record “the way”, “the actions” or ”the decisions” ?
  11. 11. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Early warning clauses: operational issues  On the best run sites, “matters” are resolved at the lowest possible level ASAPP by PM delegates or assistants. Having a regular early warning meeting encourages the actions to be monitored, but may also encourage decisions and actions to be delayed.  Why can’t the Supervisor notify ?  If using a cloud-based NEC admin system, the system – not the PM – adds notified matters to the EWR.  Isn’t the Contractor best placed to ‘own’ the EWR as : o has Subcontractors reporting to it and o contractually owns most of the risk / issues ?
  12. 12. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Early warning clauses: operational issues  What about positive ‘opportunities’ ?  On best projects, seeking out opportunities is a pre-occupation of the management … they don’t wait until there is a problem !!  Very easy to modify wording in 15.1 to “changes” vs “increases” to Prices / “delays” to Completion / Key Dates and add ”or improves” to performance in use.
  13. 13. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Questions
  14. 14. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Compensation events : GOOD Highlights (1)  In short forms, simplification of compensation event process to that in the NEC3 Professional Services Short Contract  2 new compensation events : for cost of non- accepted proposed instructions & ones stated in Contract Data.  ‘Merging’ of PM’s notification of a compensation event and instruction to submit a quotation.  One fee percentage (which also affects payment under options C-F)
  15. 15. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Compensation events : GOOD Highlights (2)  Greater clarity on the ‘dividing date’ which o separates forecasts from actuals in an assessment o clarifies which Accepted Programme is used to assess the effect of a compensation event; and o ties assessment of time and cost closer together.  New clause 65 gives more comprehensive direction on proposed instructions (and pushes back old 65 to 66).  Change to 66.3 where ”assessment of implemented compensation events is not revised except as stated in these conditions of contract” e.g. changed assumptions, changed decision, dispute procedure etc.
  16. 16. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Compensation events : COULD DO BETTER Highlights (1)  No change – apart from replacing Works Information with Scope – to second bullet of clause 60.1 (1) or to entry for “The Scope provided by the Contractor for its design is in …” in the Contract Data Part 2.  So does not allow Contractor to be held to account for tender proposals on how will construct works.
  17. 17. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Compensation events : COULD DO BETTER Highlights (2) Clarification (good) in 60.1 (19) of not being able to complete by ‘planned Completion’ vs. the “date shown on the Accepted Programme” … … but likely to lead to even more deletions of clause (bad) as not the ‘Completion Date’ as per NEC4 Engineering & Construction Short Contract legal commentaries and ?common sense dictates?.
  18. 18. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Compensation events : COULD DO BETTER Highlights (3) Timescales, following reminder notifications, for the Project Manager to :  respond to a notification of a CE  respond to a Contractor’s quotation  make his or her own assessment, otherwise “treated as accepted”, is still 2 weeks. Why, when the Project Manager has 1 week, 2 weeks and 3 weeks to make original response ? Why, when for the programme, it is 1 week ?
  19. 19. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Compensation events : BAD / UGLY Highlights Still not resolved in the contract whether it is  the current Accepted Programme or  the current Accepted Programme plus updates which is used in assessment of time effects. Note : Have since published a Practice Note which says the latter, but shouldn’t need a practice note !
  20. 20. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Compensation events : UGLY Highlight  New last sentence of clause 63.5 NEC3 clause 63.3 states “When assessing delay only those operations which the Contractor has not completed and which are affected by the compensation event are changed.”  Three points : o “and … event” is unnecessary as already in the clause, but using different wording o consequences of the clause on entitlement and hence programming o motivation on a Contractor is to notify anything which could be a compensation event immediately
  21. 21. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Schedule of Cost Components (1)  ‘People Rates’ in Shorter SoCC at tendered rates only … or, if not in existence, agreed … … or if not agreed then, at “equivalent rates”.  Subcontractor moved into both SoCCs, which means under Short SoCC that a Defined Cost is now what the Contractor actually pays the Subcontractor.
  22. 22. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Schedule of Cost Components (2)  Got rid of : o Percentage for Working Area O/Hs in full SoCC o Percentage for People O/Hs in Shorter SoCC.  Got rid of mark-up percentages for off-Working Area fabrication and off-WA design.  Remember only one fee percentage. All this reduces gamesmanship at tender and simplifies contract administration.
  23. 23. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Link to raise questions for Part 2 : Changes to the Engineering & Construction Contract (ECC) http://bit.ly/2mqHPI6
  24. 24. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Questions … do ask
  25. 25. © 2017 +44(0)7970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com Summary of Part 2. 1. 3½ changes to the Payment provisions : 1½ UGLY, 2 GOOD. 2. One big change to Accepted Programme clauses : GOOD. 3. Changes to the early warning clauses : mainly GOOD, but quite a few COULD DO BETTERs. 4. Changes to the compensation event clauses : 2 new ones & lots of tweaks which are GOOD; 2 COULD DO BETTERs and one really UGLY. 5. The revised ScheduleS of Cost Components : overall GOOD.
  26. 26. This presentation was delivered at an APM webinar To find out more about upcoming webinars please visit our website www.apm.org.uk/events

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