The document provides an overview and agenda for a presentation on supply chain development and management of change under the NEC3 construction contract. The presentation covers early warnings, compensation events, and some key points to note. It discusses the NEC3 suite of contracts, core clauses, defined terms, communication protocols, risk registers, programmes, and the early warning process. The early warning process involves notifying issues, instructing a risk reduction meeting to discuss mitigation actions, and updating the risk register.
Presentation to the Institute of Demolition Engineers' conference in March 2019 by Sarah Fox of 500 Words Ltd on managing risks and changes under the NEC4 ECC contract.
For more information on using contracts to safeguard your business without annoying your clients, go to www.500words.co.uk/blog.
NEC4 overview: key changes and impacts - Birmingham, September 2017Browne Jacobson LLP
This seminar looked at changes to the NEC structure, changes in approach following the change to the structure, and the introduction of two new contracts to the suite.
A thorough analysis of FIDIC and it implication on COnstruction industry explained in this presentation for the beginners. It has been broken down to simplified version
APM webinar sponsored by the Thames Valley Branch on 23 September 2022
Speaker: Richard Patterson, NEC4 drafter and Procurement & NEC Specialist at Mott MacDonald
A 'Framework' is a contract to let contracts. The NEC Framework Contract is a contract for suppliers under which the Client can let specific 'call off' contracts to those suppliers using any of the standard NEC contracts. This webinar was held on 23 September 2022.
The session covered how the NEC Framework contract is put together and used.
https://www.apm.org.uk/news/nec-framework-contract-webinar/
https://youtu.be/l7eRQdplJxs
Presentation to the Institute of Demolition Engineers' conference in March 2019 by Sarah Fox of 500 Words Ltd on managing risks and changes under the NEC4 ECC contract.
For more information on using contracts to safeguard your business without annoying your clients, go to www.500words.co.uk/blog.
NEC4 overview: key changes and impacts - Birmingham, September 2017Browne Jacobson LLP
This seminar looked at changes to the NEC structure, changes in approach following the change to the structure, and the introduction of two new contracts to the suite.
A thorough analysis of FIDIC and it implication on COnstruction industry explained in this presentation for the beginners. It has been broken down to simplified version
APM webinar sponsored by the Thames Valley Branch on 23 September 2022
Speaker: Richard Patterson, NEC4 drafter and Procurement & NEC Specialist at Mott MacDonald
A 'Framework' is a contract to let contracts. The NEC Framework Contract is a contract for suppliers under which the Client can let specific 'call off' contracts to those suppliers using any of the standard NEC contracts. This webinar was held on 23 September 2022.
The session covered how the NEC Framework contract is put together and used.
https://www.apm.org.uk/news/nec-framework-contract-webinar/
https://youtu.be/l7eRQdplJxs
The Second Edition of the Rainbow Suite is considerably longer, more detailed. The update addresses issues raised by users over the past 18 years and reflects current international best practice. The presentation analysis changes in Yellow & Silver Books as they apply to EPC & PPP Contracts from the perspectives of Public Entities, Contractors and Lenders.
APM webinar sponsored by the Thames Valley Branch on 29 September 2021.
Speaker:
Richard Patterson, NEC4 drafter and Procurement & NEC Specialist at Mott MacDonald
NEC has clear mechanism for risk allocation for specific events. Is it a compensation event, or not? And it has a clear, detailed and flexible process for managing and agreeing the assessment of those compensation events. Effective management of the process is key to dispute avoidance under NEC. This webinar was held on 29 September 2021.
Hear about the importance of the F word - forecast. Change control is critical to the finances of any supplier - so you need to know how to use the process.
https://youtu.be/QOrw_KqUZiE
An APM webinar sponsored by the Thames Valley Branch on 20 July 2021.
NEC contracts have better and more proscriptive requirements for programme than any other contract. Known as 'the beating heart' of the NEC, the programme is critical for day to day management and for the assessment of compensation events. This session will give you the details.
Speaker: Richard Patterson, NEC4 drafter and Procurement & NEC Specialist at Mott MacDonald
Richard is a chartered civil engineer, Fellow of the Institution of Civil Engineers (FICE) and procurement and NEC specialist with global development, engineering and management consultant, Mott MacDonald.
Richard was part of the drafting team for NEC4.
Richard advised on possibly Mott’s first use of the NEC when he moved to their contracts/procurement team in 1996 and has worked with the NEC ever since. He advises Motts teams and their clients on NEC in all sectors including the Halley VI research station on the Antarctic, Transnet in South Africa and the Jumeriah Golf Estates in Dubai. In Hong Kong, he has supported the Mott MacDonald’s Hong Kong team on its commissions, advising various departments of the Government of Hong Kong first on their trial projects using NEC, and is happy now to see NEC as ‘business as usual’ in Hong Kong.
Through Mott MacDonald, Richard delivers in-house and client training and training for NEC Training, including the four day ECC Project Manager accreditation course.
Richard has contributed to two NEC books, had seven NEC papers published in ICE’s Proceedings and sat on the Editorial Advisory Panel of the ICE’s journal, Management, Procurement and Law. He is a also a frequent contributor to the NEC website and newsletter (34 articles at the last count) . Most of his articles are linked from his Linked-in page.
https://www.apm.org.uk/news/nec-contracts-programmes-under-ecc-and-psc-webinar/
https://youtu.be/_lymxkMz7Kc
APM webinar sponsored by the Thames Valley Branch on 18 October 2022
Richard Patterson, NEC4 drafter and Procurement & NEC Specialist at Mott MacDonald
The NEC Term Services Contract is a contract for a physical service for a defined period of time rather than for a project. However it does provide for mini projects as 'Tasks'. This webinar was held on 18 October 2022.
The session looked at the basics of;
putting together the contract and
contract management
https://apm.org.uk/news/nec-term-service-contract-tsc/
https://youtu.be/EoAcig4g2G0
This seminar was part of the Bar Council practical construction law series presented by the Construction Law Committee to practitioners. It covers the topic of payments and common issues arising in the construction industry.
APM webinar sponsored by the Thames Valley branch on 27 October 2021.
The Supervisor is separate from the ECC Project Manager. Their role is to monitor the Contractor's compliance with the Scope. They need the skills of the 'clerk or works' …. But they also need to know how to manage their part of the contract. This webinar was held on 27 October 2021.
This session will give full details and share some of the necessary interfaces with the project manager.
Speaker: Richard Patterson, NEC4 drafter and Procurement & NEC Specialist at Mott MacDonald
links:
https://www.apm.org.uk/news/nec-engineering-and-construction-contract-ecc-the-supervisors-roles-and-responsibilities-webinar/
https://youtu.be/RuIrzKpr83U
NEC4 overview: key changes and impacts - Nottingham, September 2017Browne Jacobson LLP
This seminar looked at changes to the NEC structure, changes in approach following the change to the structure, and the introduction of two new contracts to the suite.
Planning and Project Controls under NEC4 – the choice isn’t yours! by "Glenn ...Project Controls Expo
Planning and Project Controls under NEC4 – the choice isn’t yours! by Glenn Hide - Director for GMH Planning Ltd, UK
Hezron Ricketts - Senior Manager, Senior Counsel to the Board for Th3rd Curve, UK at at Project Controls Expo 2017, Arsenal Stadium, London
The Second Edition of the Rainbow Suite is considerably longer, more detailed. The update addresses issues raised by users over the past 18 years and reflects current international best practice. The presentation analysis changes in Yellow & Silver Books as they apply to EPC & PPP Contracts from the perspectives of Public Entities, Contractors and Lenders.
APM webinar sponsored by the Thames Valley Branch on 29 September 2021.
Speaker:
Richard Patterson, NEC4 drafter and Procurement & NEC Specialist at Mott MacDonald
NEC has clear mechanism for risk allocation for specific events. Is it a compensation event, or not? And it has a clear, detailed and flexible process for managing and agreeing the assessment of those compensation events. Effective management of the process is key to dispute avoidance under NEC. This webinar was held on 29 September 2021.
Hear about the importance of the F word - forecast. Change control is critical to the finances of any supplier - so you need to know how to use the process.
https://youtu.be/QOrw_KqUZiE
An APM webinar sponsored by the Thames Valley Branch on 20 July 2021.
NEC contracts have better and more proscriptive requirements for programme than any other contract. Known as 'the beating heart' of the NEC, the programme is critical for day to day management and for the assessment of compensation events. This session will give you the details.
Speaker: Richard Patterson, NEC4 drafter and Procurement & NEC Specialist at Mott MacDonald
Richard is a chartered civil engineer, Fellow of the Institution of Civil Engineers (FICE) and procurement and NEC specialist with global development, engineering and management consultant, Mott MacDonald.
Richard was part of the drafting team for NEC4.
Richard advised on possibly Mott’s first use of the NEC when he moved to their contracts/procurement team in 1996 and has worked with the NEC ever since. He advises Motts teams and their clients on NEC in all sectors including the Halley VI research station on the Antarctic, Transnet in South Africa and the Jumeriah Golf Estates in Dubai. In Hong Kong, he has supported the Mott MacDonald’s Hong Kong team on its commissions, advising various departments of the Government of Hong Kong first on their trial projects using NEC, and is happy now to see NEC as ‘business as usual’ in Hong Kong.
Through Mott MacDonald, Richard delivers in-house and client training and training for NEC Training, including the four day ECC Project Manager accreditation course.
Richard has contributed to two NEC books, had seven NEC papers published in ICE’s Proceedings and sat on the Editorial Advisory Panel of the ICE’s journal, Management, Procurement and Law. He is a also a frequent contributor to the NEC website and newsletter (34 articles at the last count) . Most of his articles are linked from his Linked-in page.
https://www.apm.org.uk/news/nec-contracts-programmes-under-ecc-and-psc-webinar/
https://youtu.be/_lymxkMz7Kc
APM webinar sponsored by the Thames Valley Branch on 18 October 2022
Richard Patterson, NEC4 drafter and Procurement & NEC Specialist at Mott MacDonald
The NEC Term Services Contract is a contract for a physical service for a defined period of time rather than for a project. However it does provide for mini projects as 'Tasks'. This webinar was held on 18 October 2022.
The session looked at the basics of;
putting together the contract and
contract management
https://apm.org.uk/news/nec-term-service-contract-tsc/
https://youtu.be/EoAcig4g2G0
This seminar was part of the Bar Council practical construction law series presented by the Construction Law Committee to practitioners. It covers the topic of payments and common issues arising in the construction industry.
APM webinar sponsored by the Thames Valley branch on 27 October 2021.
The Supervisor is separate from the ECC Project Manager. Their role is to monitor the Contractor's compliance with the Scope. They need the skills of the 'clerk or works' …. But they also need to know how to manage their part of the contract. This webinar was held on 27 October 2021.
This session will give full details and share some of the necessary interfaces with the project manager.
Speaker: Richard Patterson, NEC4 drafter and Procurement & NEC Specialist at Mott MacDonald
links:
https://www.apm.org.uk/news/nec-engineering-and-construction-contract-ecc-the-supervisors-roles-and-responsibilities-webinar/
https://youtu.be/RuIrzKpr83U
NEC4 overview: key changes and impacts - Nottingham, September 2017Browne Jacobson LLP
This seminar looked at changes to the NEC structure, changes in approach following the change to the structure, and the introduction of two new contracts to the suite.
Planning and Project Controls under NEC4 – the choice isn’t yours! by "Glenn ...Project Controls Expo
Planning and Project Controls under NEC4 – the choice isn’t yours! by Glenn Hide - Director for GMH Planning Ltd, UK
Hezron Ricketts - Senior Manager, Senior Counsel to the Board for Th3rd Curve, UK at at Project Controls Expo 2017, Arsenal Stadium, London
NEC4 overview: key changes and impacts - London, September 2017Browne Jacobson LLP
This seminar looked at the changes to the NEC structrure, changes in approach following the change to the structure, and the introduction of two new contracts to the suite.
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7. NEC3 Suite of Contracts
• Works
• Engineering and Construction Contract (ECC)
• Engineering and Construction Short Contract (ECSC)
• Engineering and Construction Subcontract (ECS)
• Engineering and Construction Short Subcontract (ECSS)
• Services
• Professional Services Contract (PSC) – Architecture, Engineering
• Term Service Contract (TSC) – Maintenance, Management
• Term Service Short Contract (TSSC)
• Supply
• Supply Contract (SC) – Goods, Products
• Supply Short Contract (SSC)
• Others
• Adjudicator’s Contract (AC), Framework Contract (FC)
1. Overview
9. NEC4 Suite of Contracts
1. Overview
The brand new NEC4 Design Build and
Operate Contract (DBO) allows Clients to
procure a more integrated whole-life
delivery solution. It reflects the increasing
demand for contracts extending into the
operational phase.
13. Core & Main Option Clauses
• The Core Clauses are set out in nine sections and apply in all
contracts. The clauses allow for a flexible amount of Contractor
design.
• Section 1: General
• Section 2: The Contractor’s Main Responsibilities
• Section 3: Time
• Section 4: Testing and Defects
• Section 5: Payment
• Section 6: Compensation Events
• Section 7: Title
• Section 8: Risk and Insurance
• Section 9: Dispute and Termination
• The Main Option Clauses provide two options for the dispute
resolution procedure.
• Option W1: Used unless the HGCRA 1996 applies.
• Option W2: Used in the UK when the HGCRA 1996 applies.
1. Overview
14. Cost Components & Contract Data
• The Cost Components are two schedules which contain cost information
supplied by the Contractor. They are used to assess payments to the
Contractor and the cost effect of Compensation Events. Costs are defined in
relation to people, equipment, plant and machinery, utility charges,
manufacture and fabrication, design and insurance.
• Known as the ‘Contract Particulars’ under JCT, the Contract Data provides
data required by the specific conditions of the contract. The section is split
into two parts
• Part 1 - Data provided by the Employer
• Part 2 – Data provided by the Contractor. Information includes...
• Name of Parties
• Insurance Details
• Start and Completion Dates
• Interest Rates
• Retention Percentage if applicable
• Rates for Delay Damages if applicable
1. Overview
15. Works and Site Information
• The Works Information specifies and describes the Works to be carried
out, including Contractor’s design responsibilities. Most information will be
given in a specification and on production drawings in the traditional
manner. However, it may also include…
• Statement of Constraints on how works are carried out
• Health and Safety
• Details of Contractor’s Design elements
• Information on Specialist Subcontractors
• Details of Tests
• Performance or Advance Payment Bonds
• The Site Information describes the site and its surroundings and is used
to assess compensation for site conditions. Information may include soil
investigations, contamination reports and details of below ground
services.
1. Overview
16. Managing Change
• NEC3 includes a clause which obliges the Contractor and
Project Manager to notify each other as soon as they become
aware of any matter which could increase the Prices or delay
Completion. This is called an Early Warning.
• Under the JCT Type, the procedure for managing change is
known as ‘Variations’. A Contractor’s Schedule 2 Quotation can
be used to obtain a fixed price quotation for a variation.
However, it is not mandatory and typically responsibility lies with
the QS to price variations. Disputes can arise and are often not
resolved quickly.
• Under the NEC3, the procedure is known as ‘Compensation
Events’ and an immediate assessment of the cost and time
implications are made. These are mandatory and binding, with
no provision for later review. They are events which do not
arise from the Contractor’s fault and entitle the Contractor to be
compensated for any effect the event has on the Prices and
Dates.
Compensation Events
are listed in the Core
Clauses and the
Options. The Contract
Data also has
provision for the
Employer to insert their
own additional
compensation events.
1. Overview
17. 1. Overview
Terms in italics are project specific
Defined terms have capital initials
These drafting principles make it easier to understand the contract
These principles should be adhered to when drafting documents & communicating
Clause 11.1:
Terms identified in the Contract Data are in italics e.g.. Period for reply, boundaries of
the site
Defined terms have capital initials, e.g. Accepted Programme, Completion, Defect
The index is useful to refer to as it details the links within the contract – it helps
build the intellectual map
18. • There are 19 defined terms relevant to the core
clauses
• These are in alphabetic order
• Additional defined terms exist dependent upon the:
– Main Options
– Secondary Options
1. Overview
19. Clause Defined term & comment Linkage
11.2(1) Accepted Programme – latest Accepted Programme supersedes
previous. Vital to have an Accepted Programme in place for the good of
the project
31.3, 50.3
(remedy)
11.2(2) Completion – the second bullet serves as a basic filter, the first bullet
allows the Employer to be very precise
X7.1 (remedy)
11.2(9) Key Date – critical milestone from the Employer’s perspective, often
reflects interface between the Contractor and Others
14.3 (alter),
25.3 (remedy)
11.2(14) Risk Register – consists of risks identified as part of the tender process
plus early warnings
Contract
Data, 16.4
11.2(16) Site Information – factual information about the site 60.1(12),
60.2, 60.3
11.2(18) Working Areas – necessary for Providing the Works & used only for
work on this contract
15.1, SCC,
SSCC
11.2(19) Works Information – specifies and describes the works or any
constraints
14.3, 60.1(1)
Some Defined Terms and Basic Contract Linkages
1. Overview
20. Clause Defined term & comment
Main Option A,
11.2(20)
Activity Schedule (note the sequential clause numbering)
Main Option A,
11.2(27)
Price for Work Done to Date (PWDD) – completed activities
Main Option B,
11.2(28)
Price for Work Done to Date (PWDD) – bill items
Main Option C,
11.2(23)
Defined Cost – definition of what is paid for under Options C-F
Main Option C,
11.2(25)
Disallowed Cost – definition of what is not paid under Options C-F
X5.1 Sectional Completion – references equally apply to Sectional
Completion eg clause 16.1
1. Overview
Some Defined Terms and Basic Contract Linkages
21. Key People
• The ECC sets out the responsibilities and roles of the following key
people:
• Employer
Not involved in administrating the contract – no power to issue instructions.
• Project Manager
Known as the ‘Contract Administrator’ under the JCT, the Project Manager manages
procurement of the Works for the Employer. Contract contemplates appointment prior to
the Consultants so that they manage the design process.
• Supervisor
Known as the ‘Clerk of Works’ under the JCT, the Supervisor exercises certain
responsibilities on site for the Employer, including testing, monitoring quality and issuing
the Defects Certificate.
• Contractor
• Subcontractors
• Adjudicator
• Note, no references to an Architect or QS by profession.
Unless delegated the
role or responsibility, the
Architect who produced
the Works Information,
may not have a role in
the Contract and
therefore have no
responsibility to monitor
quality and compliance
with the Works
Information. The
Supervisor may have
limited knowledge of the
Works Information and
this may affect the
quality of the completed
building. Traditionally as
Contract Administration,
the Architect has a
responsibility to monitor
quality.
1. Overview
24. Communication protocol: Clause 13.1
• Clause 13.1 clearly states the methods of communication which the contract requires in a form that can be
read, copied and recorded
• The contract requires professional record keeping
• The Project Manager should discuss and agree with the Contractor which method(s) of communication
will be used at commencement of the contract
• The NEC published guidance on communication in April 2013
• Good examples and suggestions are contained within this guidance
1. Overview
• As a minimum, the ECC pro-forma’s are recommended as the means of communicating
• They state the relevant clause
• The communications are structured
• This is not being contractual – it’s following what the contract requires (‘acting as stated’)
25. Communication protocol: Clause 13.7
• ‘Notified’ matters need to be communicated separately!
• Each early warning should be notified separately
• Each defect should be notified separately
• Each compensation event should be notified separately
1. Overview
26. Full list of notifications under the ECC (clause 13.7)
Clause Issue
14.2 Delegation
14.4 Replacement of the PM or Supervisor
16.1 Early Warning
17.1 Ambiguities and inconsistencies
18.1 Illegal or impossible requirements
31.3 Programmes
40.3 Tests and inspections
42.2 Defects
61.1 Compensation Events
61.3 Compensation Events
61.4 Compensation Events
61.5 Decisions on Compensation Events
61.6 Assumptions on Compensation Events
62.6 Quotations for Compensation Events
64.3 Assessments of Compensation Events
64.4 Late assessment of Compensation Events
65.1 Implementation of Compensation Events
73.1 Discovery of objects of value etc
1. Overview
27. • The Contract Data ‘refers’ to the documents
which contain the Works Information.
– Contract Data Part 1 identifies the Employer’s
Works Information
– Contract Data Part 2 identifies the Contractor’s
Works Information for his design
1. Overview
28. • What happens if there are inconsistencies between
the Works Information provided by the Contractor
(for his design) and that provided by the Employer?
Clause 17.1
notify
Clause 14.3
Ability to
change
Clause
60.1(1),
Second bullet
Changing the Contractor’s WI to comply with the Employer’s is not a
compensation event. In that respect, the Employer’s WI is dominant
1. Overview
29. • What happens if the Employer’s WI contains
inconsistencies in drafting and/or is
ambiguous?
Clause 17.1,
Notify
Clause 14.3 –
ability to
change
Clause 63.8,
Employer
pays
The Employer compensates the Contractor for any inconsistency or ambiguity
1. Overview
TELEVISIONS – 42” or 24” – 63X £127.99 = £8063.37
30. • The Risk Register is a new feature under NEC3.
• It is a live document that is formed by the Project Team post-contract (i.e. not a
contract document) and will change as the work progresses.
• Risks can be added to the Register as part of the Early Warning process, or
removed because of actions taken by the parties (i.e. soil investigations).
• Risks are allocated a likelihood of occurrence and impact, along with an
approximate cost effect. Regular Risk Reduction Meetings should be held during
the Contract.
1. Overview
31. 1. Overview
• Clause 80.1 defines the Employers Risks under the contract
• Clause 81.1 sets out that all other risks are carried by the Contractor.
• Clause 83 each party indemnifies the other against events which are at its risk
• Often ITT’s are including preliminary risk registers to help prospective contractors understand what
getting into.
• Risk Registers are a practical project management tool , time or cost consequences should fall
outside of clause 83 and be addressed through other mechanisms (CE’s) Parties need to be very
clear as to how any such risks are allocated.
• Recent difficulties around final entry clause 80.1 which allows additional Employers risks to be
specified in the Contract Data in order to include a preliminary risk register .
• Employer will often append or refer to the risk register in the contact data and if that register
assigns actions to the employer could be argued that they become part of 80.1
• Broad consensus that risk register operates at a practical level and not intended to alter 80.1 and
81.1 however still limited case law and remains uncertainty.
• Prudent for clarity to amend the contract that items in the risk register are not employers risks.
32. • Under the JCT Types, the Contractor is required to submit a Programme but
it is not a binding Contract Document and there is no requirement to keep it
up to date.
• In contrast, the Accepted Programme forms part of the Contract Data under
the NEC3 and the Contractor is required to keep it up to date. Any changes
must be accepted by the Project Manager within 2 weeks. It is an important
document and is used to monitor/assess the time effects of Compensation
Events.
Programme should show…
• Start Date/Completion Date/Key Dates
• Planned Completion
• Order and Timing of Operations
• Time Risk Allowances
• Health and Safety Requirements
• Information from Required Others
• Float
1. Overview
33. • The programme is key – it’s the ‘beating heart’ of the NEC
• The NEC programme is a joint programme
• It provides critical management data
• If the programme is not compliant/accepted it becomes
very difficult to objectively assess compensation events
• In order to ensure acceptance it is worthwhile considering a
joint review before final submission/acceptance
1. Overview
36. • Early Warnings are very important part of NEC
• They are about identifying potential problems before they occur
with a view to avoidance or mitigation
• Designed to avoid waiting until they have happened and seeking to
apportion blame
• There is no entitlement under Early Warnings
• They should not be viewed as claims however if not given or given
and ignored have consequences
• Under Clause 16.1 Contractor or PM can issue
• Consequences if Contractor not issued when could have – under
options C-F could be disallowed costs
• Clause 16.2 gives rights to PM or Contractor to Instruct attendance
at risk reduction meeting.
• Issue of EW entails PM must add to the Risk Register
• All about encouraging proactive and collaborative working
2. Early Warning
37. Full list of notifications under the ECC (clause 13.7)
Clause Issue
14.2 Delegation
14.4 Replacement of the PM or Supervisor
16.1 Early Warning
17.1 Ambiguities and inconsistencies
18.1 Illegal or impossible requirements
31.3 Programmes
40.3 Tests and inspections
42.2 Defects
61.1 Compensation Events
61.3 Compensation Events
61.4 Compensation Events
61.5 Decisions on Compensation Events
61.6 Assumptions on Compensation Events
62.6 Quotations for Compensation Events
64.3 Assessments of Compensation Events
64.4 Late assessment of Compensation Events
65.1 Implementation of Compensation Events
73.1 Discovery of objects of value etc
1. Overview
39. The early warning process
• The Project Manager should facilitate and
trouble shoot the process
• This is not about casting blame
• Its about mature project management –
recognising that both parties will encounter
problems
• Its about overcoming them collaboratively
3. Early Warning
40. The early warning process:
•‘Notify’ – separately
(13.7)
•4 reasons
•5th reason is
discretionary
•Protecting time,
quality and cost
16.1 Notify
•May instruct others
to attend
16.2 Instruct a
meeting
•How to avoid or
reduce
•Seek solutions
•Decide on actions
•Update
16.3 Mitigate
•Revise
•Issue to the
Contractor
16.4 Update
and issue
2. Early Warning
42. The early warning process:
•‘Notify’ – separately
(13.7)
•4 reasons
•5th reason is
discretionary
•Protecting time,
quality and cost
16.1 Notify
•May instruct others
to attend
16.2 Instruct a
meeting
•How to avoid or
reduce
•Seek solutions
•Decide on actions
•Update
16.3 Mitigate
•Revise
•Issue to the
Contractor
16.4 Update
and issue
2. Early Warning
44. Impact if we don’t manage Early Warnings:
Clause 16.1
Notify (separate
communication:
clause 13.7)
The Prices
Clause 63.5: “…event is
assessed as if the
Contractor had given
early warning”
Disallowed Cost
Clause 11.2 (25)*….was
incurred only because the
Contractor did not ….give
an early warning….
Options A-F
Options C-F
Under Options C-F failure to notify early warnings can have a detrimental effect on the Prices (value)
and Defined Cost (cost)
*11.2(26) under Option F
3. Early Warning
48. Implementing the key
procedures: Early warnings
Procedures in contract
• Risk Register to be compiled by the
Project Manager
• Each early warning to be notified
and recorded in the Risk Register
• Mitigation & risk reduction to be
undertaken as per clause 16.3
Practical suggestions
• Ensure the ethos is right within the team
– early warnings are not a pre-empt to a
claim!
• Develop the Risk Register from the
tender process
• Consider a protocol of picking up the
phone and discussing initially. If both
parties agree/one feels strongly then
follow through with the paperwork?
• Ensure dialogue is maintained
• Consider a categorisation system eg. category 1 = critical (meet in the next 24 hours),
category 2 = non-critical (record and discuss at the next progress meeting)
2. Early Warning
53. 4. Compensation Events
Compensation events are defined as events which if they do not arise from
Contractors fault, entitle Contractor to be compensated for effect on the
Prices, Key Dates and Completion Date
Therefore it is important to remember that compensation events deal with both time
and money
54. What is a compensation event?
• Events which entitle the Contractor to be compensated for
the effect on the Prices, Key Dates and Completion Date
• Both time & cost are assessed in a single quotation
• Some compensation events may be negative e.g. omit work
from the Works Information (this will have a negative impact
on the Prices but will not bring forward the Completion
Date)
• This section rewrites the traditional rule book in terms of
change management
Clearly defined timescales are in place
Failure to comply with these timescales can result in the
Contractor being time barred
The timescales are clearly defined with sanctions in place for those that do not
follow the process!
3. Compensation Events
55. What is a compensation event?
• Compensation Events are the ONLY way to
change price / and or Completion Date
• All in one place and treated in the same way
• Cost assessed at forecast change in cost
• Time forecast delay based on latest Accepted
Programme
• All to tight and defined timescale
3. Compensation Events
57. Core & Main Option Clauses
• The Core Clauses are set out in nine sections and apply in all
contracts. The clauses allow for a flexible amount of Contractor
design.
• Section 1: General
• Section 2: The Contractor’s Main Responsibilities
• Section 3: Time
• Section 4: Testing and Defects
• Section 5: Payment
• Section 6: Compensation Events
• Section 7: Title
• Section 8: Risk and Insurance
• Section 9: Dispute and Termination
• The Main Option Clauses provide two options for the dispute
resolution procedure.
• Option W1: Used unless the HGCRA 1996 applies.
• Option W2: Used in the UK when the HGCRA 1996 applies.
1. Overview
58. The compensation event process – Overview:
• The compensation event process is clearly defined
• Section 6 is divided into 5 main sections: Define,Notify,
Quote, Assess, Implement
• Timescales are in place with sanctions for either party
if they are not followed
• The timescales are about agreeing the impact not
when the work is done
• Both time and cost are assessed
• There is no separate prolongation/extension of time
4. Compensation Events
59. The compensation event process – Overview:
3. Compensation Events
• There is a defined process to agree (or impose)
the effects of a compensation event
• Within defined time limits
• Definition (60)
• Notification (61)
• Quotation (62)
• Assessment (63/64)
• Implementation (65)
• Either Party can make sure that process and time
scales are adhered to
60. What are the reasons for a compensation event?
• There are three main reasons:
• A change of mind/decision
• Failure to do something (a lot relate back to the programme)
• Something has happened that is beyond a reasonable risk
3. Compensation Events
61. Where are they listed?
• There are four sources of compensation events:
• Clause 60.1 (19 reasons)
• A further 3 stated in clauses 60.4, 60.5 & 60.6 (Options B & D)
• Also secondary Options X2, X12.3(6) & (7), X14.2, X15.2 &
Y2.4
• Potentially additional compensation events in Option Z
• NEC 4 also introducing a new category for introduction of
client specific CE’s
4. Compensation Events
62. Lots of Effort !!!
• Many find the Compensation Event process particularly
challenging.
• Need to consider that the conventional contracts have not
avoided the need to manage change, in fact most simply
push much of the work to the post completion phase
resulting in delays , debates, and extended payments.
• NEC3 requires contemporaneous change management and
the increased effort should be rewarded by the whole
project team having greater certainty of outcome and
avoidance of post – completion disputes.
4. Compensation Events
66. 3. Compensation Events
60. Definition
Essentially is the list of items which are
compensation events under the contract.
The first step in administering the
Compensation Event process is a simple
initial check as to what is / has / could be
happening on the project against that list.
67. Summary of the compensation event clauses
Clause Description Relevant Clauses
60.1(1) Change to the Works Information 14.3, 27.3 & 44
60.1(2) Access and use of the site 33.1
60.1(3) Employer providing something 31.2
60.1(4) Stop or not start any work 34.1
60.1(5) Employer and Others working times and conditions 31.2
60.1(6) Replying to communications 13.3
60.1(7) Object of value 73.1
60.1(8) Changing decisions -
60.1(9) Withholding acceptance 13.8, 13.4, 24.1,31.3
60.1(10) Instructions to search 42.1
60.1(11) Test or inspection causing delay 40.5
60.1(12) Physical conditions 60.2 & 60.3
60.1(13) Weather -
60.1(14) Employer’s risk 80.1
60.1(15) Take over 35.2
60.1(16) Employer provides materials, facilities and samples 40.2
60.1(17) Correction to an assumption 61.6
60.1(18) Breach of contract -
60.1(19) Unforeseen events 19.1
3. Compensation Events
86. 3. Compensation Events
Compensation event clauses
NEC 4 – adding compensation Events
Compensation events - Additional compensation events
may now be added by the Client in the Contract Data Part
One.
Compensation events - A new compensation has also
been added, in the core clauses, entitling the Contractor to
claim for preparing quotations for a proposed instruction
which are not accepted by the Project Manager.
88. 3. Compensation Events
61. Notification
There is a reciprocal duty for the Contractor
and the Project Manager to notify each
other of any Compensation Event they
become aware of.
The details of these obligations are set out
in core clause 61.
97. 3. Compensation Events
Both Parties have a responsibility to Inform and manage
Many PM’s and majority of contractors need to consider.
The 8 week time barring period does not apply to
compensation events that the project manager should
have notified , in which case the contractor has long as he
wishes to notify up to defects date.
For that reason it is in the Employers best interests for the
Project Manager to notify compensation events in order to start
the procedural clock ticking
Notification of Compensation Events
103. 3. Compensation Events
62. Quotations
The Project Manager must instruct the contractor to prepare a quotation , or
alternative quotations when a Compensation Event is instigated on behalf of the
Employer.
A decision to instruct will depend on the outcome of the quotation.
The Project Manager must also instruct the contractor to prepare quotations for
any other Compensation Event.
The timeframe both for the contractor to submit a quotation and for the Project
Manager to reply are prescriptive.
Timescales can be altered by agreement between the Contractor and the Project
manager although such agreements should be based on genuine necessity.
111. 3. Compensation Events
63 & 64 Assessing
Compensation Events are assessed relative to Defined Costs and accepted
Program.
Quotations deal with both Time & Money
The Project Manager must instruct the contractor to prepare a quotation , or
alternative quotations when a Compensation Event is instigated on behalf of the
Employer.
Core Clause 63 details the provisions that must be followed by the contractor.
There are circumstances in which the Project manager must assess a
compensation Event and these are governed by the detailed provisions set out in
Core Clause 64.
122. 3. Compensation Events
63 & 64 Assessing
Compensation Events are assessed relative to Defined Costs and accepted
Program.
Quotations deal with both Time & Money
The Project Manager must instruct the contractor to prepare a quotation , or
alternative quotations when a Compensation Event is instigated on behalf of the
Employer.
Core Clause 63 details the provisions that must be followed by the contractor.
There are circumstances in which the Project manager must assess a
compensation Event and these are governed by the detailed provisions set out
in Core Clause 64.
134. 3. Compensation Events
65 Implementing
Compensation Events are implemented when their time and money are fixed.
These implications are fixed once and once only and not revisited even in the
context for a prediction subsequently not transpiring
Time and money are inextricably linked through the Programme and the Defined
Cost.
137. Time Barring
3. Compensation Events
The compensation event procedure includes temporal obligations with respect to change
management that are both reciprocal and onerous.
The potential time and money rights of the parties in relation to change can be time-barred if the
contractual timescales are not followed. Specifically, if the following actions which confer those
time and money rights are not taken within the specified time periods, then those rights are
extinguished:
• The Contractor must notify a compensation event within eight weeks of becoming aware of it
– it is a large carrot to notify a compensation event on time if the right to it can be extinguished
after eight weeks.
• The Project Manager must notify the Contractor within two weeks of receipt if any event is
considered not to be a compensation event – it is an equally large carrot to check a compensation
event on time if it is deemed to be accepted after two weeks by default, i.e. if it is not proactively
rejected if it is considered accepted.
The purpose of such time-barring is to effectively incentivise the parties to perform efficiently and
deal with compensation events as they arise. This is a critically important objective of NEC3 in
dealing with change contemporaneously and not leaving it for a final account debate.
139. Agree to meet regularly & maintain dialogue
3. Compensation Events
Consider the contractual loop / Genuine need for Alterations to the periods –
And KEEP YOUR CLIENT INFORMED
140. Implementing the key procedures:
Compensation events
Procedures in contract
• Clear timescales and procedures
detailed in section 6
• Both parties may ultimately be time
barred if they fail to follow the
timescales
Practical suggestions
• Meet to discuss appropriate
compensation events before final
submission
• Discuss any issues – the aim is to
informally agree before formal
submission
Agree to meet regularly & maintain dialogue
3. Compensation Events
145. • Clause 80.1 defines the Employers Risks under the contract
• Clause 81.1 sets out that all other risks are carried by the Contractor.
• Clause 83 each party indemnifies the other against events which are at its risk
• Often ITT’s are including preliminary risk registers to help prospective contractors understand what
getting into.
• Risk Registers are a practical project management tool , time or cost consequences should fall
outside of clause 83 and be addressed through other mechanisms (CE’s) Parties need to be very
clear as to how any such risks are allocated.
• Recent difficulties around the final entry clause 80.1 which allows additional Employers risks to be
specified in the Contract Data in order to include a preliminary risk register .
• Employer will often append or refer to the risk register in the contact data and if that register
assigns actions to the employer could be argued that they become part of 80.1
• Broad consensus that risk register operates at a practical level and not intended to alter 80.1 and
81.1 however still limited case law and remains uncertainty.
• Prudent for clarity to amend the contract that items in the risk register are not employers risks.
4. Points to Note
147. Key risks – physical conditions:
• Physical conditions (clause 60.1(12)) are a compensation event if they are over and
above the defined risk:
• …… an experienced Contractor ….. such a small chance of occurring
……unreasonable for him to have allowed for it
• When ‘judging’ if it is a compensation event – clause 60.2 lists what the Contractor
is deemed to have taken account of
The Contractor needs to take account of the risks which are within the parameters of this
definition
On most projects this represents a significant risk
Example: A new housing development on a disused hospital site: Discovery of a redundant
drain and telephone cables in different places to those shown on drawings is unlikely to be a
compensation event (?)
4. Points to Note
148. 4. Points to Note
Check the Z clauses – Advice is to minimise however increasingly seen used
• Introduction of Provisional Sums
• Significantly altering of periods (4 weeks to become time barred)
149. Note that clause 26.3 sets out the reasons why the Project manager might reject
a subcontractor.
The use of any other reason would potentially trigger a compensation event as
clause 60.1(9)
So Project Managers must tread carefully when considering such matters.
And as later note that Welsh LA have added further reasons via the
amendment of a core clause rather than adding a Z clause.
4. Points to Note
150. Consider the final part of clause 26.2 the Contractor is prohibited from appointing a
proposed subcontractor until the Project Manager has accepted that subcontractor.
Contractor’s should be aware of this prohibition as at clause 91.2 the appointment
of a subcontractor for substantial work before the Project Manager has accepted the
subcontractor is Reason 13 of the reasons allowing the Employer to terminate the
Contract.
The only point for debate in respect of this reason is what is substantial work as
opposed to unsubstantial work.
4. Points to Note
151. 4. Points to Note
Recommendations are to keep Z clauses to the minimum
Government and NEC Guidelines available which detail and
suggest reasonable and some of the more common uses of Z
clauses – such as compliance with Official Secrets act.
Review of this Contract discovered significant amendments to
and introduction of new core clauses (Just on compensation
events)adds to 60.1(10), removes 60.1(12),60.1(19), 60.2, 60.3
adds 60.4 (confirms contractors risks on risk register not CE’s) and
60.5 liability under common law relating to compensation events.
Recent works with Welsh Contractor reviewing NEC framework
Documents issued by Local Authority
152. 4. Points to Note
Inclusion of 33 Z Clauses – covering such items as
Recent works with Welsh Contractor reviewing NEC framework
Documents issued by Local Authority
Contractors obligations for Security Waste Management & WRAP
Confidentiality and FOIA & EIR Quality and Quality plans
Publicity & Advertising Preliminaries and Value Engineering
Guarantees / Warranties / Insurances Provisional Sums
Community Benefits Welsh Language
BREEAM & EPC CDM
Discrimination Recycling
BIM & Soft Landings Considerate Constructors
Data Protection
153. Recent works with Welsh Contractor reviewing NEC framework
Documents issued by Local Authority
4. Points to Note
LA’s added and amended the core NEC 3 clauses – in this case adding Disallowed costs
into an Option A contract !!
Significant risks of introducing confusion – NEC3 is a set of standard procedures and
processes with supply chain contracts designed to be back to back.
Changes should be via Z clauses
154. 4. Points to Note
Is it really the
LA’s intention
to pass
obligations
down the
entire supply
chain
Recent works with Welsh Contractor reviewing NEC framework
Documents issued by Local Authority
155. 4. Points to Note
LA’s added reasons why the Project manager is able to reject a proposed sub contractor –
Again need to be commercially aware of potential ramifications
Recent works with Welsh Contractor reviewing NEC framework
Documents issued by Local Authority
156. 4. Points to Note
Consider how you might need to add into supply chain agreements – use of vesting
certificates ? – Protect your liability?
Recent works with Welsh Contractor reviewing NEC framework
Documents issued by Local Authority
157. 4. Points to Note
Consider how you might need to add into supply chain agreements – and manage the
payment process to protect cashflow
Recent works with Welsh Contractor reviewing NEC framework
Documents issued by Local Authority
158. 4. Points to Note
Consider how you might need to add into supply chain agreements in relation to
Compensation Events.
Recent works with Welsh Contractor reviewing NEC framework
Documents issued by Local Authority
159. 4. Points to Note
LA’s intention being to pass obligations down
the entire supply chain. Contractors involved
in such Frameworks need to consider the
practicalities of actually being able to pass
these onto their supply chain / or take an
informed commercial risk.
Recent works with Welsh Contractor reviewing NEC framework
Documents issued by Local Authority
163. Planned CFW NEC Activities / Interventions
Workshop 2 – Tuesday 10th October 7.30am-11.00pm
Conway Business Centre, Junction Way, Conwy LL31 9XX
Importance of Program control and management under NEC 3
Program is often referred to as the beating heart of the NEC – but what should it
include, how often does it need to be updated? How does it relate to compensation
events? What is acceptance? We will also explore how the NEC3 deals with inclement
weather and acceleration.
Workshop 3 – Thursday 12th October 7.30am-11.00pm
National Botanic Garden of Wales, Middleton Hall, Llanarthne SA32 8HN
Understanding works information and contract data under NEC 3
In this workshop we will be delving a little deeper into the importance of the Works
information, Contract data parts 1 & 2 – Where is the key information? What is
included? What might you need to be aware of? We will look the functions of the risk
register, explore use of activity schedules and the concepts of allowed and disallowed
costs.
164. Management of Change Under
NEC3
Stuart Brisbane
Contact 07981 954 417
Thanks for Listening
21st Sept 2017