Introduction to the Engineering ad Construction Contract

Introduction to the Engineering and
Construction Contract (ECC)
Delivering
real value

Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC 2
NEC4: Introduction to the Engineering and
Construction Contract (ECC)
Introduction and housekeeping
 Fire alarms
 Toilets
 Breaks and lunch
 Who am I?
 Who are you?

Course agenda
• Welcome and introductions
• Session 1 – Overview of the NEC and ECC
• Session 2 – Using the ECC : the contract strategy
• Session 3 – Managing the contract : the ECC processes
• Session 4 – Summary and open forum

Course objectives
Delegates should
• Describe the philosophy of NEC and the behaviours
needed to ensure success
• Provide advice on appropriate contract strategies
• Appreciate the use of Contract Data, Scope and Site
Information
• Define the roles and responsibilities of key parties
• Apply important ECC clauses such as early warning,
programme, communications and compensation events

Session 1 – Overview of the NEC

The NEC principles and family - review
Review
Principles
Documents
& contracts
ECSC
ECS &
ECSS
Culture
People

The NEC principles
• NEC is a family of standard contracts, each of which has
these characteristics
• stimulates good management
• can be used in wide variety of commercial situations, for wide
variety of types of work and in any location
• a clear and simple document - using language and structure
which are straightforward and easily understood

Flexibility
• Multi-disciplinary
• Responsibility for design by either party
• Choice of pricing mechanisms from lump sum to cost plus
• Bolt on secondary Options that allow a Client to build up
the contract to suit
• Allocate risks to suit
• For international use

Clarity and simplicity
• Ordinary language
• Minimal legalistic phrases
• Minimised subjective phrases such as ‘fair’, ‘reasonable’
and ‘opinion’
• Reasons for decisions stated
• User friendly structure

Stimulus to good management
• Perhaps the most important objective. Every procedure
is designed to contribute to, rather than detract from
effectiveness for all parties
• Founded on two principles
• foresight applied collaboratively mitigates problems and shrinks
risk
• clear division of function and responsibility helps accountability
and motivates people

User guides
• For all contracts
• Vol 1 Establishing a procurement and
contract strategy
• Vol 3 Selecting a supplier
• For the ECC
• Vol 2 Preparing an engineering and
construction contract
• Vol 4 Managing an engineering and
construction contract
• Flow charts for the ECC - electronic only

Client
Project Manager
PSC or PSSC
Contractor
ECC
Adjudicator
DRSC
Supplier
SC or SSC
Subcontractor
ECS or ECSS
Supervisor
PSC or PSSC
Designer
PSC or PSSC
Typical Client
designed
arrangement

Project Manager
PSC or PSSC
Supplier
SC or SSC
Subcontractor
ECS or ECSS
Designer
PSS or PSSC
Adjudicator
DRSC
Contractor
ECC
Typical design &
build arrangement
Supervisor
PSC or PSSC
Client

When to use the short form?
• Engineering and Construction Short Contract (ECSC) is for
use with contracts which
• do not require sophisticated management techniques
• comprise straightforward work and
• impose only low risks on both the Client and the Contractor
• Not necessarily low financial value
• Not necessarily short duration

When to use the short form? Differences
• Only price based – equivalent to ECC Option A and B
• No options – but includes
• X18 - limitation of liability, in part
• Y(UK)2 - Housing Grants, Construction & Regeneration Act 1996
• Most of the procedures, but less of the detail
• Fewer compensation events
• Either Party can notify compensation events, but
Contractor submits quotation when notifying one
• Contractor assesses amount due

The Engineering and Construction Subcontract (ECS)
• ECS is designed to be a back-to-back contract with ECC
• ECC Client, Project Manager and Supervisor all become ECS
Contractor
• ECC Contractor becomes ECS Subcontractor
• Most references to contract now refer to subcontract
• Some timescales may change, for example for communication
and payment
• More detail in "Preparing an Engineering and Construction
Contract – chapter 7”
• Engineering and Construction Short Subcontract works in the
same manner with the Engineering and Construction Contract

A new culture
• Teamwork
• “The Parties (the Client and the Contractor), the Project Manager and
the Supervisor act in a spirit of mutual trust and co-operation” (10.2)
• Subcontractors
• “A reason for (the Project Manager) not accepting the subcontract
documents is that …. they do not include a statement that the parties
to the subcontract act in a spirit of mutual trust and co-operation”
(26.3)
• Multiparty collaboration
• “The Partners collaborate as stated in the Partnering Information and
in a spirit of mutual trust and co-operation” (X12.3(1))

ECC people
• People in contract, defined by their role
• Client
• Contractor
• Project Manager
• Supervisor
• Senior Representatives ) or members of
• Adjudicator ) Dispute Avoidance Board
• Others (eg designers, CDM principal designer, statutory
authorities)
These two are the
Parties to the contract

Session 2 – Using the ECC : the contract strategy

The ECC structure
• The ECC structure is modular in form with 5 modules,
normally chosen by the Client
• ALWAYS have the core clauses
• choose ONE main Option clause (A to F) which decides the
mechanism for payment and the relevant schedule of cost
components
• choose ONE dispute resolution Option clauses (W1, W2 or W3)
• choose as many secondary Option clauses as required (prefixed
X or Y)
• add any additional clauses (prefixed Z)

Core clauses
1 General
2 The Contractor’s main responsibilities
3 Time
4 Quality management
5 Payment
6 Compensation events
7 Title
8 Liabilities and insurance
9 Termination

Main Option clauses
• A - Priced contract with activity schedule
• B - Priced contract with bill of quantities
• C - Target contract with activity schedule
• D - Target contract with bill of quantities
• E - Cost reimbursable contract
• F - Management contract

Activity Schedule (Option A)
• Lump sum contract
• Project well defined at tender
• Activities usually defined by Contractor
• Activities priced by Contractor
• Payment on completion of defined activities
• Milestone payments by grouping activities
• Activity Schedule can be adjusted by Contractor to reflect
Scope

Bill of Quantities (Option B)
• Project well defined at tender but change likely
• Standard method of measurement used
• Contractor prices items in Bill of Quantities at tender
stage
• Contractor paid for quantity of work completed
• Original work is re-measured (but not necessarily
changes)

Target cost contracts (Options C & D)
• Work must be adequately defined to establish target
• Target cost set by activity schedule (C) or bill of quantities (D)
which Contractor prices at tender
• Contractor tenders Fee
• Target moves with compensation events (Options C & D) and
remeasurement (Option D)
• Contractor gets paid forecast Defined Cost + Fee
• Contractor is paid or pays a share of the difference between
total costs and final target, at the end of the contract

Cost reimbursable contract (Option E)
• Used for example for emergency, experimental, research
work where
• work poorly defined at tender
• work subject to extensive change
• Contractor tenders Fee
• Contractor paid forecast Defined Cost + Fee
• Contractor has no financial risk (except adequacy of Fee)

Management contract (Option F)
• Contractor generally organises work only
• Most work carried out by Subcontractors
• Contractor tenders prices (lump sum) and Fee
• Contractor gets paid forecast Defined Cost + Fee
• Contractor has limited financial risk, except for adequacy of
• Fee and
• prices for work it does itself

A
Contractor
Client
B
F
E
D
C
Financial risk of main Options
Depends on
pain / gain
mechanism

Dispute resolution clauses
• W1 - for adjudication, where the HGCR Act 1996 does
not apply
• W2 - for adjudication, where the HGCR Act 1996 applies
• W3 - where a Dispute Avoidance Board is used

Secondary Option clauses
• X1 - Price adjustment for inflation
• X2 - Changes in the law
• X3 - Multiple currencies
• X4 - Ultimate holding company guarantee
• X5 - Sectional Completion
• X6 - Bonus for early Completion
• X7 - Delay damages
• X8 - Undertakings to the Client or Others
• X9 - Transfer of rights

• X10 - Information modelling
• X11 - Termination by the Client
• X12 - Multiparty collaboration
• X13 - Performance bond
• X14 - Advanced payment to the Contractor
• X15 - The Contractor’s design
• X16 - Retention
• X17 - Low performance damages
• X18 - Limitation of liability

• X20 - Key Performance Indicators
• X21 - Whole life cost
• X22 - Early Contractor involvement
• Y(UK)1 - Project Bank Account
• Y(UK)2 - The Housing Grants, Construction and Regeneration Act
1996
• Y(UK)3 - The Contracts (Rights of Third Parties) Act 1999
• Z - Additional conditions of contract

Contract documents
• Contract Data parts one (Client) and two (Contractor)
• details specifics – see template Contract Data included in delegate packs
• Prices
• depends on main Option chosen – include activity schedule or bill of
quantities
• Scope
• specifies and describes the works
• states any constraints on how Contractor Provides the Works
• mainly specification and drawings
• supplied by Client or Contractor (for design)
• Site Information
• describes the Site and its surroundings

Other documents
• With Contract Data
• if Option X12 is chosen - Partnering Information
• if Option X20 is chosen - incentive schedule
• In Scope
• if Option X4 is chosen - ultimate holding company guarantee
• if Option X8 is chosen - undertakings to the Client or Others
• if Option X13 is used - performance bond

Session 3 – Managing the contract :
the ECC processes
Sections
1-9
1
2
3
5
6
4
9
8
7

Session 3.1 – General provisions
• Actions
• Identified and defined terms
• Communications
• Project Manager and Supervisor
• Early warning
• Contractor’s proposals
1
1

Actions
• Act as stated in this contract (10.1)
• obliges persons to do everything the contract states
• Act in a spirit of mutual trust and co-operation (10.2)
• covers obligations and attitude

Identified and defined terms
• Identified terms in Contract Data are in italics
• Defined terms, capitalised and in 11.2
• (1) Accepted Programme
• (2) Completion (certainty of requirements)
• (3) Completion Date
• (5) Corrupt Act
• (6) Defect (two types)
• (7) Defects Certificate
• (8) Early Warning Register

Identified and defined terms
• (9) Equipment
• (10) Fee (covers all costs not in Defined Cost (52.1))
• (11) Key Date
• (14) Plant and Materials
• (16) Scope
• (17) Site
• (18) Site Information
• (19) Subcontractor
• (20) Working Areas

Communications
• Must be in a form that can be read, copied and recorded
(13.1)
• see simple examples in delegate packs
• Use of a “communication system” (13.2)
• Replies within period for reply or as in contract (13.3)
• Notifications and certificates to be communicated
separately (13.7)

Project Manager and Supervisor
• Project Manager (PM) manages ECC for Client
• PM has a great deal of authority
• PM must be even handed in matters such as assessing
payment
• PM is only person who can instruct changes to Scope
• PM constrained by need to give reasons if PM does not accept
a Contractor’s submission – if reason not in contract then
Contractor is compensated
• Supervisor checks Contractor’s compliance with the Scope

Project Manager and Supervisor
• Acceptance of any communication (programme, design
etc) by the PM or Supervisor does not change the
Contractor’s responsibility to Provide the Works or
liability for its design (14.1)
• PM or Supervisor may delegate any actions, giving details
of delegation (14.2)
• PM may give instruction changing the Scope or a Key
Date (14.3)

Early warning
• Contractor and PM have a duty to notify the other as soon as
they are aware of a matter which could
• increase the total of the Prices
• delay Completion
• delay meeting a Key Date or
• impair the performance of the works in use (15.1) or
• adversely affect the creation or use of the Information Model (X10.3)
• PM or Contractor may give an early warning by notifying the
other of any other matter which could increase Contractor’s
total cost
• PM enters early warning matters in Early Warning Register
(15.1)

Early warning
• PM prepares and issues first Early Warning Register
within one week of starting date (15.2)
• PM instructs first early warning meeting within two
weeks of starting date
• Either party may at any time instruct the other to attend
later early warning meeting
• Further early warning meetings occur
• when instructed by a party and
• no longer than intervals stated in Contract Data

Early warning
• A Subcontractor attends if attendance will assist (15.2)
• Those attending co-operate in making and considering
proposals to avoid or reduce effects, seeking solutions,
deciding actions, reviewing and perhaps removing
matters from Early Warning Register (15.3)
• PM revises Early Warning Register to record decisions and
issues within one week (15.4)
• Encourages collaboration, innovation and ability to adjust
to circumstances during the contract

Contractor’s proposals
• Contractor may propose changes to Client’s Scope which
reduces the total of the Prices (16.1)
• If the PM accepts the proposal, the PM issues an
instruction changing the Scope (16.2)
• For Option A and B, the benefit is shared by the value
engineering percentage (63.12) if
• the change is to Client’s Scope and
• the total Defined Cost is reduced by the compensation event
• The PM does not change the Scope as proposed unless it
accepts the quotation

Session 3.2 - Contractor’s main responsibilities
• Providing the Works
• Contractor’s design
• People
• Working with the Client and Others
• Subcontracting
2
2

Works
• Providing the Works (20)
• Contractor Provides the Works in accordance with the Scope

Design
• Contractor’s design (21)
• Contractor designs the parts of the works which the Scope states it is
to design
• default is Client design
• design acceptance before proceeding
• reasons for not accepting design
• Using the design (22)
• Contractor owns its rights (22.1) unless Option X9 adopted
• Design liability
• Contractor may have limited design liability (Option X15)

People
• The Contractor
• employs each key person stated in Contract Data or
• employs replacement person accepted by PM (24.1)
• Reasons for not accepting (24.1)
• PM may instruct removal of a person (24.2)

Working with Client and Others – Key Dates
• Contractor co-operates with Others (25.1)
• Multi-contract projects are coordinated through use of
Key Dates, by which stated conditions have to be met
• If the PM decides (25.3)
• work does not meet Condition stated for a Key Date by the date
stated and
• Client incurs additional cost
the additional cost is paid by Contractor
• Optional – no obligation to use Key Dates

Subcontracting
• If subcontracts, Contractor still responsible for Providing
the Works (26.1)
• Contractor submits for all Options
• name of each proposed Subcontractor to PM for acceptance
(26.2)
• proposed subcontract documents except pricing information
unless
• NEC contract is proposed, unamended except for changes in main
contract, or
• PM agrees no submission required (26.3)
• Contractor additionally submits for Options C to F
• proposed pricing information (26.4)

Session 3.3 - Time
• Starting, Completion and Key Dates
• Programme
• Access, stopping and starting work
3
3

Starting, Completion and Key Dates
• Contractor does not start work on site until first access date
and does work so that Completion is on or before Completion
Date (30.1)
• PM decides date of Completion and certifies within a week
(30.2)
• Contractor does work so that condition stated for each Key
Date is met by Key Date (30.3)
• Completion Date can be changed by PM as a result of
compensation events, acceleration (36) and accepting Defects
(45.2)

Take over
• Take over (35) is not the same as Completion
• Contractor is responsible for works until take over
• Client takes over within 2 weeks of Completion unless
• Client has stated in Contract Data it will not take over “early”, i.e.
before Completion Date (35.1)
• Client may take over part of the works before Completion –
will be a compensation event if before Completion Date
(60.1(15))
• PM certifies take over of part of the works within one week

Programme
• Can be submitted with tender or after Contract Date (31.1)
• Programme includes (31.2)
• various dates
• order and timing of operations
• order and timing of work of Client and Others
• provisions for float, time risk allowances
• for each operation, a statement of how Contractor plans to do work
identifying principal Equipment and resources
• Likely to be collection of documents which may include
resource statements, information required schedules,
network diagrams, bar charts

Accepting programme
• Programme must be accepted or not accepted by PM
within two weeks of submission
• Reasons for not accepting (31.3)
• If PM does not notify acceptance or non-acceptance
• Contractor may notify PM of failure
• if no action by PM, programme is treated as accepted
• Accepted Programme is latest programme accepted by
PM (11.2(1))

Updating programme
• Programme has to be updated regularly (32)
• Shows a number of things including the actual progress
achieved on each operation and its effect on remaining
work (32.1)
• How frequent?
• on instruction by PM
• when Contractor chooses
• at interval stated in Contract Data (32.2)

Access, and stopping and starting work
• Client allows Contractor access to the Site (33.1)
• PM can instruct Contractor to stop or not start work
(34.1)
• PM must then give instruction to
• re-starting or start work or
• remove work from Scope
• Compensation event (60.1(4)) and termination event
(91.6). Consider whether fault of Contractor

Session 3.4 – Quality management
• Quality management system
• Tests and inspections
• Searching for and notifying Defects
• Correcting Defects
• Accepting Defects
• Uncorrected Defects
4
4

Quality management system
• Contractor has a quality management system (40.1)
• Contractor provides a quality policy statement and
quality plan (40.2)
• PM accepts quality policy statement and quality plan
• An instruction to correct a failure in the plan is not a
compensation event (40.3)

Tests and inspections
• Contractor and Supervisor inform each other of tests
(41.3)
• Contractor pays the cost of any repeat test or inspection
required because a Defect was found (41.6)

Defects
• Searching for and notifying Defects (43)
• search provisions (43.1)
• Supervisor and Contractor notify each other as soon as they find
Defects (43.2)
• Correcting Defects (44)
• Contractor corrects notified Defects before end of defect
correction period (44.2)
• access required after take over to correct a Defect (44.4)

defect
correction
period
defect
correction
period defect
correction
period
Completion defects date
before Completion
Defects notified:
before defects date
Latest issue of
Defects Certificate
after Completion
Defects timetable

Defects
• Uncorrected Defects (46)
• if not corrected within defect correction period the PM assesses
cost to Client of correcting it and Contractor pays amount (46.1)
• Accepting Defects (45)
• proposals that Defect not corrected (45.1)
• quotation for reduced Prices and/or earlier Completion Date
(45.2)
• if quotation accepted, PM
• changes Scope, Prices and Completion Date accordingly
• accepts the revised programme

Session 3.5 - Payment
• Assessing the amount due
• Times for assessment and payment
• Schedule of Cost Components (SCC)
5
5

Assessment timetable
• Assessments made by the PM (50.1)
• First assessment no later than the assessment interval
after the starting date
• Normal assessments made at assessment interval until
• the Supervisor issues the Defects Certificate or
• the PM issues a termination certificate
• Final assessment no later than
• four weeks after Defects Certificate or
• thirteen weeks after termination certificate (53.1)

Payment process – assessment timetable
Completion
starting
date
final assessment
assessment
interval
continues until
Defects
Certificate within 4
weeks
Defects
Certificate
within
assessment
interval assessments

Assessment
• PM
• assesses amount due at each assessment date (50.1)
• considers an application for payment Contractor has submitted
(50.2)
• certifies payment within 1 week of each assessment date (51.1)
• Contractor submits an application for payment before
each assessment date
• Application includes details of how amount has been
assessed, in form stated in Scope

Assessment
• If Contractor submits application, amount due is
• Price for Work Done to Date (PWDD) plus/less other amounts
eg. retention, delay damages, KPIs (50.3)
• If Contractor does not submit an application, amount due
is lesser of
• amount PM assesses and
• amount due at the previous assessment date (50.4)
• One quarter (25%) of PWDD retained if there is no first
programme (50.5)

Price for Work Done to Date
Option PWDD
A Total of Prices for completed activities
11.2(29)
B Quantities of completed work at Bill of
Quantities rates and proportions of lump
sums 11.2(30)
C to F Defined Cost forecast to be paid before next
assessment date + Fee 11.2(31)

Defined Cost for PWDD
Option Defined Cost
C to E Cost of components in SCC, less Disallowed
Cost (11.2(24))
F Payments due to Subcontractors for work
subcontracted and prices for work done by
Contractor, less Disallowed Cost (11.2(25))

Disallowed Cost
Option Disallowed Cost
C to E
11.2(26)
Cost which, for example,
• is not justified by the Contractor’s accounts
• should not have been paid to Subcontractor
• was incurred only because Contractor did
not give early warning
• correcting Defects after Completion
F
11.2(27)
As C to E plus
• payment to Subcontractor for work which
Contract Data states Contractor will do itself
or Contractor’s management

Defined Cost
• Defined Cost includes only amounts
• calculated using rates and percentages stated in the Contract
Data
• other amounts at open market or competitively tendered prices
with deductions for all discounts, rebates and taxes (52.1)
• Defined Cost can be “finalised” so it is not revisited (50.9)

Fee
• All Contractor’s costs not included in Defined Cost are
treated as included in Fee (52.1)
• The Fee is calculated by applying the fee percentage to
the amount of Defined Cost (11.2(10))

PM certifies
payment
Certified
payment is
made
1 week
assessment
date
3 weeks or other
period stated in CD
Interest 51.2
Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC
77
Payment – times without Y(UK)2
Note that for final assessment, the
Contractor may issue the assessment

Y2.2 due
date for
payment
Y2.2 final
date for
payment
7 days
assessment
date
7 days
14 days or other period
stated in CD
Y2.3 notice to
pay less than
PM’s assessment
Y2.5 suspension of
performance of all
or part of works
Interest 51.2
Payment – times with Y(UK)2
PM certificate -
Y2.2 notice of
payment
Note that for final assessment, the
Contractor may issue the assessment

Final assessment
• PM assesses final amount due and certifies final payment
no later than
• four weeks after Defects Certificate or
• thirteen weeks after termination certificate (53.1)
• If PM does not make assessment, Contractor may make
and issue assessment (53.2)
• Assessment of final amount is final unless a Party
disputes it (53.3)

Schedule of Cost Components
• Only used in Options C to E
• Used for assessing both
• compensation events and
• Price for Work Done to Date (PWDD)
• An amount is included only in one cost component and
only if incurred to Provide the Works

Schedule of Cost Components
• Components
• people
• Equipment
• Plant and Materials
• Subcontractors
• charges
• manufacture and fabrication
• design
• insurance
• Data completed in Contract Data part two

Session 3.6 – Compensation events
• Definition
• Process
• Method of assessment
• Short Schedule of Cost
Components (SSCC)
• Sanctions for non-compliance
6
6

Definition
• Compensation events are
• events which if they do not arise from Contractor’s 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

Definition
• Where are compensation events stated?
• 21 in clause 60.1
• 3 in main Options B and D, in clauses 60.4 to 60.6
• also in secondary Options X2, X12.3(6) & (7), X14.2, X15.2 and
Y2.5
• may be in Contract Data part one
• may be additional compensation events in secondary Option Z
• Some decisions/instructions specifically not
compensation events – for example whole life cost
changes to Scope (X21.5)

Compensation events
• Compensation events, examples 60.1
• (1) PM gives instruction changing the Scope
• (2) Client does not allow access to and use of part of the
Site
• (3) Client does not provide something
• (5) default by Client or Others
• (12) Contractor encounters certain physical conditions
• (13) a weather measurement is recorded, less frequently
than once in ten years

Process
• There is a defined process to agree (or impose) the
effects of a compensation event within defined time
limits
• Both PM and Contractor can make sure that process and
time scales are adhered to
• A separate process for instructing quotations for
proposed instructions (65)

The compensation event process
Is there a CE?
(61) Instructing a quotation
(62)
Assessment by Contractor
(63) Decision by PM
(62)
Assessment by PM
(64)
Implementation
(66)

PM notifies CE
PM can request alternative
quotes (62.1)
New CE if assumptions change Time/cost freeze as long as
no further CE affects works
Implementation
PM assessment (64.1)
(if required)
Deemed acceptance after two
weeks from Contractor advising
no decision received (64.4)
PM states if any assumptions
to be used (61.6)
8 Week time bar -
for certain CEs (61.3)
Should early warning
have been given? (63.7)
<3 Weeks
<1 Week
Contractor issues quote
Instruct quote
(61.2/4)
PM decision
<3 Weeks
<2 Weeks
PM reply (62.3)
accept/reject/self-assess
IS THERE A CE?
IMPLEMENTATION
PM ASSESSMENT
INSTRUCT QUOTATION
C notifies CE
PM DECISION
CONTRACTOR ASSESSMENT
88
Yes
Intro to the NEC4 Engineering and Construction Contract V4 01/18 © 2017 NEC

Notification
• If the compensation event arises from PM or Supervisor
• giving instruction or notification
• issuing certificate or
• changing earlier decision
then PM notifies compensation event at time of
communication (61.1)
• PM includes in notification instruction to Contractor to
provide quotation (61.2)
• Otherwise Contractor notifies (61.3)

Notification
• When Contractor notifies, PM replies within one week with
“yes” or “no”
• Answer is “no” if PM decides event
• is Contractor’s fault
• has not happened/is not expected to happen
• is not notified in time
• has no effect on Defined Cost, Completion or meeting a Key Date or
• is not a listed compensation event (61.4)
• Otherwise answer is “yes” and includes PM instruction to
Contractor to provide a quotation (61.4)

Sanctions (1)
• Contractor inaction
• if Contractor does not notify of compensation event it is
supposed to (not one to be notified by PM) within 8 weeks of
becoming aware of event, it loses rights to any additional time
or money (61.3)
• PM inaction
• if PM fails to reply to Contractor’s notification of compensation
event within 1 week, Contractor may give PM a reminder (61.4)
• if failure continues for a further 2 weeks after reminder, deemed
that PM has accepted it is a compensation event and has
instructed a quotation to be provided (61.4)

Quotation
• When PM notifies the event as a compensation event,
included in notification is an instruction to Contractor to
provide quotation
• When instructing a quotation PM may
• instruct alternative quotations (after discussion with Contractor)
(62.1) and/or
• state assumptions on which quotation is to be based (61.6), if
effects are unclear
• Contractor provides quotation within 3 weeks (62.3),
which can be extended by agreement (62.5)

Assessment
• Change to the Prices
• actual Defined Cost of work done by dividing date
• forecast Defined Cost of work not yet done by dividing date
• resulting Fee (63.1)
• Dividing date
• if arising from instruction or notification, certificate, or changed
decision, then date of communication by PM or Supervisor
• otherwise date of notification of compensation event (63.1)
• Which Schedule of Cost Components for Defined Cost?

Calculating Defined Cost for compensation events
• Short Schedule of Cost Components (SSCC)
• only used in Options A and B
• amount is included only in one cost component and only if
incurred to Provide the Works
• same headings as SCC
• people at People Rates
• SCC used in Options C to E

Assessment
• If PM and Contractor both agree, rates and lump sums
may be used as a basis for assessment (63.2)
• Otherwise Prices or rates in the Bill of Quantities or
Activity Schedule, or from anywhere else, are NOT used
• Prices are not reduced for a compensation event that
reduces Defined Cost unless specifically stated (63.3)

Assessment
• Delay to the Completion Date
• length of time that, due to compensation event, planned
Completion is later than planned Completion shown on
Accepted Programme current at dividing date (63.5)
• Delay to a Key Date
• length of time that, due to compensation event, planned date
when Condition will be met is later than date shown on
Accepted Programme current at dividing date (63.5)

Decision by PM
• PM replies within 2 weeks of receipt of quotation (62.3)
• The reply is one of following (62.3)
• accept quotation
• not accept quotation, because it has not been prepared in
accordance with contract
• If reply is non acceptance, the PM must
• instruct Contractor to provide revised quotation (with reasons)
or
• tell Contractor it will make own assessment
Note PM cannot just issue non acceptance

Sanctions (2)
• If PM fails within allowed time to reply to quotation
Contractor may notify reminder (62.6)
• If there was more than one quotation, notification
identifies the preferred quotation
• If failure continues for a further 2 weeks after reminder,
the Contractor’s quotation is treated as having been
accepted (62.6)

PM’s assessment
• PM makes assessment if
• Contractor has not responded within time
• PM decides Contractor has not assessed compensation event
correctly
• no programme or alterations to programme submitted by
Contractor with quotation
• PM has not accepted Contractor’s latest programme (64.1)
• PM makes own assessment within the time allowed for
Contractor (64.3)

PM’s assessment
• PM assesses the programme for the remaining work in
assessment of compensation event if
• there is no Accepted Programme
• the Contractor has not submitted a programme or alteration to
the programme for acceptance
• PM has not accepted Contractor’s latest programme for a
reason stated in the contract (64.2)

Sanctions (3)
• If PM fails within allowed time to assess quotation
Contractor may notify reminder (64.4)
• If there was more than one original quotation from
Contractor, notification identifies the preferred quotation
• If failure continues for a further 2 weeks after reminder,
the Contractor’s original quotation is treated as having
been accepted (64.4)

Implementation
• Compensation event is implemented when
• PM accepts Contractor’s quotation
• PM notifies Contractor of own assessment or
• Contractor’s quotation is treated as having been accepted (66.1)
• Once implemented
• the Prices, Completion Date and Key Dates are changed accordingly
(66.2)
• the assessment is not revised (even if wrong) except as permitted by
the contract (66.3)
• only the Adjudicator or tribunal can change the assessment if one
Party still disagrees (W1/W2/W3). The Dispute Avoidance Board
cannot change the assessment

Proposed instructions
• PM may instruct a quotation for proposed instruction (65.1)
• Contractor submits quotation within three weeks (65.2)
• Quotation assessed as compensation event
• PM
• accepts quotation and notifies instruction
• instructs a revised quotation or
• notifies quotation not accepted
• If not accepted
• notification is a compensation event, so Contractor gets paid for
quotation (60.1(20))
• PM may still issue instruction and normal compensation event
process is followed (65.3)

Session 3.7 – Title
• Title
• Use of material
7
7

Title and use of material
• Whatever title Contractor has to Plant and Materials passes to
Client
• when brought into Working Areas (70.2) or
• if they are outside the Working Areas, when they are marked by
Supervisor (70.1)
• Objects and materials within Site
• PM instructs how to deal with object of value or historic or
other interest (73.1)
• Contractor has title to materials from excavation and demolition
unless stated otherwise in the Scope (73.2)
• Contractor only has restricted use of material supplied by Client
(74.1)

Session 3.8 – Liabilities and insurance
8
8

Liabilities and insurance
• 80 Client’s liabilities (damage and 3rd party claims)
• 81 Contractor’s liabilities unless stated as being the Client’s
• 82 Recovery of costs
• each Party pays for events for which they are liable
• net contribution
• 83 Insurance cover – 4 No
• 84 Insurance policies
• 86 Insurance by Client
• X18 Limitation of liability

Session 3.9 – Termination and dispute resolution
9
9

Termination
• Termination is of Contractor’s obligation to Provide the
Works (90.1)
• A Party may terminate only for reasons in Termination
Table (90.2)
• Client may terminate for any reason with Option X11
• Stated reasons for termination (91)
• Procedures on termination (92)
• Payment on termination (93)

Dispute resolution
• 3 options, W1, W2 and W3
• Choice is entered in Contract Data part one
• W1 or W3 used unless HGCRA applies
• W2 used if HGCRA applies – will concentrate on that
• W1 and W2 use adjudication as the primary means of
dispute resolution
• W3 uses a Dispute Avoidance Board established at the
start of the contract

Key points of W2
• Adjudication can be “at any time” (W2.2(1))
• Parties may refer dispute to the Senior Representatives first, by
agreement (W2.1(1))
• Adjudicator is an independent 3rd party who can be
• named in the contract, or
• agreed or appointed when the dispute arises (W2.2)
• Adjudicator has 28 days to make decision, which can be extended by
agreement (W2.3(8))
• Adjudicator’s decision is binding but not necessarily final (W2.3(11))
• Subcontract joinder possible by agreement (W2.3(3))

Tribunal
• In W2, final decision is made by tribunal named in
Contract Data part one
• arbitration or
• the courts (W2.4)
• Cannot use tribunal until after Adjudicator makes
decision (W2.4(1))
• Parties have 4 weeks after decision to notify
disagreement with it, otherwise becomes final as well as
binding (W2.4(2))
• W1 and W3 are similar

Session 4 – Summary and open forum
• Questions and answers

Were the course objectives met?
Delegates should
• Understand the philosophy of NEC
• Develop skills to advise on appropriate contract strategies
• Appreciate the use of Contract Data, Scope and Site
Information
• Understand roles and responsibilities of key parties
• Understand important ECC clauses such as early warning,
programme, communications and compensation events

Next steps?
• Further training?
• NEC Users’ Group membership?
• Internal NEC champion?
• Share best practice – case studies/Newsletter
articles/document sharing?

Contact us
 +44 (0)20 7665 2446
 info@neccontract.com
 One Great George Street, London SW1P 3AA
neccontract.com
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Introduction to the Engineering ad Construction Contract

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