CPM2 18 6 Nec S

RECO4010 Construction
Project Management II
New Engineering Contract

(NEC)
Dr. Isabelle Y.S. CHAN
Intended Learning Outcomes
By the end of this session, (I hope ) you will be able to:
 Understand
 The importance of partnering
 Objectives of the NEC
 Key roles in a NEC contract
 Design principles & Core clauses of NEC
PARTNERING
What is partnering?
“A long term commitment between 2 or more organizations for the
purposes of achieving specific business objectives by maximizing the
effectiveness of the resources of each participants.” [Construction
Industry Institute (CII)]
How?
The relationship is based on trust, dedication to common goals, and an
understanding of each other’s individual expectations & values."
Partnering
PARTNERING
Aims:
 Meeting the mutually agreed project objectives by cooperation, teamwork &
mutual trust (rather than by confrontation)
 Placing value on long-term relationship
 Equitable risk allocation
 Improving communication & understanding
 Lowering project costs, reducing project time & improving quality
 Encouraging innovation, waste reduction & better long-term profitability
 Minimizing contractual conflict & reducing waste
 Achieving a better project outcome through the earlier involvement of all the
members of the supply chain
 Establishing a responsive project organization focused on decision making
Source: CIC 2010
Partnering… HOW?
Non-
Contractual
Contractual
Non-contractual
Partnering
 NOT legally binding
 Does NOT change the terms of
contract/the contractual
relationships
 A process involves building of
harmonious working
relationships between
stakeholders through the
alignment of shared goals &
objectives
 NO set
organizational/contractual
arrangement
Source: CIC 2010

Non-contractual
Partnering
 Initial workshop to develop the
partnering charter & a dialogue
framework
 Partnering charter
 Non-binding document
 A simple vision statement
(common goals)
 Objectives (for periodic
assessment, e.g., time, cost,
quality, safety, environmental
targets, etc.)
 Agreed Values (for monitoring
of the relationship; e.g.,
cooperation, trust, honesty,
openness, support & joint
problem solving)
Source: CIC 2010
Non-contractual Partnering
Disputes arising under non-contractual partnering

arrangement…
 There are no legally enforceable contractual terms that

underpin the partnering nature of the contract (legal
relationships still as set out in the traditional contract).
 A risk of leading to tension between action that is required
to protect contractual entitlements and behavior that is
considered to be in the spirit of partnering charter.
 E.g., by issuing notices and filling claims
  partnering charter being pushed aside, and the
traditional contract prevail!
Contractual Partnering
 A relationship management strategy:-

 creates legally enforceable rights & obligations to regulate the parties’ behaviors.
 offers a way for clients, consultants, contractors and subcontractors to work
together against the challenges of the project, rather than against each other.
 Under such partnering arrangement, every party agree, from the beginning,
to:
 Focus on mutually agreed objectives in a formal structure
 Build a team that cooperates and solves problems together to avoid confrontation
 Through integration of skills & resources and procedures that are designed to enhance
value, it:
 Fosters work collaboration
 Formulates objective, inputs and risk allocation
Standard Partnering Contracts
 NEC3
 JCT Constructing Excellence
 PPC 2000
Adoption of NEC
 Introduced by the Institute of Civil Engineers (ICE) in 1993

 The second edition, NEC2, was published in 1995
 The third (and current) edition, NEC3, was launched in
July 2005
 The NEC form has been used in Britain since 1993.

 It has also been used for many years in >15 other
countries, including New Zealand and South Africa.
NEC Construction Contracts in Hong Kong
In Hong Kong,
 Since 2009, the Development Bureau (DEVB) has adopted the NEC form in
some public works contracts.
 NEC construction contracts adopted by all works departments in HK:

2014 : 13
2015 : 48
2016 : 43
The NEC family of Contracts
The NEC comprises a family of standard integrated contracts incorporating the
following standard forms:
 NEC3 Engineering & Construction Contract (ECC) – between the employer & the
contractor for construction & engineering works;
 NEC3 Engineering and Construction Short Contract (ECSC) – between the employer
& the contractor, for low-risk, straightforward work;
 NEC3 Term Services Contract (TSC) – for engaging suppliers of services for a period
of time;
 NEC3 Framework Contract (FC) – for engaging suppliers to provide services
operating under a framework;
 NEC3 Engineering & Construction Subcontract (ECS) – between a contractor &
subcontractor, back to back with ECC;
 NEC3 Engineering and Construction Short Subcontract (ECCS) – between a
contractor and subcontractor, under either ECC/ECSC;
 NEC3 Professional Services Contract (PSC) – for engaging a supplier of professional
services;
 NEC Adjudicator’s Contract (AC) – for engaging an adjudicator to settle disputes
between parties under an NEC contract.
Under the NEC Contracts
Employer:
 Has little direct involvement in the project management & administration of

the project (as they appoint a PM & supervisor(s) to represent their
interests)
 Required to allow PM access to the site
 To pay the amount certified by the PM at the required time
 Further obligations in the matters of insurance, termination & dispute
resolution
Under the NEC Contracts
A Design & Build contract (bi-party partnering) administered using NEC:
Potts & Ankrah (2014)

Objectives of NEC
Contracts
Objectives of the NEC
Primary Objective:
 To shift the emphasis of control from procedures for the
calculation of extra payment to the contractor if things go
wrong
 arranging matters so that things are less likely to go
wrong.
Other important objectives:

 Flexibility
 Simplicity & Clarity
 Stimulus to Good Project Management
Objectives of NEC - Flexibility
 9 core clauses
 6 main payment options (different contractual payment

arrangements)
 A number of secondary options (improve the risk profiles of both

parties)
Objectives of NEC – Simplicity & Clarity
 NEC3 is written in plain English, using concise sentences and avoiding

legal jargon.
Usual terms NEC terms

Variation Instruction Changing the works information
Suspension Order An instruction to stop/not to start
work
Extension of Time Assessment of a delay to the
completion date
Liquidated Damages Delay Damages
 NEC3 is organized in a user-friendly structure.
 Minimal use of cross referencing within clauses

 Clear numbering system
 easy access to clauses

 assist users with gaining familiarity with its content.
 Flowcharts of the procedures defining the process and

sequence are widely adopted.
 --> ensure that the procedures are clear and not

conflicted .
 The structure of the contract is further simplified.

 The actions by parties are defined precisely in the contract.
 The time periods for all important actions are deliberately set tightly
to motivate timely responses.
 Subjective phrases such as fair and reasonable have been avoided.
 There is a single procedure for assessing all compensation events,

which includes an assessment of both cost and time for all events
 It is NOT retrospective and, once carried out, is fixed.

Objectives of NEC – Stimulus for Good PM
NEC is founded on 3 key principles:
1. Foresighted, cooperative management shrinks risks and mitigates

problems.
2. Both parties are motivated to work together if it is in their

professional & commercial interests to do so.
3. Clear division of function & responsibility helps accountability and

motivates people to play their part.
1. Foresighted, cooperative management shrinks risks and mitigates

problems.
 An early warning procedure  identifying future problems and

minimizing their impact
 A regularly updated & agreed programme with method statements
& resources  showing timing and sequencing of employer and
contractor actions
 Assessment of time & cost as contract progresses, ideally before
work is done
 Stated max. time-scales for the actions of parties
2. Both parties are motivated to work together if it is in their professional and

commercial interests to do so
NEC3 achieves this by:
 A clear statement of events for which the employer is liable (compensation
events)
 A structure method of calculating changes in contractor’s costs
 Profit that is tendered on compensation events
 An independent role of an adjudicator
Plus penalty to encourage the contractor to:

 Early warn
 Submit a first programme containing information required
 Maintain an up-to-date Accepted Programme
 Provide realistic & timely quotations
3. Clear division of function and responsibility helps accountability and

motivates people to play their part.
 NEC3 achieves this by clearly identifying the role of the key

players.
 The traditional role of the architect/engineer has been split into

4:
1. The designer
2. The project manager
3. The supervisor
4. The adjudicator
Key Roles in NEC Contracts
Role of the
Designer
The designer (not mentioned in the contract):
 appointed by the employer for employer’s design
 If several designers are appointed, possibly covering different
disciplines, a lead designer should be appointed
 Take the role to develop the design to meet the employer’s objectives
to the point where tenders for contraction are to be invited.
 If a design and build (D&B) contract is predicted, the employer’s
designers’ role is restricted largely to providing a performance
specification together with standards for design & material which they
may wish to specify for inclusion in the works information.
Role of the
Project Manager
The Project Manager (PM):
 Responsible for time & cost management on the employer’s behalf.
 The employer should ensure that the PM’s brief includes management
of the designers’ activities.
 Appointed by the employer, either from their own staff or from
outside.
 The spokesperson for the employer.
 Manage the contract for the employer with the intention of achieving
the employer’s objectives for the completed project (NEC ECC)
Role of the
Project Manager
The Project Manager (PM):
 Normally appointed in the feasibility study stage to act on behalf of

the employer, and:
 Advise on the procurement of design

 Estimates of cost & time
 Advise on the merits of alternative schemes
 Choose the most appropriate contract strategy
Role of the
Supervisor
The Supervisor:
 Responsible for ensuring that the quality of construction meets that in

the works information/specification (works are constructed in
accordance with the contract)
 Appointed by the employer for a particular contract
 Can be an in-house person/someone from outside
 Similar to that of a resident engineer /architect who may be assisted
by an inspector / CoWs.
Role of the
Adjudicator
The Adjudicator:
 An independent third party brought into rapidly resolve any disputes
 Involved only when a dispute is referred to him
 A person independent of both employer and contractor
 Give a decision on the dispute, within stated time limits
 If either party does not accept the decision, they may proceed to the
tribunal (either arbitration /the courts).
 Under the adjudicator’s contract, payment of the adjudicator’s fee is

shared equally by both parties.
Design Principles
Design Principles
To create a contract under the NEC3, the employer is required to specify

and include the followings:
 One of the six main payment options

 The 9 core clauses
 Which of the 17 secondary options apply – if any
 One of the dispute resolution options
 Any additional clauses under secondary option Z
The Payment Options
ECC provides for 6 types of payment options:
Option A – Priced contract with activity schedule

Priced Contract
Option B – Priced contract with BQ
Option C – Target contract with activity schedule
Target Cost Contract
Option D – Target contract with BQ
Option E – Cost reimbursement contract
Cost Reimbursable Contract
Option F – Management contract
The Payment Options – Priced Contracts
Option A – Priced contract with activity schedule

 Activity schedule – identifies the list of activities required in completing the Works.
 The contractor is responsible for preparing:

 an activity schedule
 the quantities required for each activity
 The lump sum priced by the Contractor for each activity is the Price to be paid by
the Employer when that activity is completed.
 The total of the tendered lump sums for each activity  the Contractor’s Price for
the whole of the Works
As such,
The Contractor is motivated to progress the activities and must ensure that the
price for each activity includes all necessary costs.
The Payment Options – Priced Contracts
Option B – Priced contract with BQ

 A BQ sets out:
 Each item of material or work required for construction
 The types & estimated quantity of each item
 It is prepared by /for the Employer, applying the SMM.
 The Contractor prices the items having regard to the tender documents and
matters which are at the Contractor’s risk.
 The Contractor will be paid for works done on the basis of actual measurement
of those items with quantities.
As such,
The contractor has an interest to keep within the tender price and minimize costs
during construction.
The Payment Options – Target Cost
Contracts
Option C (Target cost with activity schedule) & Option D (Target cost with BQ)
 Target cost contracts are appropriate where the scope of Works is sufficiently,
but NOT fully, developed for the Contractor to be able to price the Works.
 The Contractor tenders a target price based on either the activity schedule
(Option C) or BQ (Option D).
 The target price includes the Contractor’s estimate of Defined Cost plus a Fee
for his overheads and profits [Price for Work Done to Date (PWDD)].
 During construction, the Contractor is paid the PWDD, rather than by
reference to the activity schedule or the BQ.
Contracts
 The financial risk of any total cost exceeding or falling below the target price
will be shared between the Employer and the Contractor as agreed between
them.
Source: CIC 2010
Contracts
 Shared financial incentive encourages cooperation & minimizes costs.

 However, this form of contract requires greater involvement by the Employer
in the day-to-day management of the project.
 Unfamiliar administrative procedures may lead to higher administrative costs
and a drain on accounting resources.
As such,
This option is more appropriate for parties who have previous experience using
other NEC3 main options or parties who have readily available technical &
managerial expertise.
The Payment Options – Cost
Reimbursable Contracts
Option E (Cost Reimbursable Contract)
 Awarded to the contractor on the basis of a fee percentage submitted at

tender stage.
 The Contractor is paid the Defined Cost plus his tendered Fee for his off-site
overheads and profit.
 He carries minimal risk and is subject only to limited constraints sufficient to
motivate efficient work.
Suitable where:
 Time /quality is an overriding priority or where the scope of works is not
sufficiently defined but an early start to construction is required.
 There is little incentive for the Contractor to minimize costs during
construction.
Option F (Management Contract)
 Awarded to the contractor on the basis of a fee percentage submitted at

tender stage.
 Payment for carrying out the works is on cost reimbursable basis with an
additional fee percentage.
 The Contractor sublets all the works in conjunction with the client.
 The Employer carries the risk of increases in cost in a management contract.
Suitable when:
 High number of specialist contractors
 Works subcontractors are paid on prime cost and the Contractor tenders
preliminaries and a fee percentage.
Risk Allocation
Risks largely borne by: Employer Contractor

Option A V
Option B V
Option C V V
Option D V V
Option E V
Option F V
Reimbursable Contracts Priced contract with
activity schedule -
All financial risks,
Risk Allocation
other than the
employer's risk and
compensation events,
Option A V are the contractor’s
Option B V
Option C V V
Option D V V
Option E V
Option F V
Reimbursable Contracts Priced contract
with BQ -
Risk Allocation As Option A, except
the employer also
Risks largely borne by: Employer Contractor takes the risk of
Option A V accuracy of BQ
Option B V
Option C V V
Option D V V
Option E V
Option F V
Target contract with activity
The Payment Options – Cost schedule -
Employer’s risk as Option A.
Reimbursable Contracts Contractor also has the
financial risk for disallowed
cost & accuracy of fee
Risk Allocation percentages.
All other risks are shared
Risks largely borne by: Employer Contractor between the parties.
Option A V
Option B V
Option C V V
Option D V V
Option E V
Option F V
Target contract with BQ -
Employer’s risk as Option B.
The Payment Options – Cost Contractor also has the
financial risk for disallowed
Reimbursable Contracts cost & accuracy of fee
percentages.
All other risks are shared
Risk Allocation between the parties.

Option A V
Option B V
Option C V V
Option D V V
Option E V
Option F V
The Payment Options – Cost Cost reimbursable contract -
Contractor has financial risk
Reimbursable Contracts for disallowed cost &
accuracy of fee
percentages.
Risk Allocation All other financial risks are
with the employer.
Option A V
Option B V
Option C V V
Option D V V
Option E V
Option F V
The Payment Options – Cost Management Contract-
As Option E, but contractor
Reimbursable Contracts also has risk for lump sum
prices that they quote for
parts of the Work.
Risk Allocation

Option A V
Option B V
Option C V V
Option D V V
Option E V
Option F V
The Core Clauses – Key features
There are 9 common clauses that are common to all contracts within the NEC3 suite.
1. General (spirit of mutual trust & cooperation)
2. Contractor’s main responsibilities
3. Time
4. Testing & defects
5. Payment
6. Compensation events
7. Title
8. Risks & insurance
9. Termination
It defines:
 duties & obligations of the parties
 Procedures to be followed
 Communication methods
 Interpretation of the contract
 Early warning that must be given
Purpose of Early Warning:

 To make it compulsory for the PM /the contractor to call an early warning
meeting as soon as possible to discuss anything which may affect the cost,
timing of completion and quality of the works.
The sanction for failure by the contractor to give early warning

  reduction of payment due to him for a related compensation event.
Risk Register:
 New addition to NEC3
 It contains risks identified by the employer & the contractor.
 Risks are then:
 added to the risk register as part of the early warning process
 Removed because of actions taken by the parties to avoid them/because they did
not happen
 The risk register does NOT allocate risks.
 It is a post-contract management tool which is collated by the PM.
Risk Register:
The risk register should NOT allowed, even to hint at which party carries a
particular risk post-contract.
Therefore, the NEC3 risk register should only contain :

 A description of the risk
 A description of the actions to be taken to avoid /reduce the risk
Risk Reduction Meeting:
 Under NEC3, the PM/the contractor is required to instruct the other to attend
a risk reduction meeting.
 ‘The ability of either party to instruct the other to attend a risk-reduction
meeting creates a forum recognized within the contract which stimulates
cooperation between the parties to achieve the best project outcome.’
[Fergusson (2009:5)]
The scope of the Contractor’s duties includes:
 Providing works
 Designing works
in accordance with the Works Information, cooperating with others and

complying with instructions.
 It includes supplying all the necessary resources to achieve the end result
including designing, fabricating, delivering to site, erecting, constructing,
installing, testing and making good defects.
 The liability can be limited to ‘reasonable skill & care’ by inclusion of Option
X15. (X15 – Limitation of Contractor’s liability for design to reasonable skill
& care)
 Without this option, the contractor’s obligation is to design strictly in

compliance with the works information.
Subcontractor
 The contractor may subcontract parts of the works, provided the PM accepts
the proposed subcontractors.
 No provision is included in ECC for nomination of subcontractors.
 Alternatives to nominating subcontractors whiles achieving similar objectives
are:
 making the contractor responsible for all the work. They can then subcontract
parts & the PM retains some control over the selection of the subcontractors
 Providing for separate contracts, with the PM managing the time & physical
interfaces between them
 Including lists of acceptable subcontractors for particular tasks in the Work
information
Costing Forecast
 In some of the payment options (Options C, D, E & F), contractor is required

to forecast the total defined cost for the works at intervals stated in the
contract data.
 This should be calculated based initially on the resourced method statement

submitted with the accepted programme and updated at regular intervals to
include the compensation events.
3. Time
Time-related matters include:

 Start & completion dates
 Programming
 Possession of the site
 Taking over the works
3. Time
Start & completion dates:
 Instead of period of time, the starting & completion dates are given in
the contract data.
 This enables tenderers to know when the work may begin.

3. Time
Programme:
 Provision has been made for a programme either to be identified in
the contract or submitted by the contractor within a period stated in
the contract.
 The programme is an important document for administering the
contract.
 It enables the PM and the contractor to monitor progress and to assess
the time effects of compensation events, including changes to the
completion date.
The Core Clauses – Key features Better
Cooperation!
3. Time
What to be included in each programme?
 Dates which are shown in the contract data or changed in accordance with the contract
 The contractor’s updated planned completion as the work progresses
 The order & timing of the contractor’s own work, updated
 The work of the employer and others
 The dates when the contractor plans to complete work for which key dates apply, and
work needed to allow the employer and others to do their work
 Float, and separately, time risk allowances
 Health & safety requirements
 Other information required in the works information
 Dates when the contractor will need access and other things to be provided to him by
the employer and also information from others
 General information about resources that the contractor plans to use for each operation
3. Time
Any reference in the contract to the programme includes method statements.
It’s because a method statement indicates:

 Descriptions of the contraction methods
 Details of the resources & equipment
Therefore, any submission for compensation event should include a revised programme, plus
any revised method statements.
3. Time
The PM has 2 weeks to either accept the programme or set out reasons for
rejecting it.
The 4 default reasons of rejection are:

 The contractor’s plans are not practicable
 The programme does not show the information required by the contract
 It is not realistic
 It does not comply with the works information
4. Testing & Defects
This clause deals with searching for and notifying of defects, tests, correcting
defects & uncorrected defects.
5. Payment
This clause deals with:

 Payment for work done
 Payment certificates
 Payment of actual cost
5. Payment
Payment mechanism:
 Different payment mechanisms under different options
 The core of the amount due to the contractor is the price for works done to
date (PWDD).
 All other payments, except advanced payments (e.g., for plant & materials
outside the working areas, retention, repayments of advanced payment,
damages, sales tax, etc.), are added /deducted from the PWDD to calculate the
amount due.
 The content of PWDD varies according to which main option is used.
5. Payment
Payment mechanism for the 6 main options
5. Payment
PWDD:
 The total Defined Cost which the PM forecasts will have been paid by the
Contractor before the next assessment date plus the Fee
Defined costs:
 Amount due to subcontractors plus the costs of components as defined in the
schedule of cost components - less the disallowed cost.
Fee:
 The subcontract fee percentage & the direct fee percentage.
5. Payment
PWDD:
 The total Defined Cost which the PM forecasts will have been paid by the
Contractor before the next assessment date plus the Fee
Defined costs:
 Amount due to subcontractors plus the costs of components as defined in the
schedule of cost components - less the disallowed cost.
Fee:
 The subcontract fee percentage & the direct fee percentage.
5. Payment
Motivation for contractor to submit a programme:
 If NO programme is identified in the contract data  ¼ of the price for work is

done to date is retained in assessments of the amount due until the contractor
has submitted a first programme to the PM for acceptance.
5. Payment
Timing of payment:
 Payment should be fixed as not later than 5 days after the payment due date.
6. Compensation Events
 Compensation events – events which, if they occur, and do NOT arise from the
contractor’s fault, entitle the contractor to be compensated for any effect the
event has on the prices & completion date.
 Assessment – an event’s effects on both prices & completion date
 Any event may entitle the contractor to both additional payment & time.
 Major difference when compared to traditional forms of contract!

 Neutral events (e.g., inclement weather)  allow contractor EOT but not LE
Both parties are well aware,
before they enter into the
contract, the risk each bears in
6. Compensation Events respect of weather.
Adverse Weather
 Objective & measurable approach to make available for each contract weather data
 Compiled by an independent authority & agreed by both parties beforehand
 Establishing the levels of selected relevant weather conditions for the site for each
calendar month which have had a period of return of >10 years.
 Weather conditions more adverse than these levels occur  compensation event
 Weather data shows its likely to occur within a 10-year period  contractor’s risk
Physical Conditions
 The practice of construction contracts:
 Physical conditions - described as ‘those which could not have been foreseen by an
experienced contractor’  normally referred to as ground conditions.
 NEC ECC
 Physical conditions also include an overhauled but not radically different
procedure.
 The compensation event is limited to those physical conditions which are
encounter within the site.
Notification
 Contractor to notify certain compensation events within 8 weeks of becoming
aware of the event.
 If the contractor dose NOT do so  lose rights to additional time & money.
Except for this time limit (Proviso):

 Events arose as a result of the PM/supervisor giving an instruction /changing
an earlier decision.
 However, this proviso covers >90% of compensation events!
Quotation
 A proposal from the Contractor for changes to the prices & any delay to the
Completion Date and Key Dates as assessed by the Contractor.
 PM would normally require the contractor to submit a quotation for the

compensation event.
 If the PM ignores the submission of the contractors quotation and subsequent

notification  the quotation could be considered accepted by the PM!
Mechanism for variation calculation

Traditional form
 Variations are valued using the rates & prices in the contract as a basis
NEC
 Reimburse the contractor his forecasted additional cost /actual additional costs if
work has already been done arising from the compensation event.
 Use of defined cost in calculation of the price paid for compensation events
Note: The assessment of compensation events is done by traditional methods (rates

and prices in BQ) in Options B & D.
Delay to the Completion Date
 The length of time that, due to the compensation event, planned completion
is later than planned completion shown on the accepted programme.
 The contractor owns the project float.

 This is in contrast to the traditional approach, where the project owns the
float and whoever delays the project first gest the benefit of any project
float.
19 Compensation events in total.

Additional Compensation events
 NEC3 contract permits the employers to insert additional compensation events.
 Employers to take the risk of costs and delay arising from the event from the
contractor.
7. Title:
 The employer’s title to equipment, plant and materials both off-site and
brought into the working area are dealt with by this clause.
8. Risks & Insurance
 This clause allocates the various defined risks between the parties and
identifies the insurance policies and cover they are required to provide.
9. Termination
 Either party may terminate in the event of insolvency.

 The contractor may terminate if not paid within 13 weeks of the date of
the certificate.
 The employer may terminate if the contractor:
 Fails to comply with his obligations
 Does NOT provide a bond or guarantee
 Appoints a subcontractor for a substantial piece of work before the PM has
accepted that subcontractor
 Hinder the employer or others
 Sustainably broken a health & safety regulation
Secondary Options
17 Secondary Options
NEC Option X12 – Partnering
 A partnering contract between 2 parties is only achieved

by using a standard NEC3 contract, and Option X12 should
be adopted as a secondary option common in the
contracts of the parties to the project.
 The parties who have this Option included in their

contracts are intended to make up the project partnering
team.
Option X12 Partnering connects the various biparty contracts and is intended to
be used:
 For partnering for any number of projects & services
 Internationally
 For projects and services of any technical composition
 As far down the supply chain as required
A typical Option x12 Partnering relationship:
Source: CIC 2010

Example of use of Option X12 Partnering:

Key partners in ANY NEC3 contractual relationship can be drawn out to create the
multiparty partnering arrangement (as signified by ‘the sun’) in the figure.
Source: CIC 2010

 By entering into a contract that includes Option X12, the parties are
undertaking responsibilities additional to those in basic NEC3.
 They must work together to achieve the objectives of the client &
other partners in a spirit of mutual trust & cooperation.
 A KPI is an aspect of performance for which a target is stated in the

schedule of partners.
 If one partner lets the other down for a particular target by poor
performance, they ALL lose their bonus for that target.
 However, Option X12 does NOT create a multiparty contract.

 It does not include direct remedies for any non-contracting partner to
recover losses suffered through the failure of the other.
 It also does not create a legal partnership between partners who are not
one of the parties to the contract.
 The final sanction against any partner who fails to act as stated in the
Option X12 is for the partner who employed them not to invite them
to partner again.
Contractual Partnering = Alliancing?
Contractual Partnering vs. Alliancing
 Alliancing is a developed form of relationship contracting and is considered a • NO individual/ several
highly evolved form of partnering. liability (no blame
culture)
• INABILITY for any part
to bring legal
proceedings against
Disputes Handling Disputes Handling another (no dispute
 Proactive identification  Foster a ‘no blame, no
regime)
& warning of potential Cooperate & dispute’ culture
align objectives
compensation events  Parties to resolve all issues
& interests of the
 Flexible dispute parties and disputes within the
resolution mechanism alliance without resource to
(e.g., the adjudication litigation /arbitration, except
provision) in the case of willful default
/negligence.
Source: CIC 2010
Further readings
CIC (2010) Guidelines on Partnering, retrieved at

http://www.cic.hk/cic_data/pdf/about_cic/publications/eng/V10_6_e_V00_201
10306.pdf.
Potts, K., & Ankrah, N. (2014). The NEC Engineering and Construction Contract.
Construction cost management: learning from case studies. Routledge, pp. 289-
314.
Rowlinson, M. (2015). Practical guide to the NEC3 engineering and construction

contract. John Wiley & Sons.

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RECO4010 Construction

New Engineering Contract

By the end of this session, (I hope ) you will be able to:

Source: CIC 2010

Disputes arising under non-contractual partnering

 There are no legally enforceable contractual terms that

 A relationship management strategy:-

 JCT Constructing Excellence

 Introduced by the Institute of Civil Engineers (ICE) in 1993

 The NEC form has been used in Britain since 1993.

 NEC construction contracts adopted by all works departments in HK:

 Has little direct involvement in the project management & administration of

Potts & Ankrah (2014)

Other important objectives:

 6 main payment options (different contractual payment

 A number of secondary options (improve the risk profiles of both

 NEC3 is written in plain English, using concise sentences and avoiding

Usual terms NEC terms

 NEC3 is organized in a user-friendly structure.

 Minimal use of cross referencing within clauses

 easy access to clauses

 Flowcharts of the procedures defining the process and

 --> ensure that the procedures are clear and not

 The structure of the contract is further simplified.

 The actions by parties are defined precisely in the contract.

 Subjective phrases such as fair and reasonable have been avoided.

 There is a single procedure for assessing all compensation events,

 It is NOT retrospective and, once carried out, is fixed.

NEC is founded on 3 key principles:

1. Foresighted, cooperative management shrinks risks and mitigates

2. Both parties are motivated to work together if it is in their

3. Clear division of function & responsibility helps accountability and

1. Foresighted, cooperative management shrinks risks and mitigates

 An early warning procedure  identifying future problems and

2. Both parties are motivated to work together if it is in their professional and

Plus penalty to encourage the contractor to:

3. Clear division of function and responsibility helps accountability and

 NEC3 achieves this by clearly identifying the role of the key

 The traditional role of the architect/engineer has been split into

 Normally appointed in the feasibility study stage to act on behalf of

 Advise on the procurement of design

 Responsible for ensuring that the quality of construction meets that in

 Under the adjudicator’s contract, payment of the adjudicator’s fee is

To create a contract under the NEC3, the employer is required to specify

 One of the six main payment options

ECC provides for 6 types of payment options:

Option A – Priced contract with activity schedule

Option A – Priced contract with activity schedule

 The contractor is responsible for preparing:

Option B – Priced contract with BQ

 Shared financial incentive encourages cooperation & minimizes costs.

 Awarded to the contractor on the basis of a fee percentage submitted at

 Awarded to the contractor on the basis of a fee percentage submitted at

Risks largely borne by: Employer Contractor

Risks largely borne by: Employer Contractor

Risks largely borne by: Employer Contractor

1. General (spirit of mutual trust & cooperation)

1. General (spirit of mutual trust & cooperation)

Purpose of Early Warning:

The sanction for failure by the contractor to give early warning

1. General (spirit of mutual trust & cooperation)

1. General (spirit of mutual trust & cooperation)

Therefore, the NEC3 risk register should only contain :