Practical Guide to the NEC3 Professional Services Contract
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Content
1 Introduction 1
1.1 General 1
1.2 Mechanics not law 2
1.3 A simple formula for understanding a contract 2
1.4 Mandatory or discretionary 3
1.5 Conditions precedent 4
1.6 Note on use of upper case in key words and phrases 4
2 Background to the NEC Family of Contracts 6
2.1 The background: First editions 6
2.2 The second edition 7
2.3 The third edition 8
2.4 Endorsement of NEC3 by the Office of Government Commerce 8
2.5 General philosophy: Aims and objectives 9
2.6 Flexibility 9
2.7 Clarity and simplicity 10
2.8 Stimulus to good management 11
2.9 Other characteristics 12
3 The Options: An Overview 13
3.1 General arrangement of the PSC 13
3.2 Other documents referred to 15
3.3 Contract Data 16
3.4 The published documents 16
3.5 Main options: General outline 17
4 'Spirit of Mutual Trust and Cooperation' 18
4.1 Introduction 18
4.2 Core clause 10.1 18
4.3 What does it mean? 20
4.4 Practical issues 21
5 The Cast of Characters 25
5.1 Introduction 25
5.2 The Employer 25
5.3 The Employer's Agent 27
5.4 The Consultant 29
5.5 The Adjudicator 29
5.6 Subconsultants 30
5.7 'Others' 30
5.8 CDM Coordinator 31
5.9 Principal Contractor 32
5.10 Practical issues 32
6 Communications, Early Warnings and other General Matters 34
6.1 Introduction 34
6.2 Communications: The clause 34
6.3 Communications: Practical issues 36
6.4 Early warnings: The clause 38
6.5 Early warnings: Practical issues 39
6.6 Other matters: The clauses 42
6.7 Other matters: Practical issues 44
7 The Parties' Main Responsibilities 46
7.1 Introduction 46
7.2 The Employer's obligations 46
7.3 The Consultant's obligations 47
7.4 Other matters 48
7.5 Practical issues 52
8 Subconsulting 55
8.1 Introduction 55
8.2 Definition of a Subconsultant 55
8.3 The core clauses 56
8.4 Provisions in the main options 56
8.5 Practical issues 57
8.6 Using the PSC as a Subcontract 58
9 Quality 59
9.1 Introduction 59
9.2 Quality management system 59
9.3 What is a Defect? 60
9.4 The Defects procedure 61
9.5 Uncorrected Defects 62
9.6 Practical issues 62
10 Rights to Material 65
10.1 Introduction 65
10.2 The core clauses 65
10.3 Secondary option X9 66
10.4 Practical issues 67
11 Indemnity, Insurance and Liability 68
11.1 Introduction 68
11.2 The core clauses 68
11.3 Secondary option X18: Limitation of liability 70
11.4 Practical issues 71
12 Time 74
12.1 Introduction 74
12.2 The programme: Contents 75
12.3 The programme: Submitting, accepting and revising 79
12.4 The programme: Practical issues 82
12.5 Starting and finishing 90
12.6 Other matters 93
12.7 Secondary options related to Time 95
12.8 Practical issues 97
13 Payment 100
13.1 Introduction 100
13.2 The payment process 100
13.3 Payments in multiple currencies 102
13.4 The amount due and the Price for Services Provided to Date 103
13.5 Supporting documents and records 107
13.6 The Consultant's share 111
13.7 The Consultant's share: Practical issues 112
13.8 Special provisions for the UK 114
13.9 Related secondary options 116
13.10 Practical issues 118
14 Compensation Events: Theory and Events 120
14.1 Introduction 120
14.2 The theory 120
14.3 The events 122
14.4 Practical issues 130
15 Compensation Events: Procedures 132
15.1 Introduction 132
15.2 Notification by the Employer 133
15.3 Notification by the Consultant and the Employer's reply 136
15.4 Other matters associated with notifying compensation events 139
15.5 Quotations: Substance 141
15.6 Quotations: Submission and reply 142
15.7 Assessments by the Employer 147
15.8 Implementing compensation events 148
15.9 Practical issues 149
16 Compensation Events: Assessment 154
16.1 Introduction 154
16.2 Changes to the Prices 155
16.3 Changes to the Completion Date and any Key Dates 159
16.4 Employer's assumptions 162
16.5 Other related matters 163
16.6 Practical issues 165
17 Termination 168
17.1 Introduction 168
17.2 Reasons for termination 168
17.3 Secondary option X11: Termination by the Employer 171
17.4 Implementing termination 171
17.5 Procedures after termination 172
17.6 Payment on termination 173
17.7 Practical issues 174
18 Dispute Resolution 176
18.1 Introduction 176
18.2 Option W1 177
18.3 Option W2 180
18.4 Practical issues 185
19 Secondary Options 188
19.1 Introduction 188
19.2 X2: Changes in the law 188
19.3 X4: Parent company guarantee 189
19.4 X8: Collateral warranty agreements 189
19.5 X12: Partnering 190
19.6 X13: Performance bond 194
19.7 X20: Key Performance Indicators 195
19.8 Y(UK)3: The Contracts (Rights of Third Parties) Act 1999 196
19.9 Z: Additional conditions of contract 196
19.10 Practical issues 197
20 Completing the Contract Data 199
20.1 Introduction 199
20.2 Purpose and form of the Contract Data 199
20.3 Part One: Data for the core clauses 200
20.4 Part One: Data for the main option clauses 204
20.5 Part One: Data for the secondary option clauses 205
20.6 Part Two: Data for the core clauses 209
20.7 Part Two: Data for the optional statements 209
20.8 Practical issues 211
21 The Supporting Documents: Need and Content 214
21.1 Introduction 214
21.2 Scope 214
21.3 Practical issues 221
Bibliography 224
Further Reading 225
Appendix 1 Tables of Clause Numbers, Case Law and Statutes 226
Appendix 2 Tables of Employer's, Consultant's and Adjudicator's Actions 233
Chapter 1
Introduction
1.1 General
In writing this guide I have set out to provide a view, much of it personal, as to how to get the most out of the 3rd edition of the New Engineering Contract Professional Services Contract (NEC Panel, 2005a). It is no secret that I am a fan of the family of contracts that the PSC is a member of and, as a result, may be willing to overlook what many perceive as faults or weaknesses. In this guide I have tried to identify and suggest ways in which the procedures and aims of the Professional Services Contract can be simplified so that users do not become unnecessarily bogged down in procedure, but instead concentrate on achieving the goals of the PSC. This guide therefore goes through the procedure in detail as intended by the relevant clauses, but concentrates on practical issues to provide suggestions which the parties can use to achieve the overall intent and spirit of the PSC and to reach the common goal.
With this guide, you get what it says on the cover: a practical guide to the NEC3 PSC Form of Contract. It is a guide to provide users of the PSC, both novice and experienced, with a view of all of its various philosophies, principles, mechanisms and vagaries. The reader will be guided through the contract in a manner that will enable him or her to use this guide for reference without necessarily having to read it all: in other words, a practical guide rather than a stuffy text book. That said, there will be an amount of cross-referencing between sections in order to avoid repetition; users will need to follow these references to find more detailed supporting guidance to particular issues. One area that is not cross-referenced is the term ‘spirit of mutual trust and cooperation’ as found in clause 10.1 of the PSC, although used extensively throughout the guide. If users are uncertain of the meaning of this phrase, then they need to re-read Chapter 4.
To assist the reader in finding where any particular clause, related legal case or UK statute is referred to in the text, a comprehensive index of such references is included in Tables A1.1– A1.3 in Appendix 1.
The more I have worked with this contract over the years, the more I have come to think of it not as a contract but as a Project Management Procedures Manual. This should not be a surprise as the original contract was drafted by project managers for construction professionals (and not by lawyers for other lawyers and judges). That I refer to a contract for professional services in terms of a Project Management Procedures Manual means that those professionals who may work with this contract perhaps need to consider how they manage their relationship with their employer. This approach is different to that which many professionals will be used to in respect to their own appointment. They will find it is much more closely related to construction contracts than other forms of consultancy agreements.
Nevertheless, we must not lose sight of the fact that the PSC is a contract and, as such, legally binds those parties that enter into a contract incorporating these standard terms.
1.2 Mechanics not law
Being a practical guide, this book considers the mechanics of the contract and not of the law. As a practising construction professional, I am interested in the successful outcome of the project for all parties involved at whatever level of the project supply chain. From my point of view, the employing organisation should get what it wants in terms of a project finished on time, to the required quality and within budget (providing, of course, that the budget was reasonable in the first place). The consultants should be recognised for their contribution, whether design, management or commercially orientated, and be paid a reasonable fee for the service they provide. The contractors and subcontractors who carry out the work should be allowed to work efficiently, be recognised as having contributed to the project and make a profit.
Only those projects that satisfy all of the above criteria should be considered as being successful. Every organisation, whether a company, partnership or individual who is involved in a project, has its own needs and goals from that project. A good project will recognise this simple fact of business. It is when all the parties involved recognise each other’s business goals (see Section 4.4.3) from the project, and work to align these goals, that success is achieved for all. As soon as one of the organisations involved feels dissatisfied, then the seeds of a dispute have been sown. As the industry knows, such seeds germinate easily and freely; once they appear on a project they can spread faster than any invasive weed.
Following on from the earlier editions, the PSC is drafted to impose the best practices within project management on the parties with the goal of avoiding disputes. It is the mechanics of these procedures and how to make them work effectively that is the focus of this guide.
As a consequence the guide does not consider the law in relation to the PSC except where reference is needed to explain why something is included or to confirm that, in relation to the law in the United Kingdom, those requirements have been complied with by the PSC (or not as the case may be).
1.3 A simple formula for understanding a contract
Let’s face it: all contracts are confusing when you first try to work out what it all means. I picked up a simple formula for considering contracts many years ago from an experienced Chief Quantity Surveyor of a contracting organisation, who came to my then local centre of The Chartered Institute of Building to give an evening talk on Joint Contracts Tribunal (JCT) Contracts. It didn’t matter that he was talking about JCT Contracts. What I took away from that talk was a formula which I still use today in relation to any contract or procedural document that I encounter; this formula holds good in all such situations. I still have the piece of paper on which I noted the few words I needed to remind me of what to do. I rarely look at that piece of paper now as the formula has become second nature to me in relation to every contract or set of procedures which I read.
The formula is in two parts. The first part can be remembered by four words: WHO, WHAT, WHEN and HOW.
To expand, a contract is a document which sets out the rights and obligations of the parties to that contract, no matter what the contract is for. In the construction and related industries such contracts cover (usually by necessity) a range of extensive rights and obligations for both parties, how such rights and obligations are to be administered and the involvement of agents to carry out specified duties for one or both of the parties. WHO, the first of our four key words, relates to the administration of these rights and obligations. The WHO in the PSC will be one of the four named persons including the Employer, the Employer’s Agent (if employed), the Consultant or the Adjudicator. The specific roles of these individuals are covered in detail in Sections 5.2–5.5.
By its processes and procedures, the PSC sets out WHAT must or may be done in the event that a certain circumstance arises. The WHAT will involve the WHO doing something as set out in the contract.
WHEN that something is to be done is also set out by the contract. In the case of the PSC, the timetable for WHEN these things shall be done is clear and forms a key part of the processes and procedures under the contract. Failure to comply with these processes and procedures in accordance with the requirements specified by WHEN can result in a right being forfeited because of this failure.
Finally, the PSC sets out HOW the process or procedure shall be carried out. Again the PSC is prescriptive as to the HOW, although much of the HOW is set out in general terms that apply across all of the subsequent detailed processes and procedures.
To summarise, the first part of the formula (which holds good for all contracts and not just the PSC) is to consider WHO does WHAT, WHEN they do it and HOW it is to be done. Understanding these things is important as the PSC creates what are known in legal circles as conditions precedent. Although the English Courts do not like such provisions, they can be effective if drafted in certain terms (for further comment on conditions precedent see Section 1.5 below).
When dealing with specific processes and procedures in this guide, the WHO, WHAT, WHEN and HOW will be summarised as appropriate in each case.
1.4 Mandatory or discretionary
The second part of the formula I learnt that evening was to consider whether an obligation, requirement or procedure was mandatory or discretionary. The distinction is quite clear: if something is mandatory then it must be done in order to create a right for you and/or an obligation on someone else. If something is discretionary, then the party concerned can do it if they feel it is appropriate but lose nothing if they do not.
The key to whether something is mandatory or discretionary is in the little words. If a provision says that a party ‘shall’, ‘must’ or ‘will’ do something then the requirement to do that something is mandatory; that key little word leaves that party with no other option.
On the other hand, if the provision in question says that the party ‘may’ or ‘can’ do something, then that requirement is left to the discretion of that party i.e. the action is discretionary.
Appreciating whether a requirement or a provision is mandatory or discretionary is key to making sure that you, as a party or agent to the contract, do...
