A Practical Guide to the NEC4 Engineering and Construction Contract
Description
The NEC contract takes a collaborative, project management based approach to construction projects, which is very different to the other standard forms of construction contract. This new edition of the book covers all changes in the 4th Edition of the Engineering and Construction Contract, issued in June 2017, and will provide practical guidance to help users transitioning from NEC3 to NEC4.
Inside A Practical Guide to the NEC4 Engineering and Construction Contract, readers will find chapters on the background of the NECECC; contract data and other documents; the'spirit of mutual trust'; all of the individuals involved in the process (eg: project managers, clients, supervisors, subcontractors, etc.); communication issues, early warnings and other matters; quality management; titles; dealing with timing; payment processes; cost components; compensation procedures and assessments; dealing with terminations; dispute resolution; completing the contract and more.
* A practical guide to the application of the procedures contained in the newly issued NEC4 Engineering and Construction Contract
* Provides detailed guidance on the use of the agreement, which is claimed to offer increased flexibility, improved clarity and greater ease of use
* Written specifically for people actually using and administering the NEC contracts
* Features 3 appendixes covering tables of clause numbers, case law and statutes; employer's, project manager's, supervisor's, contractor's and adjudicator's actions; and communication forms and their uses.
First launched in 1993, the NEC has become one of the UK's leading standard forms of contract for major construction and civil engineering projects, making A Practical Guide to the NEC4 Engineering and Construction Contract a must-have resource for any contractor using the latest version of this contract.
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MICHAEL ROWLINSON MSc, DipArb, MRICS, FCIOB, FCIArb, FCInstCES, is principal of Michael Rowlinson Associates Ltd. An experienced construction professional having qualified initially as a Chartered Quantity Surveyor and later as a Chartered Builder, Michael specialises in all aspects of contract drafting, contract management, contract administration, construction law, claims and dispute resolution. As part of his work Michael lectures extensively and has written many published articles and two books on the NEC3 family of contracts.
Content
1 Introduction 1
1.1 General 1
1.2 Mechanics not law 2
1.3 A simple formula for understanding a contract 3
1.4 Mandatory or discretionary 4
1.5 Conditions precedent 4
1.6 Note on use of uppercase in keywords and phrases 5
2 Background to the NECECC 7
2.1 The background: First edition 7
2.2 The second edition 8
2.3 The third edition 9
2.4 The third edition (reprinted) 9
2.5 The fourth edition 9
2.6 Endorsement of NEC3 by the Office of Government Commerce 10
2.7 Endorsement by the Development Bureau, HKSAR Government 11
2.8 General philosophy: Aims and objectives 12
2.9 Flexibility 12
2.10 Clarity and simplicity 13
2.11 Stimulus to good management 14
2.12 Other characteristics 15
3 The Options: An Overview 17
3.1 General arrangement of the ECC 17
3.2 Other documents referred to 19
3.3 Contract Data 20
3.4 The published documents 20
3.5 Main Options: General outline 21
4 Spirit of Mutual Trust and Cooperation 25
4.1 Introduction 25
4.2 The clauses 25
4.3 What does it mean? 27
4.4 Practical issues 28
5 The Cast of Characters 33
5.1 Introduction 33
5.2 The Client 33
5.3 The Project Manager 35
5.4 The Supervisor 38
5.5 The Contractor 38
5.6 The Senior Representatives 39
5.7 The Adjudicator 40
5.8 The Tribunal 41
5.9 The Dispute Avoidance Board 41
5.10 Subcontractors 42
5.11 'Others' 42
5.12 Named Suppliers 43
5.13 Designers 43
5.14 Principal Designer 44
5.15 Principal Contractor 45
5.16 Practical issues 45
6 Communications, Early Warnings and other General Matters 47
6.1 Introduction 47
6.2 Communications:The clause 47
6.3 Communications: Practical issues 49
6.4 Early warnings: The clause 51
6.5 Early warnings: Practical issues 53
6.6 Other matters:The clauses 55
6.7 Other matters: Practical issues 59
7 The Contractor's Main Responsibilities 61
7.1 Introduction 61
7.2 Providing theWorks 61
7.3 Contractor's design 62
7.4 Information modelling 66
7.5 Other matters 68
7.6 Practical issues 72
8 Subcontracting 75
8.1 Introduction 75
8.2 Definition of a Subcontractor 75
8.3 The core clauses 76
8.4 Provisions in the Main Options 76
8.5 Practical issues 77
8.6 Options for forms of subcontract in the NEC4 family 78
9 Quality Management 81
9.1 Introduction 81
9.2 Quality management system 81
9.3 Tests and inspections 82
9.4 What is a Defect? 84
9.5 The Defect procedure 84
9.6 The Defects Certificate 86
9.7 Uncorrected Defects 87
9.8 Practical issues 87
10 Title 91
10.1 Introduction 91
10.2 The core clauses 91
10.3 Practical issues 92
11 Liabilities and Insurance 95
11.1 Introduction 95
11.2 The core clauses 95
11.3 Secondary options 98
11.4 Practical issues 99
12 Time 101
12.1 Introduction 101
12.2 The programme: Contents 102
12.3 The programme: Submitting, accepting and revising 107
12.4 The programme: Practical issues 110
12.5 Starting and finishing 118
12.6 Other matters 121
12.7 Secondary Options related to Time 124
12.8 Practical issues 126
13 Payment 131
13.1 Introduction 131
13.2 The payment process 131
13.3 Payments in multiple currencies 134
13.4 Interim payments - The amount due and the Price for Work Done to Date 135
13.5 Supporting documents and records 145
13.6 Final assessment 148
13.7 The Contractor's share 150
13.8 The Contractor's share: Practical issues 152
13.9 Special provisions for the United Kingdom 153
13.10 Related Secondary Options 157
13.11 Practical issues 162
14 The Schedules of Cost Components 169
14.1 Introduction 169
14.2 The Schedule of Cost Components 169
14.3 The Short Schedule of Cost Components 174
14.4 Application to Subcontractors 175
14.5 Practical issues 176
15 Compensation Events:Theory and Events 179
15.1 Introduction 179
15.2 The theory 179
15.3 The events 181
15.4 Practical issues 196
16 Compensation Events: Procedures 199
16.1 Introduction 199
16.2 Notification by the Project Manager 200
16.3 Notification by the Contractor and the Project Manager's reply 203
16.4 Other matters associated with notifying compensation events 206
16.5 Quotations: Substance 208
16.6 Quotations: Submission and reply 210
16.7 Assessments by the Project Manager 215
16.8 Proposed instructions 217
16.9 Implementing compensation events 218
16.10 Practical issues 219
17 Compensation Events: Assessment 227
17.1 Introduction 227
17.2 Changes to the Prices 228
17.3 Changes to the Completion Date and Any Key Dates 232
17.4 Project Manager's assumptions 234
17.5 Other related matters 236
17.6 Practical issues 238
18 Termination 243
18.1 Introduction 243
18.2 Reasons for termination 243
18.3 Secondary Option X11 247
18.4 Implementing termination 248
18.5 Procedures after termination 248
18.6 Assessing the amount due after termination 250
18.7 Practical issues 252
19 Resolving and Avoiding Disputes 255
19.1 Introduction 255
19.2 Option W1 256
19.3 Option W2 261
19.4 Option W3 267
19.5 Practical issues 270
20 Secondary Options 273
20.1 Introduction 273
20.2 X2: Changes in the law 273
20.3 X4: Ultimate holding company guarantee 274
20.4 X12: Multiparty Collaboration 274
20.5 X13: Performance bond 279
20.6 X17: Low performance damages 280
20.7 X18: Limitation of liability 280
20.8 X20: Key Performance Indicators 281
20.9 X21:Whole Life Cost 282
20.10 X22: Early Contractor Involvement 283
20.11 Y(UK)3:The Contracts (Rights ofThird Parties) Act 1999 288
20.12 Z: Additional conditions of contract 288
20.13 Practical issues 289
21 Completing the Contract Data 291
21.1 Introduction 291
21.2 Purpose and form of the Contract Data 291
21.3 Contract Data Part One 292
21.4 Contract Data Part Two 304
21.5 Practical issues 309
22 The Supporting Documents: Need and Content 311
22.1 Introduction 311
22.2 Scope 312
22.3 Site Information 324
22.4 Practical issues 325
Bibliography 329
Appendix 1 Tables of Clause Numbers, Case Lawand Statutes 331
Appendix 2 Tables of Client's, Project Manager's, Supervisor's, Contractor's, Senior Representatives, Adjudicator's, Dispute Avoidance Board and Tribunals Actions 341
Appendix 3 Tables of Communication Forms and Their Uses 379
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 4th Edition of the New Engineering Contract Engineering and Construction Contract (). It is no secret that I am a fan of this suite of contracts and, as a result, may be willing to overlook what many perceive as it faults or weaknesses. In this guide I have tried to identify and suggest ways in which the procedures and aims of the contract can be simplified so that users do not become unnecessarily bogged down in procedure, but instead concentrate on achieving the goals of the ECC. 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 ECC and to reach the common goal.
With this guide, you get what it says on the cover: A Practical Guide to the NEC4 ECC Form of Contract. It is a guide to provide users of the ECC, both novice and experienced, with a view of all 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 textbook. That said, there will be an amount of cross-referencing between sections in order to avoid repetition, so 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 ECC, although used extensively throughout the guide. If users are uncertain of the meaning of this phrase, then they need to re-read Chapter 4.
This version of the Guide follows on from the two editions of the same title but for the NEC3 edition of the suite of contracts. Many of the clauses remain the same in NEC4 as they were in NEC3, so both the processes and the practical guidance remain the same from one edition to the next. Nonetheless the publication of NEC4 introduced a significant amount of change to the ECC, all of which is considered and included in this version of the Guide. What this Guide does not do is identify or consider the changes from NEC3 to NEC4. It is written purely about NEC4.
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 suite of contracts 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).
Nevertheless, we must not lose sight of the fact that the ECC is a contract and, as such, legally binds those parties that enter into a contract incorporating these standard terms.
What I have also included in this Guide is advice and practical issues with regard to the NEC4 Engineering and Construction Subcontract. Except for some of the time periods being different and the absence of one main option, the Subcontract is truly back to back with the Contract. The differences are identified and additional practical issues are identified which apply to the Subcontractor/Contractor relationship. What users of the Guide will need to do in order to apply the majority of the text to the Subcontract is substitute the names of the parties and agents in the Contract with the equivalent names in the Subcontract. So 'Client', 'Project Manager' and 'Supervisor' in the Contract become 'Contractor' in the Subcontract. Similarly 'Contractor' in the Contract becomes 'Subcontractor' in the Subcontract, and 'Subcontractor' in the Contract becomes 'Subsubcontractor' in the Subcontract.
1.2 Mechanics not law
Being a practical guide, this book considers the mechanics of the contract and not the law. As a practicing construction professional, I am interested in the successful outcome of the project for all parties involved. 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 it be 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 it be 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 ECC 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 ECC, 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 ECC (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 () Contracts. It didn't matter that he was talking about JCT Contracts. What I took away from that talk was a formula that 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 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 that 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 ECC will be one of the eight named persons including the Employer, the Project Manager, the Supervisor, the Contractor, the Senior Representatives, the Adjudicator, the Dispute Avoidance Board or the Tribunal. The specific roles of these individuals are covered in detail in Sections 5.2-5.9.
By its processes and procedures, the ECC 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 ECC, 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, ECC sets out HOW the process or procedure shall be carried out. Again ECC 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 ECC) is to consider WHO does WHAT, WHEN they do it and HOW it is to be done. Understanding these things is important as ECC 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).
When dealing with specific processes and procedures in this guide, the WHO, WHAT, WHEN and HOW will be...
