Each of Options A, B, C and D rely on a pricing document. Either an activity schedule or a bill of quantities.

In addition, the Contractor is paid other amounts due, for example VAT or any other separate entitlements that the Contractor may have, over and above the cost of the works itself. These sums are paid, less the amounts to be paid by or retained from the Contractor. This might include for instance any liquidated damages that become payable. The implementation of NEC3 contracts has resulted in major benefits for projects both nationally and internationally in terms of time, cost savings and improved quality and offers a number of main options to cater for different pricing strategies. there are some potentially surprising approaches taken to recoverable costs, and these need to be worked through in detail - particularly if the same mechanism is stepped down to subcontracts; It is important to note that in Options C and D the Defined Cost is the cost that will be incurred before the next assessment date, asforecastby the Project Manager. This keeps the Contractor in a cash neutral position because he is paid in advance what is forecast to be incurred, rather than what has actually been incurred. testing and defects – tests and inspections, notifying defects, correcting defects, accepting defects, uncorrected defects;The first contract was published in 1993 and was pioneered by Dr Martin Barnes CBE, founding member of APM, honorary fellow and past chairman. Although this contract is often referred to as “Cost Plus,” contractors should not get complacent and think Option E means a blank chequebook for works. The terms within the contract should set out clearly what is and isn’t to be reimbursed to the contractor. clarity and simplicity: the contract is well-supported with additional materials, including detailed flow-charts and guidance notes. NEC3 is intended to be clear, simple and easy to use, and is written in the present tense in plain English. However this can lead to problems as its brevity can, in some cases, create ambiguity and much of its terminology is untested in the courts; The pain/ gain share is assessed by reference to the difference at completion of the works between the Total of the Prices and the Price for Work Done to Date. Firstly, I will outline the two different methods to pricing variations before considering the implications of the distinction and the problems each gives rise to.

The NEC family of contracts are deliberately written to formalise the requirement to carry out good practice project management systems that the respective Parties should want to be doing for themselves anyway. The contractual rules should assist the project teams in understanding the status and associated liability for both time and cost for the lifecycle of the project. Allows the Contractor to sub-let a contract down the line to a Subcontractor on a low risk project, particularly when the Contractor is engaged under an ECSC with their Client. The Professional Services Contract (PSC)

It is important that the activities are clear and distinct so that the parties know when they are completed. The Contractor is only entitled to be paid for completed activities. From the Contractor’s perspective, therefore, it will want to ensure that the works are split into as many activities as possible. In contrast, an Employer may want to ensure that activities are described such that elements of work are only paid for when related elements of work are complete. This can be achieved either by ensuring that the relevant activity includes all related elements of work, or by grouping activities. The NEC3 family of contract documents are extensively used in a number of key sectors and have increased in popularity since inception. The Hong Kong government decided to use NEC3 contracts generally for all government projects tendered in 2015/16. After a series of successful NEC3 projects in the region, the Hong Kong government announced in November 2016 that the NEC contract suite would be used for all future public works projects as far as practicable. [12] Since 2017, Hong Kong has progressively moved to adopt NEC4. [13] NEC4 [ edit ]

Hawkswell Kilvington, New NEC4 Contracts Announced, published 3 March 2017, accessed 31 October 2022For the Parties on a project that is operational or maintenance based, e.g. maintaining highway signage, where the contract is to ensure that a certain standard is maintained for a fixed period of time. This contract is more for maintaining existing rather than constructing new works, but can include some amount of betterment. There is also a “Term Service Short Contract” for simpler schemes where the project is a relatively low risk project and is an abbreviated version of the main TSC. NEC4 now also introduces a Term Services Subcontract version so a Contractor can pass terms down to a Subcontractor who is subcontracting to them for maintenance type work. Supply Contract/Short Supply Contract (SC/SSC) The slices in Figure 1 represent all eight cost headings in the NEC4 SCC and SSCC: 1 people, 2 equipment, 3 plant and materials, 4 subcontractors, 5 charges, 6 manufacture and fabrication, 7 design and 8 insurance. In the slices green represents ‘real money’, being whatever the contractor pays. In the case of options C, D and E with the SCC, that includes in people (1) something very close to the real cost to employ the people working in the working areas: real salary, wages and what the accountants call the cost to employ. Plant and materials (3), subcontractors (4) and charges (5) are all also real money. Option D - target contract with bill of quantities – again, a cost plus contract subject to a pain/gain share mechanism by reference to an agreed target cost (built up from a bill of quantities). Assessments for changed Prices for compensation events are in the form of changes to the Activity Schedule. Use under Option A

Bill of Quantities: The Client is expected to produce the Bill of Quantities and is included within the documents given to a Contractor at tender stage. This is different to option A, where it is the Contractor who will produce the equivalent Activity Schedule used in that type of contract. Across each of the contracts the Fee is calculated by the application of an agreed percentage against Defined Cost. The fee percentage needs to cover all costs of the Contractor not covered by Defined Cost, and also provides the Contractor its profit and an allowance for risk.

In options C, D, E and F there is another defined term, ‘Disallowed Cost’, which is indicated by the blue band in Figure 1. This gives headings of cost that are deducted from the total of defined cost.