NEC4: Engineering and Construction Contract Option C: Target Contract with Activity Schedule

Product Information

Subcontractors – this is a new section to NEC4 that now allows subcontractors costs, as a lump sum, to be included rather than having to build up from first principles. The Contract defines Disallowed Costs in Clause 11.2(25) of NEC3 and Clause 11.2(26) of NEC4 Disallowed Costs include: Clearly the tenderer has two separate percentages to provide in its NEC4 PSC option C or E tender: the overhead percentage that is only applied to the defined cost of ‘people items’; and the fee percentage applied to all defined cost (see Figure 1 (b)). Once tendered, these percentages would not be subject to audit. For some actual costs it might not be obvious whether they should be covered by the overhead percentage or the fee percentage. The Schedule of Cost Components (and Short Schedule of Cost Components, which is only used in NEC4 for Option A & B compensation events) to be used in respect of Defined Cost and the assessment of compensation events, and

Finally, there is a tweak to the prevention event clause 19 to make it clear that the event must stop the whole of the works. This highlights the fact that a prevention event must be a truly exceptional event, so avoiding the argument that things like the insolvency of a subcontractor should fall within the equivalent clause in NEC3. Core Clause 2: contractor's main responsibilities The cost of rectifying defects after Completion and the cost of correcting defects caused by the Contractor not complying with a constraint are deemed to be Disallowed Costs. The NEC4 Alliance Contract (ALC), published initially in a consultative format, was created to support clients who wish to take a step forward by fully integrating the delivery team for large complex projects. A clear understanding of what Defined Costs are, what Disallowed Costs include and crucially what is included and excluded within the Fee are vital in maintaining the profitability of a project. Dispute Resolution Options W1, W2 & W3 (notably, Option W2 is to be used in the UK where the Construction Act applies).For items which contain multiple elements of work built into a singular rate, it can be difficult to assess the % of work complete.

Manufacture and Fabrication – cost of people involved in manufacture and fabrication of Plant and Materials by the Contractor, which are at least partly designed specifically for the works, and that are fabricated outside of the works, at their rate stated in contract data. Clients need to ensure they fully understand the change and recognise the requirement to audit and verify the consultant’s staff costs. a new value engineering reduction percentage clause 63.12, allowing the contractor to share in cost reductions obtained as a result of a contractor proposal; The application will contain a breakdown of the contractors’ cumulative “defined cost” plus fee minus any “disallowed cost”. This combined is known as the “Price for Work Done to Date” (PWDD). At 11.2(19), there is a new definition of subcontractor which excludes labour suppliers. This had been an issue in practice.Before deciding to go along with NEC4 PSC ideas for cost in options C and E, the client must first make sure it understands them and the implication on the resource requirement to verify and audit the costs properly. The New Engineering Contract ( NEC), or NEC Engineering and Construction Contract, is a formalised system created by the UK Institution of Civil Engineers that guides the drafting of documents on civil engineering, construction and maintenance projects for the purpose of obtaining tenders, awarding and administering contracts. [1] [2] The NEC contract is widely used in both the United Kingdom. [3] There have been attempts, largely unsuccessful, to introduce the NEC contract into both Australia and New Zealand from at least 1994 but the contract remains [ when?] relatively obscure in both countries. [4] [3] [5] If done well and promptly, it enables the Contractor and the Employer to properly manage both cost and value. About the Author Liabilities and insurance– risks and contractual liabilities are imposed on the parties throughout the NEC Contract. However, this section is included to deal specifically with liabilities for death, and losses and damages caused by or in connection with the works (by the Parties/Others) – and details the necessary insurances that are required. Clause 16 introduces a brand new value engineering provision. This allows the contractor to propose changes that reduce the cost of the works in exchange for a proportion of savings as specified in the contract.

All compensation events are also assessed based on defined cost plus fee. The only difference between options C and E is that option C has the target mechanism and the consultant’s share, which depends on how well the consultant does compared with the target total of the prices. The purpose of this is to encourage the client and consultant to collaborate and jointly manage risks and jointly reduce the defined cost during delivery of the service.

Amendments to disallowed costs

In simple terms the Bill of Quantities is produced by breaking the project down into a number of items, and then stating the expected quantity of each item that is anticipated to be required. Contract data part 1 will identify the method of measurement (the measurement techniques followed) that has been used to create the Bill of Quantities. The Contractor will then be able to state a unit rate based on that quantity, and by multiplying the quantity by the rate will give a projected cost of that line item. The sum of all the line items added together represents the overall tender price (the Prices). The Bill of Quantities can also include single lump sum items where the rate will be a single amount. The Contractor will state within contract data part 2 where within their submission the completed Bill of Quantities is, which will form an integral part of the signed contract. Compensation Events– these are events which, if not arising due to the Contractor’s fault, allow the Contractor to be compensated for any consequent change to the Prices, Completion and/or Key Dates. This section of the contract provides the main list of compensation events, and details NEC’s requirements in respect of notification, quotations, assessment, proposed instructions, and implementation of compensation events. Further provisions are included under the Main Option clauses (detailed below), and other compensation events may be found elsewhere in the NEC Contract, such as in the Contract Data. Caution: many NEC contracts are amended to remove compensation events (such as Clause 60.1(19), that relates to prevention) and so it is imperative that the Contractor fully review any contract amendments (typically in the ‘Z clauses’– see below).

NEC's history started in 1986 when Martin Barnes was commissioned to start drafting a contract to stimulate good project management. The first edition of NEC was launched in 1993. NEC2 arrived two years later, in 1995. NEC2 was used to build the High Speed 1 railway, between London and the Channel Tunnel. [ citation needed] The core clauses (of the main option listed above) are used in conjunction with the secondary options and the additional conditions of contract. Throughout the works the target cost is adjusted to reflect any compensation events which may arise. were incurred because the Contractor did not follow the acceptance or procurement procedures laid down in the Works information or didn’t give an early warning notice as required. If there is any error of measurement in the BoQ, then both parties will know how much extra is to be paid and received.The new 'dividing date' concept at 63.1 is interesting. It tries to clarify the confusion which currently exists about when you shift to using forecast, rather than actual, costs; and will also be used for identifying the relevant accepted programme. Clause 65 introduces a new process for proposed instructions aimed at allowing more flexibility; while the well-known clause 65.2, which prevents revisions to a compensation event if the forecast is wrong, has been amended to allow for changes if the contract explicitly says so. Core Clause 7: title This core clause also contains new clauses dealing with assignment and disclosure/confidentiality. These are welcome additions, but as the clauses are fairly short clients may wish to replace them with their own bespoke 'z' clauses, as is currently the case. Core Clause 3: time Works that require immediate attention and cannot be defined at the project outset may benefit from a fast contract agreement.