Dennis Li - HKCIC Lecturer Principles of NEC Dennis Li - HKCIC Lecturer

About Me

Lecture Outline Session Description 1 Introduction to NEC Background of NEC Characteristics of NEC Terminologies Comparison between GCC and NEC Contract Data 2 Procuring a NEC contract Different forms of NEC contracts Main Options and their risk profiles Secondary options and their implications 3 Communication Periods for reply Communication protocols Managing time Programme management Extension of Time and prolongation cost Acceleration

Lecture Outline Session Description 4 Partnering Importance of trust Practicing partnering 5 Managing Defects Liability of defects Notification Correction and acceptance of defects Commercial Management Different payment mechanisms under different options The Schedule of Cost Components The Shorter Schedule of Cost Components Contractor’s alternative design and its commercial implication 6 Handling risks and changes Early warning mechanism Risk Register Compensation events

Lecture Outline Session Description 7 Handling risks and changes Managing CEs Hong Kong’s NEC Contract History and development Lessons learnt from pilot contracts NEC or GCC? A summary review 8 Practice Notes for NEC by DevB Contract administration Subcontracting procedures Open book accounting Issues with site supervisions of NEC contract in Hong Kong 9 Practicals Tender assessment of NEC contract in Hong Kong Practical issues on use of NEC in Hong Kong Course Assessment

Lecture 1 Introduction to NEC Background of NEC Characteristics of NEC Terminologies Comparison between GCC and NEC

Background of NEC https://www.youtube.com/watch?v=L7RUXQ8 DJRY Official website: www.neccontract.com

History of NEC The 1st NEC – then known as the “New Engineering Contract” – published by ICE in 1993. It was a radical departure from existing building and engineering contracts, being written in plain language and designed to stimulate good management. The 2nd edition, called the NEC Engineering and Construction Contract, or ECC, appeared two years later.

History of NEC NEC Contract Suite (3rd Edition) was launched in 2005 which included: Engineering and Construction Contract (ECC) Term Services Contract Framework Contract Professional Services Contract Supply Contract Subcontract etc

History of NEC NEC4 is launched in June 2017!

What’s the difference between GCC and NEC?

Characteristics of NEC What are the problems with traditional contract (GCC)?

Characteristics of NEC - Clarity Black & Veatch 21 February 201921 February 2019 Characteristics of NEC - Clarity Plain English and present tense are used in the contract language, e.g. Cl. 15.1 The Employer and the Contractor give an early warning by notifying the other as soon as either becomes aware of any matter …. Key contract specific information is contained in Contract Data and written in italics in the Contract. Defined terms have capital initials. Cross-referencing of different clauses is minimized.

Characteristics of NEC - Flexibility Black & Veatch 21 February 201921 February 2019 Characteristics of NEC - Flexibility A number of main options with different payment mechanisms e.g. lump sum, re- measurement, reimbursable; A number of pre-set secondary options for project proponents to “pick and mix”.

Characteristics Contract has formal requirements to enhance management Black & Veatch 21 February 201921 February 2019 Characteristics Contract has formal requirements to enhance management Partnering – Parties are expected to work collaboratively as part of the contract requirement Early warning mechanism – either party is required to raise the early warning to the other if they are aware of any contractual matter arising Time control – There are defined period for reply to drive communication and problem solving

Characteristics Contract has formal requirements to enhance management Black & Veatch 21 February 201921 February 2019 Characteristics Contract has formal requirements to enhance management Programme management – There are detailed requirements on programme. Employer shall respond with either acceptance or non- acceptance with reasons provided. Change management – Change is valued based on what reasonably costs the Contractor to carry out the unexpected scope of work. Therefore, he will not get a windfall or suffer dramatically because of a change.

NEC3 Contract

Documentation NEC Approach GCC Approach ECC Framework Articles of Agreement and Form of Tender (Amendment to Core Clauses) GCC Forms Core Clauses General & Special Conditions of Contract Main/Secondary Options Clauses (Shorter) Schedule of Cost Components Contract Data Part one & two Additional Conditions of Contract Works Information General & Particular Specification Site Information Activity Schedule/ Bills of Quantities, Preambles and other documents Bills of Quantities & Preamables Drawings

the Project Manager and Supervisor Time Project Manager’s roles Supervisor’s roles Cost Quality

NEC3 Contracts and Options Engineering and Construction Contract (ECC) 6 main pricing option clauses are: Option A: priced contract with activity schedule Option B: priced contract with bill of quantities Option C: target contract with activity schedule Option D: target contract with bill of quantities Option E: cost reimbursable contract Option F: management contract

Secondary Option Clauses (optional) Option X1 – Price adjustment for inflation Option X2 – Changes in Law Option X3 – Multiple currencies Option X4 – Parent company guarantee Option X5 – Sectional Completion Option X6 – Bonus for early Completion Option X7 – Delay Damages Option X12 – Partnering Option X13 – Performance Bond Option X14 – Advanced payment to the Contractor Option X15 – Limitation of Contractor’s liability for his design Option X16 – Retention Option X17 – Low Performance damages Option X18 – Limitation of liability Option X20 – Key Performance Indicators (not used with X12) Usually Adopted in HKSAR Government NEC Contract

Option Z (The Z Clauses) Used to incorporate bespoke clauses, i.e. security, Health and Safety etc; or To amend the core and main option clauses.

Contract Data Part 1 Employer, Part 2 Contractor Important that contract data fully completed , affects operation of the contract Defines the details of the contract, identified by italics

Terminologies Cl. 11.1 - In these conditions of contract, terms identified in the Contract Data are in italics and defined terms have capital initials. Exercise on change in terminologies

Contract data Exercise on contract data

The Key Players Provide Access Provide something stated under the Works Information Employer Manage the contract Gives Instruction to change the Works Information Gives an early warning Certifies Completion Accepts the Programme or notifying reasons for not accepting Instruct to stop work Assesses the amount due Certifies a payment Notifies compensation event Assessing compensation event Accepting or not accepting Subcontractor Assessing additional cost incurred for work not meeting Condition stated for a Key Date Others…… Project Manager

The Key Players Notifies test sand inspections Instruct to search for a Defect Notifies each Defect Issues Defects Certificate Supervisor Contractor Provides the Works in accordance with Works Information Design as required Co-operates with Others Manage subcontracting Gives early warning Submits and revises programmes Notifies tests and inspections Corrects a Defect Notifies compensation events Submits quotations for compensation events Others