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

Lecture 8 Keep Features of HK’s NEC Contract Hong Kong’s NEC Contract Pay when paid arrangement in Target Contract Open Book Accounting in Target Contract Subcontracting in Target Contract Time compensation only in some Compensation Events Cost saving design New tendering arrangements

Clause 11.2 (29) - PWDD Original NEC3: HKSAR Amended NEC3 The Price for Work Done to Date is the total Defined Cost which the Project Manager forecasts will have been paid by the Contractor before the next assessment date plus the Fee. HKSAR Amended NEC3 The Price for Work Done to Date is the total Defined Cost which the Project Manager assesses the Contractor has paid at each assessment date plus the Fee.

Page - 4 April 12, 2010 Open book accounting The Contractor shall open the account book for PM’s inspections to check expenditure incurred Subcontracting has to be carried out by prescribed procedures

Page - 5 April 12, 2010 Open book accounting The Contractor shall open the account book for PM’s inspections to check expenditure incurred Subcontracting has to be carried out by prescribed procedures

RECORDS TO BE KEPT BY CONTRACTOR 27 January 2011 RECORDS TO BE KEPT BY CONTRACTOR B&V Accounts of payments of Defined Cost Proof that the payments have been made Communications about and assessments of compensation events for Subcontractors and Other records as stated in the Works Information daily reports for all People employed within the Working Area all necessary cross-referenced documentation, invoices, credit notes, discount vouchers, delivery notes, requisitions and so on in respect of all Equipment, Plant and Materials, charges and subcontract works

27 January 2011 PAYMENT TO SUBCONTRACTOR Subcontractor IP Certificate and Payment Receipt B&V

27 January 2011 DAILY RECORD B&V

PURCHASE ORDER & DELIVERY RECORD 27 January 2011 B&V PURCHASE ORDER & DELIVERY RECORD

27 January 2011 B&V INVOICE AND RECEIPT

Examples of Disallowed Cost Duplicate or overlapping invoices Incorrect cost data Maintenance/ modification cost of the Contractor’s owned Equipment Equipment, Plant and Materials not used to Provide the Works (after allowing reasonable availability for Equipment and reasonable wastage for Plant and Materials) Repair cost to 3rd party property due to Contractor’s fault Employer’s MPF contribution in excess of statutory requirement

Sample Payment

Issues with Open Book Accounting All items exceed $300,000 as well as payment related to People, insurance and subcontracts shall be subject to full check, remaining subject to sample checking Massive stock taking and keeping work Sensitive employment contracts will be inspected by PM

Issues with Final Accounting Messy record keeping Deviation between S/C accounts and main account Change of personnel, lost track of account keeping approach

Subcontracting Only apply to Options C & D Contracts and For compensation events assessed on the Defined Cost under A & B

Subcontracting Procedures The C is required to submit the following information related to the subcontracting to the PM for acceptance: Name of the proposed S/C (NEC Cl. 26.2); Proposed conditions of contract for the s/c unless the PM has agreed that no submission is required (NEC Cl. 26.3 and amended by HKSAR Govnt) Relevant information of the s/c, e.g. tender price, price doc, … (Cl. C9 of the ACC) Declaration by the C on any linkage with the tenders for the s/c (Cl. C9 of ACC)

Tender Requirements for Subcontracting $7,000,000 the Contractor shall submit his estimate for the works for acceptance by the Project Manager at least two weeks before tender. A reason for not accepting the Contractor's estimate is that the estimate is not justified. The Contractor shall invite not 5 or more tenderers to submit tenders for the subcontract. PM to accept tenderers details before tendering. the Contractor shall invite 5 or more tenderers and shall select the conforming tender with the lowest tender price. PM to accept tenderers details before tendering. $300,000 $200,000 the Contractor shall invite more than 1 tenderer and shall select the conforming tender with the lowest tender price. PM to accept tenderers details before tendering. $50,000 the Contractor may select a subcontractor without inviting tenders

when the Contractor's estimate for a subcontract exceeds $7,000,000.00 The Contractor shall submit his estimate for the works for acceptance by the Project Manager at least two weeks before tenders. A reason for not accepting the Contractor's estimate is that the estimate is not justified. The Contractor shall invite not less than five tenderers to submit tenders and shall select the conforming tender with the lowest tender price. the "List of Approved Contractors for Public Works – Roads and Drainage”; or contractors who possess experience in the works to be subcontracted by the Contractor. The Contractor shall obtain necessary documentary evidence to demonstrate the tenderers’ experience and technical capability. PM to accept tenderers details before tendering.

How to still select the S/C you want?

ACC C9 – Tender Requirements for Subcontracting (10) Subject to acceptance by the Project Manager, the Contractor may approach a tenderer in seeking clarification on the purpose or meaning of particular statements or remarks in his tender, reminding him of possible disqualification of his tender and seeking an unequivocal withdrawal of any qualifications by a reasonable deadline

Core clauses to be added to the S/C or supply contract DevB’s Practice Note Standard Library for ACC – C8: a clause on payment of wages of Site Workers

Key Changes in managing Compensation events

Key Changes Grounds for compensation events, including the recommendation on whether the events should be compensated with both time and money, or time only. In general, we consider that the time and money entitlement of the default NEC principle may be adopted if appropriate, except for events such as weather events (excluding severe weather events for Options C and D), utility interference, prevention events, shortage of labour, etc.

Weather Events Taking into account the cost uncertainty brought about by weather risks and contract administration consideration, the weather events should be provided with time compensation only for Options A and B. Meanwhile, for Options C and D, severe weather conditions as listed below should be provided with time and monetary compensation if appropriate but time compensation only for other weather events.

New Tendering Arrangements

Contract prices of nec contract

Difference in prices in different options Put this into the Form of Tender in Options C&D Put this into the Form of Tender in Options A&B

Example

Example

Need for NEC ECC PM Accreditation If the proposed Construction Manager does not have a minimum of 1 year of proven experience as construction manager in the use of NEC contracts or be accredited or certified NEC project manager or construction professional who have undergone not less than four-day accreditation or certification course or equivalent recognised by an international or local construction-related professional institution/ institute and have registered on the list of the concerned institution/ institute, no mark out of 1 mark will be given under this criteria.