Engineering

Contract
Procedure
Lecture 7 – Revision
By Douglas Au
Email: [email protected]
NEC 3 vs NEC 4
Wording
• NEC4 is now gender neutral, replacing phrases such as “He gives an instruction” with “The Project
Manager gives an instruction”, which is natural progression in delivering equality and diversity.
• NEC4 has also replaced all references to the “Employer” with “Client”, to bring the NEC contract in
line with standard industry terminology.
• The document setting out the requirements and the constraints within the contract is now
universally known across all NEC contracts as the “Scope”. Whilst this has always been the case
within Professional Service Contracts (PSC), in Engineering Construction Contracts (ECC) and Term
Service Contracts (TSC) the scope was previously known as the “Works Information” or “Service
Information”.
• Previously the NEC3 contract required any identified early warning to be entered onto the “Risk
Register”. Some construction projects would also then run a second “Risk Register” to hold
separate risk events not covered under early warnings. NEC4 removes any confusion by renaming
the “Risk Register” to the “Early Warning Register”, to be populated with early warning items
only.
 NEW Information Modelling (BIM) Option

Benefits Features
To support the use of Building • A secondary option for information Modelling
Information Modelling • Provides additional clauses to support the
management of Information Model
Requirements
• Deals with issues of Information Model and
information ownership, and liability of the
parties

NEC4 – Improvements
 NEW Schedule of Cost Components

Benefits Features
Clarity and consistency in • TSC, PSC and SC all feature Schedules of Cost
Components
Defined Cost under all Options
• Full and Short Schedule of Cost Components
created to give greater detail to assessment of
Defined Cost
• Pre-priced People Rates in Short Schedule of Cost
Components
• Single Fee %
• Payment on a cash neutral basis under cost
reimbursable options

One key difference between NEC3 and NEC4 is the approach to

the fee percentage. The NEC3 allowed a “subcontracted fee
NEC4: new features percentage” to cover subcontractor’s overheads and profit and
“direct fee percentage” to cover the subcontractor’s own direct
costs.
 NEW ECC - Contractor’s proposals for new solutions

Benefits Features
Encourages the Contractor to • The Contractor can propose changes to Scope
proactively identify value which reduce the cost of Providing the Works
adding opportunities • The Contractor can propose changes to Scope to
reduce whole life cost of the asset (new secondary
option)
• The Contractor can propose acceleration to
shorten the programme
• The parties can share the benefits

NEC4 – Improvements
 NEW ECC - Early Contractor Involvement (ECI)

Benefits Features
Contractor inputs to the design • A secondary option for ECI
at a stage when significant • Appoint a Contractor at an early stage, to
improvements and innovation participate in the development of designs and
can be introduced proposals

NEC4 – Improvements
 NEW Finality of assessments (payment)

Benefits Features
Commercial closure of the • New procedures to reach agreement on the final
contract amounts due under the contract
• For cost based contracts (main options C, D and E)
– the Contractor can instigate a review and
acceptance of it’s Defined Cost as work proceeds.
PM review within 13 weeks
• The PM issues a final assessment of payment due
to the Contractor within 4 weeks of the Defects
Certificate

NEC4 – Improvements
Testing and Defects
Test and Inspection
• Defined in Clause 11.2(9) simply as “a part of the works which is not in accordance with the Works
Information”.
• Only the Project Manager can issue an instruction to test and inspect. But it is the Supervisor who will carry
out and monitors the tests and inspections.
• A defect should have its own notification, being separate from other communications, irrespective of who
has found it, the Supervisor or the Contractor. There is only one defect per notification.
• Defects Date – “a period of time stated in Contract Data Part One which establishes the period after
Completion for which the defects procedure will apply”. What is known as ‘defects liability period’ in
contracts usually found in HK.
• Defect Correction Period – “a separate period of time during which the Contractor is obliged to
correct each defect after it has been notified”.
• Contractor will remain liable for defects after the issue of Defects Certification up to the end of the
relevant limitation period as per the Limitation Act (the UK)/Ordinance (HK Laws Chapter 347).
• The cost of correcting Defects before Completion is not disallowed. It is an example of a shared risk that
would “ordinarily fall on the shoulders of the Contractor”.
• The PM is to certify Completion. Works still not completed will need to be completed within the Defect
Correction Period.
 • The Works Information shall state the following:
• The test or inspection to be made;
• Whether the test or inspection is made by the
Contractor or the Supervisor;
Works • Whether the materials, facilities or samples for the
test or inspection are provided by the Contractor or
Information the Employer;
• Where the test is to take place;

on Tests and • Whether any payment to the Contractor is

conditional upon a successful test or inspection;
• Whether any Plant and/or Materials must be
Inspection subject to test or inspection before being brought
to the Working Areas.

Source: Evans, S.C. (2017) The Contractor’s NEC3 ECC

Handbook. Wiley Blackwell.
Notification
• Whoever is obliged to do the test is also obliged to notify the
other before the start, and of the results.
• The PM is obliged to issue instructions if the information under
the Works Information is missing or ambiguous, and such
instructions will form compensation events.
• Tests and inspection done by the Supervisor should not delay to
the works. Or else, it would be cause of a compensation event
(Clause 60.1 (11)).
• Communications must be in writing (Clause 13.1), and have effect
when delivered to the address in the Contract Data or any other
notified address (Clause 13.2).
Searching for Defects
• The PM can instruct the Contractor to make a search,
and if that does not reveal a Defect, the instruction will
form the basis of a compensation event.
Figure 9.1 is a simple depiction of how the
various terms that have been referred to in this
section, both defined and undefined, fit
together. Three defects are shown in this figure.
The first exists at Completion, so its defect
correction period begins at Completion. The
second is notified some time after Completion
but a long time before the defects date. The
third is notified only a short time before the
defects date, resulting in the defect correction
period expiring after the defects date. This
results in the timing of the issue of the Defects
Certificate (see Section 9.5) being delayed until
the end of this last defect correction period. It
has not been shown in the figure, but should
the Project Manager not be able to arrange
access for the Contractor as required by clause
43.4 then the start of any defect correction
period to which such a condition applies would
be delayed until access is provided by the
Employer (but no later than the defects date
itself). If access to correct a defect is not
provided by the defects date, then the
Contractor does not correct that defect (see
clauses 45.1 and 45.2 and Section 9.6).
Defects not Notified
The Contractor is to rectify Defects, irrespective of whether he is notified or not. He is required to correct
notified Defects within the defect correction period. Incomplete work is a Defect, suggested by the Guidance
Notes, and must be completed within the defect correction period, which starts at Completion.

This defects procedure only applies to defects notified by the defects date, or else the defects shall be rectified
in accordance with the common law position, such as the provision of latent defects.

The Supervisor must issue the Defects Certificate at the later of the defects date and the last defect correction
period.

The Defects Certificate signifies that the Contractor’s obligations are fulfilled, and will determine the timing of
the last payment to the Contractor.
Uncorrected Defects
• When the Contractor is unable to correct Defect,
due to his failure of correcting them during the
defects correction period (Clause 45.1), or his being
not given access, then the PM would have the
Defect corrected, assess the cost to the Employer,
and have the Contractor paying the amount. The
Works Information is considered as being changed
to accept the Defect.
Time
Accepted Programme

The Accepted Programme (in the ECC) is identified within the Contract Data or
during the project it will be superseded by a later programme – there is a
process for submission and this must be accepted by the project manager. The
programme is to be practicable and realistic, showing when the contractor
intends to carry out each part of the works identifying the resource it intends
to use – this tool is invaluable in successfully managing a contract.
https://www.neccontract.com/resources/dictionary
Accepted Programme

• Core Clause 3 sets out the general obligations in respect of time

matters.
• Accepted Programme is the center of the time management process,
where milestones are set, including starting date (to work), access
date (to Site), key dates (when related conditions are to be achieved)
and completion date (to be determined by the PM without the
necessity of the Contractor’s notice).
• “The term ‘Accepted Programme’ is defined at clause 11.2(1)
as either the programme identified in the Contract Data (i.e. in
Part Two) or the latest programme accepted by the Project
Manager”.
• The Completion can be specified by the Employer in Contract
Data Part 1, or inserted by the Contractor in Contract Data Part
2 when tendering.
• Any agreement reached between the parties will override anything
stated in the Works Information.
Accepted Programme (Cont’d)

• If the Contractor fails to submit (there being no such programme identified

in the Contract Data part 2), or update a programme:
• The Employer can withhold 25% of any amount otherwise payable
to the Contractor (it is the only submission that is required, not its
acceptance).
• The Contractor may not be entitled to compensation events under
Clause 60.1(3) and (5), where an Accepted Programme is needed.
• The Contractor is not entitled to make his own assessment of a
compensation event. This provision will also apply when the PM has
not accepted his latest programme.
• If the Contractor has not submitted his programme at the tendering state,
he must submit one for acceptance “within the period stated in the
Contract Data after the Contract Date (Clause 31.1)”.
• A Programme identified in the Contract Data part 2 becomes automatically
accepted when the contract is formed.
Information on the Programme

• The Starting Date, Access Dates, Key Dates and Completion Date.
• Planned Completion.
• The order and timing of the operations of the construction, to provide the Works.
• The order and timing of the operations of the works of the Employer and Others as agreed with the Contractor, or as stated in the Works
Information.
• The dates when the Contractor plans to meet each Condition stated for the Key Dates and to complete other work so that the Employer and
Others can do their work.
• Provisions for float, time risk allowance, health and safety requirements, and for the procedures set out in the contract.
• The dates when the Contractor will need access to a part of the Site.
• A method statement.
• Other information which the Works Information requires.
Acceptance and Rejection of the Programme

• The Programme has to be accepted by the PM (Clause 11.2(1)).

• Even if accepted, “the risk of its accuracy and practicality remains with the Contractor”, and there will not be a
change in the Completion Date.
• The PM can reject the Programme due to the following listed reasons (Clause 31.3). Otherwise, the rejection
will be a compensation event (Clause 60.1(9)).
• The Contractor’s plans are not practicable.
• It does not show the information the contract requires.
• It does not represent the Contractor’s plans realistically.
• It does not comply with the Works Information.
• More information is needed from the Contractor for PM’s assessment (Clause 13.4).
• The PM must accept or reject the Programme within two weeks of Contractor’s submission, or there will be a
compensation event (Clause 60.1(6)).
 • The Contractor must revise his Programme when
Revising the Programme (Clause 32.2):
• The PM requires within the period for reply stated
in the Contract Data part 1.
• When he chooses to.
• “No longer interval than the interval stated in the
Contract Data part 1 from the starting date until
Completion of the whole of the works.”
Additional Information on the Revised
Programme

• The actual progress achieved on each operation, and its effect upon the
remaining work.
• The effects of implemented compensation events.
• How the Contractor plans to deal with delays and to correct notified
Defects.
• Any other changes the Contractor wishes to make.
Starting, Completion and Key Dates

• The contract states the starting dates and access dates for the whole or part of the works,
when the Contractor is required to do a list of things, such as the preparation of forecasts of
total Defined Costs and the submission of insurance policies and of revised programmes.
• The starting dates and access dates could be the same.
• The Contractor is required to start work on site at the first of the access dates.
• The completion date is stated in the Contract Data part 1, or such other date as changed by
a compensation event, or an order from the PM. But Complete is a state of the project when
the definition of Completion on Section 1 of the contract is met. The PM decides when the
completion is achieve and certifies Completion within one week.
Starting, Completion and Key Dates (Cont’d)

• The Works Information can include works that do not need to be complete to achieve Completion. Incomplete works are
considered as defects and rectified during the defects correction period.
• Key Date is “defined in Section 1 of the contract as the date by which a stated part of the works (in the Contract Data part 2) is
to meet a stated condition by a stated date”.
• When the Contractor fails, the Employer is provided with a contractual remedy to sue for breach (Clause 25.3).
• The Contractor’s liability can be limited with the use of Secondary Option X18.
• The Employer is to let the Contractor the access to the site on or before the access date for that part of the Site stated in
Contract Data part 1, and the date for access shown on the latest Accepted Programme.
• The Employer is bound to takeover the works no later than 2 weeks after Completion (clause 35.1), unless he stipulates in
Contract Data part 1 that he is not willing to take over before the Completion Date.
• The Employer should be able to use part of the works before Completion (Clause 35.2). The PM will certify such takeover
within one week of the date of takeover (Clause 35.3).
End of Lecture
Thank you for coming