Contract practice

Question 1

What is contract?

Answer 1

A contract is a legally binding agreement between at least two parties in order to fulfil an obligation in exchange for something of value. Contracts can either be written, oral, or a combination of both.

Question 2

What are the main types of traditional contracts?

Answer 2

• Lump sum contract – where the contract sum is known before works starts on site and the contractor agrees to undertake a defined amount of work for a specific amount. This type of contact is often based on firm bill of quantities and drawings.
• Measurement contracts – where the contract is assessed and remeasured as on previously agreed basis. This type of contract can be based on approximate bill of quantities and drawings.
• Cost reimbursement contracts – where a contractor is reimbursed on the basis of the prime cost of labour materials and plant plus an agreed percentage addition to cover overheads and profits.
• Design and build - where the contractor both designs and builds a project
• Management contracts – a management contractor managing the works although the contractor does not actually carry out any works.
• Target Cost - A target cost contract is a type of cost reimbursable contract under which the contractor is paid the ‘actual cost’ against the target cost and then savings or cost overruns are shared based on an agreed mechanism.

Question 3

Standard forms of contract in UK

Answer 3

1. JCT (The Joint Contracts Tribunal)
   o DB: Design and build contract.
   o CE: Constructing Excellence contract.
   o CM: Construction management contract.
   o IFC: Intermediate form of building contract.
   o MC: Management building contract.
   o MTC: Measured term contract.
   o MW: Agreement for minor work.
   o PCC: Prime cost building contract.
   o MP: Major project construction contract.
   o RM: Repair and maintenance contract (commercial).
   o SBC: Standard Building Contract.
2. ACA (Association of Consultant Architects)
   a. PPC: Standard form of contract for project partnering.
   b. SPC: Standard form of specialist contract for project partnering.
3. Chartered Institute of Building
   a. CPC 2013: CIOB Contract for use with Complex Projects.
4. FIDIC (Fédération Internationale des Ingénieurs-Conseils - the International Federation of Consulting Engineers)
   FIDIC’s core suite of contracts includes:
   o Conditions of Contract for Construction. The Red Book.
   o Conditions of Contract for Plant & Design-Build. The Yellow Book.
   o Conditions of Contract for EPC Turnkey Projects. The Silver Book.
   o The Short Form of Contract. The Green Book.
5. NEC (The New Engineering Contract): Engineering and Construction Contract)
   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.
   Option G: Term contract.

Other less commonly used forms of contract include:
• IChemE (The Institution of Chemical Engineers) forms of contract.
• ICC Infrastructure Conditions of Contract. A relaunch of CoC (see below)
• The ICE Conditions of Contract (CoC) (previously maintained by the Institution of Civil Engineers) have been withdrawn in favour of NEC contracts. See ICE Conditions of Contract for more information.
• IMechE/IET (The Institution of Mechanical Engineers / The Institution of Engineering Technology) Model Forms of General Conditions of Contract for electrical works (MF/1-4).
• The Civil Engineering Contractors’ Association (CECA) subcontracts for the ICC (above). Contract conditions

Question 4

What are typical contract documents?

Answer 4

• the agreement
• General Conditions
• Special conditions
• Scope of work
• drawings
• specifications
• Bill of quantities if required
• Activity Schedule if required
• Programme of work if required
• contract sum analysis
• existing building information

Question 5

What is required to make a legally binding contract?

Answer 5

• offer by one party
• acceptance by the otter party
• consideration of the offer
• intent to form a contract
• legality of a contract
• capacity to make an agreement

Question 6

What are the forms of contract executions? What is the difference between the contract executed under seal and under hand and their limitations

Answer 6

a. under seal - signed by the parties, witnessed and most importantly made clear that it is executed as a deed; limitation period 12 years, does not have to be supported by valuable consideration
b. under hand – a ‘simple contract’ that is just signed by the parties- limitation period 6 years – actions cannot be brought after 6 years from the date of which cause of the action occurred.
Valuable consideration – something of value in the eye of law.

Question 7

What are the principles of NEC 4 Contracts?

Answer 7

• NEC is a family of contracts designed specifically to be flexible, clear and to actively stimulate collaboration and professional project management;
• NEC3 adopts a fundamentally different philosophy and practice to most other standard form construction or engineering contracts. Its three core underlying principles are:
• 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;
• stimulus to good management: overall, NEC3 focuses on ‘real time’ management of the project rather than looking back on what the parties should have done. However it is very heavy on administration, and requires good understanding of its procedures and sufficient resources from both the employer and the contractor to make it a success;
• flexibility: NEC3 can be constructed from nine sections of core clauses, six main options, two dispute resolution options and seventeen secondary options. This flexible approach is intended to avoid the need for lots of bespoke amendments, reduce the need for lengthy negotiation and also reduce the potential for disputes. However, in practice most of NEC3 contracts include considerable bespoke amendments – known as the ‘Z’ clauses as they form part of Option Z under the contract.

Question 8

NEC Suite structure

Answer 8

The principal NEC3 contracts, short contracts and subcontracts can be broadly grouped into works, services and supply as shown below. The choice of NEC3 form depends on the project complexity and level of risk.
WORKS - Works encompasses purchases such as the construction, refurbishment and decommissioning of buildings, structures, process plants and infrastructure – including everything from houses, schools, hospitals and leisure facilities to infrastructure for water, energy, transport, industry and waste.
SERVICES - Services includes purchases of professional services such as engineering, architectural, project management and consultancy works. It also covers composite services such as facilities management, cleaning, catering, security, maintenance and data processing.
SUPPLY - Supply includes supply of high-value goods and associated services such as transformers, generators, rolling stock, cranes, gantries and complex plant. It also includes lower-risk items such as building materials and products, stationery, personal protective equipment and parts.

Question 9

NEC Contract structure

Answer 9

• Contract Data Part 1 and 2
• Core Clauses (9)
• Main Options (A to F)
• Despite resolution (W1, W2 and W3(NEC4)
• Secondary Option - X
• Z Clauses

Question 10

What is a Compensation Event?

Answer 10

A compensation event is a term used in NEC contracts to mean an event which can affect the cost to the Client of the work being carried out, the time when the works will be completed, or both. A compensation event is the only way in which these can be changed
Clause 60 – 65
• Clause 6
• Compensation events are events which are usually not the fault of the contractor and change the cost of the work, or the time needed to complete it. As a result, the prices, key dates or the completion date may be reassessed, and in many cases the contractor will be entitled to more time or money.
• There are 21 reasons for CE stated in Clause 60.1, for example:
o instruction changing the scope (60.1(1))
o Client not providing access to the Site (60.1(2))
o Client does not providing something that they should (60.1(3))
o PM gives instruction to stop/snot to start work (60.1(4))
o The PM changes earlier decision (60.1(8))
o an event which stops contractor t=completing the works that neither Party would prevent (60.1(19)
o if the proposed instruction is not accepted (60.1(20))
• contractor has 8 weeks to notify a CE- PM response in one week
• if the PM fails to response within time allowed, the Contractor may notify PM of its failure, if does not respond in further 2 weeks then the CE is treated as accepted.
• Quotation for a CE included changes to the Prices and any delays
• The Contractor submits a CEQ within 3 weeks, PM to respond in 2 weeks

Question 11

What is the difference in assessing the payment due depending on main contract options?

Answer 11

• the different payment mechanisms for the six main Options are based on the use of three key defined terms; the Prices, the Price for Work Done to Date and Defined Cost.
• Option A: Priced Contract with Activity Schedule - PWDD is price for the activates completed within the Activity Schedule; in terms of the Defined cost – this is used for CE assessment based on Schedule of Costs Components.
• Option B: priced contract with bill of quantities- The PWDD is calculated using the Bill of Quantities rates and lump sums and the total re-measured quantity of work completed according to the definition and criteria stated in this clause
The basis of the definition of Defined Cost in these Options is the cost of the components in the Schedule of Cost Components less Disallowed Cost.
• Option C: target contract with activity schedule; - Payments are based on the Contractor’s costs rather than what works were carried on; The PWDD is based on the Defined cost plus fee; the Prices in the Activity Schedule are not used to determine the PWDD but the total of the Prices is used when the target is calculated. the Contractor’s share is also calculated taking into account the differences between the total of Prices (contract + CE) and PWDD based on pre-agreed share percentage.
• Option D: target contract with bill of quantities; Payments are based on the Contractor’s costs rather than what works were carried on; The PWDD is based on the Defined cost plus fee; BoQ is used to determine the total of the Prices but no for the PWDD.
The basis of the definition of Defined Cost in these Options is the cost of the components in the Schedule of Cost Components less Disallowed Cost.
• Option E: cost reimbursable contract; the contractor is reimbursed the actual costs they incur in carrying out the works, plus an additional fee. The financial risk involved is largely taken by the client.
o PWDD is the total Defined Cost plus the Fee
o the Prices are the forecast of the total Defined Cost for the whole of the works plus the Fee.
• Option F: management contract. - Option F is a cost reimbursable management contract in which the works are constructed by a number of different works contractors who are contracted to a management contractor. The management contractor is responsible for the work and is paid a fee (the cost that it pays the works contractors plus an additional fee), while the financial risk is largely taken by the client.
o PWDD is the total Defined Cost plus the Fee
o the Prices are the forecast of the total Defined Cost for the whole of the works plus the Fee.

Question 12

What is the Construction Act?

Answer 12

The Housing Grants, Construction and Regeneration Act 1996 (HGRA - also known as the Construction Act) is intended to ensure that payments are made promptly throughout the supply chain and that disputes are resolved swiftly.
Provisions of the act include:
• The right to be paid in interim, periodic or stage payments.
• The right to be informed of the amount due, or any amounts to be withheld.
• The right to suspend performance for non-payment.
• The right to adjudication.
• Disallowing pay when paid clauses.
The Act applies to all contracts for ‘construction operations’ (including construction contracts and consultants’ appointments). If contracts fail to comply with the act, then the Scheme for Construction Contracts applies.

Question 13

How was the contract documentation produced on NCA Project?

Answer 13

• As this was the NEC Option A contract through Design and Build Procurement Route, the following information have been prepared:
• Contract – Contract Data Part 1 and Part 2
o The conditions of contract are the core clauses and the clauses for main Option A, dispute resolution Option W2 and secondary Options X2, X7, X13, X14, X15 and X18 - refer to NEC3 printed form for details], Y(UK)2, Y(UK)3, and Z1 to Z50 (incl.), of the NEC3 Engineering and Construction Contract April 2013.
• Works Information – prepared by the M&E Design, Principal Designer and Architect.
o General
o Background
o scope of works
 vertical transportation
 architectural
o Existing drawings and documentation
 drawings of all floors
 Certificate for Identification of Asbestos Fibs to lift motor room and Lift Shafts
 existing restaurant doors drawings.
• Pre-Construction Information
o Executive summary
o Descriptions of the project (site location, programme details, key project participants, general descriptions of works)
o Employer’s Considerations and Management Arrangements (Employer’s Safety Standard, communication, monitoring and review, welfare provision, access to site, security requirements, emergency procedures, accident notification and escalation)
o Environmental Restrictions and Existing on-site risk (boundaries and access, deliveries and waste collation and storage, hazardous materials, asbestos, plant and equipment, existing services)
• Programme (ID, Task Name, Start, Finish, Duration & Chart)
• Activity Schedule
1. Preliminaries
o Preconstruction management – staff costs per month
o Construction management staff
o construction multi service gang
o Design fee
o Site set up
o temporary works,
o plant and tools
o safety and welfare
o Temporary service installation
o Office equipment ( telephone, photocopier, site furniture,)
o Site service (rubbish removal, builders clean)
o Performance bond
2. Works
• Sub-contractor’s preliminaries
o Strip out Works’ phase
o Lift car finishes - Phase 1 - lift 2
o Lift company associated BWIC
o Maintenance during Works phase 1
o Phase 1 - lift 8
o Restaurant doors
o Removal of floor finishes
o Restaurant doors removal of existing
o Restaurant doors installation
o Restaurant doors screenwork
o Restaurant doors access route for power
o Restaurant doors alteration to power
o Protect floor in front of lift
o Restaurant doors post and wireless call point
o Decoration to lift entrance wall Works phase 1 - lift 2
• Advance Payment Bond – delivered by deed, contractor, the employer and the guarantor.

Question 14

What were the main clauses on NCA Project?

Answer 14

• The conditions of contract are the core clauses and the clauses for main Option A, dispute resolution Option W2 and secondary Options X2, X7, X13, X14, X15 and X18 - refer to NEC3 printed form for details], Y(UK)2, Y(UK)3, and Z1 to Z50 (incl.), of the NEC3 Engineering and Construction Contract April 2013.

Question 15

What is the Works Information and that they include?

Answer 15

• Works information specifies and describes the works the contractor is to provide and sets out any constraints to how the contractor provides the works. It is presented either in the documents which the contract data states it is in, or in an instruction given by the project manager in accordance with the contract (although this may constitute a compensation event).
• Works information may be prepared both by the employer and the contractor. Employer’s works information sets out the works and constraints for the contractor. Contractor’s works information is prepared in relation to those parts of the works the contractor is required to design. The employer’s works information is identified in the contract data part one, whilst the contractor’s works information is identified in the contract data part two. Both sets of works information should be consistent, and where there is disagreement between them, priority is given to the employer’s works information.
• It is important that the employer’s works information creates a complete and precise statement of the employer’s requirements so the risk the contractor may misinterpret or misunderstand them is minimised. Clear, unambiguous language should be used, subjective terms should be avoided and it should not include anything that repeats or contradicts the contract data or conditions of contract. References to standard specifications should be checked for consistency with other parts of the contract.
Works information might include:
• Technical information, specifications and drawings.
• Constraints for how the contractor provides the works, such as safety requirements.
• Work to be designed by the contractor.
Typically, the structure of works Information might include:
• A description of the works.
• General constraints on how the contractor provides the works.
• Contractor’s design.
• Completion.
• Programme.
• Quality assurance.
• Tests and inspections.
• Management of the works.
• Working with the employer and others.
• Services and other things to be provided.
• Health and safety.
• Subcontracting.
• Title.
• Acceptance or procurement procedure.
• Accounts and records.
• Parent company guarantees.
• Performance bonds.
• Advanced payment bonds.
• Low performance damages.
• Employer’s work specifications and drawings.
The contractor’s primary obligation is to provide the works in accordance with the employer’s works information. This means contractors are only obliged to do things the works information says they must do.

Question 16

What is the payment timescale for valuations included in the Construction Act?

Answer 16

1. Stage Payments
   • If instalments do not apply the price is due 30 days after completion, or when claimed, whichever is the later
   • If instalments apply, the period is every 28 days from commencement of work
   2 How much and when?
   • The amount payable is in respect of the value of work performed since commencement until the end of the 28 day
   period, including materials on site and any other sums specified as payable by the contract. The total cannot exceed the contract price
   • Interim payments are due 7 days after the end of the 28 day period, or when claimed if later
   • The final payment is due 30 days after completion or when claimed if later
   3 The final date for payment
   • The final date for payment is 17 days after the sum became due
   4 The payment notice
   • If the contract fails to provide for one of the parties to give the payment notice, then under the Scheme the responsibility lies with the payer
   • Notice of the amount and basis of calculation is to be given no later than 5 days from the payment due date
   5 The default notice
   • There is no payee default notice under the amended Scheme
   6 The pay less notice
   • Any pay less notice has to be no later than 7 days before the final date for payment

Question 17

333. How did you advise the client on key differences between the NEC contractual mechanism, risks and documentation required?

Answer 17

• I started with explaining the Principles of the NEC Contract which are to:
o Stimulate good management.
o Be clear and simple, written in plain English, in the present tense and without legal terminology.
o Be useable in a wide variety of situations from minor works to major projects.
• I then explained that there are generally 3 groups of NEC contract: Works, Services and Supply.
• For Works there were main contracts available ECC, ECS, ECSC, ECSS; due to the nature of works the ECC contract was recommended
• then the contract options were as follow:
o Option A: Priced contract with activity schedule.
 Option A is a priced contract with an activity schedule, which relates to a programme where each activity is allocated a price and interim payments are made against the completion of each activity. The contractor largely bears the risk of carrying out the work at the agreed prices.
 The advantage of using an activity schedule is that it simplifies the administration of the interim payment process. The activity schedule on these types of project is submitted together with a contract programme as part of the tender.
 The activity schedule is a more important document under Option A than under Option C, as it has a significant effect on the contractor’s cash flow by directly effecting the timing and payment amount.
 The sum that is due to the contractor in each assessment period is defined as the total of:
o Each group of completed activities (those without defects).
o Each completed activity not in a group.
 Only when the whole of an activity is complete does the payment become due to the contractor. There is no provision for part payment.
o Option B: Priced contract with bill of quantities.
 Under Option B, the bill of quantities is a ‘traditional’ bill of quantities, i.e. a document prepared by the cost consultant (often a quantity surveyor) that provides project specific measured quantities of the items of work identified by the drawings and specifications in the tender documentation.
 From the employer’s specified quantities the contractor prices its rates accordingly, and bears the risk of carrying out the work at the agreed prices.
 The contractor is entitled to interim payments, certified at assessment dates by the project manager as set out in the contract. The price for the work done to date is the quantity of completed work for each BoQ item multiplied by the relevant rate and a proportion of any lump sum item in the BoQ. The proportion of the lump sum items to be paid is determined by the extent to which they have been completed.
 The contract contains core and secondary option clauses, the shorter schedule of cost components, and contract data.
o Option C: Target contract with activity schedule.
 Option C is a cost plus contract which is subject to a pain/gain share mechanism by reference to an agreed target cost built up from an activity schedule. It includes core and secondary option clauses, the schedules of cost components, and contract data
 A target cost contract introduces a mechanism enabling the contractor, and/or the consultant team, to share in the benefits of cost savings, but also to bear some of the cost when there are cost overruns.
o Option D: Target contract with bill of quantities.
 A target cost introduces a mechanism that enables the contractor, and/or the consultant team, to share in the benefits of cost savings, but also to bear some of the cost when there are cost overruns. This is typically shared in a pre-agreed proportion. For more information see: Target cost contract.
 A bill of quantities is a document prepared by the cost consultant (often a quantity surveyor) that provides project specific measured quantities of the items of work identified by the drawings and specifications in the tender documentation. A bill of quantities can be prepared when the design is complete. For more information see: Bill of Quantities.
 Option D includes core and secondary option clauses, the schedules of cost components, and contract data.
o Option E: Cost reimbursable contract.
 Option E is a cost reimbursable contract in which the contractor is reimbursed the actual costs they incur in carrying out the works, plus an additional fee. The financial risk involved is largely taken by the client.
 A cost reimbursable contract might be used where the nature or scope of the work to be carried out cannot be properly defined at the outset, and the risks associated with the works are high, such as, emergency work (for example, urgent alteration or repair work, or if there has been a building failure or a fire requiring immediate reconstruction or replacement of a building so that the client can continue to operate their business).
o Option F: Management contract.
 Option F is a cost reimbursable management contract in which the works are constructed by a number of different works contractors who are contracted to a management contractor. The management contractor is responsible for the work and is paid a fee (the cost that it pays the works contractors plus an additional fee), while the financial risk is largely taken by the client.
o Option G: Term contract (for the appointment of a consultant based on a priced schedule of tasks).
 It provides for the appointment of a consultant for an agreed period of time based on a priced task schedule and staff rates for different grades of staff. Prices on the task schedule are either a lump sum for that item, or may be carried out on a time basis. The consultant bears the risk of being able to perform the tasks at the agreed prices.
 When the client wants the services to be carried out they are simply selected from the task schedule and the consultant is instructed.
 If the client wants the consultant to carry out services that are not on the task schedule, they are notified as compensation events (similar to relevant events on other forms of contract). This will result additional payment being made, priced using the compensation event assessment procedure.

Question 18

How did you advice the Client regarding audit requirements on Project Winchester?

Answer 18

• I reviewed the contract clauses and its amendments
• I explained to the client that under PSC3 Main Option C Clause 52.2 the Consultant/Contractor is required to keep accounts and record of his Time Charge and expenses and allows the Employer to inspect them at any time.
• I recommended to the Client that although it is not required by the Contract it is a good practice to list the information required and agreed the date of the inspection prior to audit with the Client
• Due to on-going pandemic physical access to the Contractor’s office was limited and it was recommended that limited number of people will be invited.

Question 19

What is the Contractor/Consultant share mechanism?

Answer 19

Used in Target Cost Option C & D - mechanism enabling the contractor, and the Client , to share in the benefits of cost savings, but also share some of the cost when there are cost overruns based on share percentage pre agreed in contract data.

Question 20

How did you prepare the Consultant’s share calculation? What did you include?

Answer 20

• Payment of the target share is made in two stages. Firstly, in the assessment following Completion of the whole of the works, and secondly in the final account. Interim payments of the Contract’s share are not provided
• The mechanism of calculating the Contractor’s share is provided by the Client in contract data part one when the share range is defined.
• Each range is defined by levels of the ratio PWW/Prices express as percenter.
• I calculated the ratio between the PWDD and total of the Prices and then multiply it by percentage defined to each range.
Include: PWDD, total of the Prices, share range

Question 21

NEC4 Contract Structure

Answer 21

Main clause:
1 – General
2 – The Contractor’s main responsibilities
3 – Time
4 – Quality Management
5 – Payment
6 – Compensation Event
7 – Title
8 – Liabilities and insurances
9 – Termination
Main Option Clauses:
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
Resolving and Avoiding Disputes
Option W1 – used when adjudication is the method of dispute resolution and the UK Housing Grants, Construction and Regeneration Act 1996 does NOT apply
Option W2 – used when adjudication is the method of dispute resolution and the UK Housing Grants, Construction and Regeneration Act 1996 applies
Option W3 – Used when a Dispute Avoidance Board is the method of dispute resolution and the UK Housing Grants, Construction and Regeneration Act does NOT apply.
Secondary Option Clauses
Option X1: Price adjustment for inflation (used only with Options A, B, C, D)
Option X2: Changes in law
Option X3: Multiple currencies (used only with Options A and B)
Option X4: Ultimate holding company guarantee
Option X5: Sectional Completion
Option X6: Bonus for early Completion
Option X7: Delay damages
Option X8: Undertakings to the Client and Others
Option X9: Transfer of rights
Option X10: Information modelling
Option X11: Termination by the Client
Option X12: Multiparty collaboration (not used with Option X20)
Option X13: Performance bond
Option X14: Advanced Payment to the Contractor
Option X15: The Contractor’s design
Option X16: Retention (not used with Option F)
Option X17: Low Performance damages
Option X18: Limitation of liability
Option X20: Key Performance Indicators (not used with Option X12)
Option X21: Whole life Cost
Option X22: Early Contractor involvement (used only with Options C and E)
Option Y(UK)1: Project Bank Account
Option Y(UK)2: The Housing Grants, Construction and Regeneration Act 1996
Option Y(UK)3: The Contracts (Rights of Third Parties) Act 1999
Option Z: Additional conditions of contract

Question 22

What are the difference between NEC3 PSC and NEC3 ECC Short Contract?

Answer 22

NEC 3 PSC - The Professional Services Contract is intended for use in the appointment of a supplier to provide professional services. It can be used for appointing project managers, supervisors, designers, consultants or other suppliers under NEC contracts and can also be used for appointing suppliers on non-NEC construction projects or for non-construction projects
• 4 Main Option Clauses:
o A – Priced Contract with activity schedule – is a lump sum priced contract in which the risk of being able to provide the Services at the agreed prices in the activity schedule are largely borne by the Consultant
o C - Target contract – is a target contract in which the financial risks are shared by the Employer and the Consultant in agreed proportions.
o E- Time based contract – is a type of cost reimbursable contract in which the financial risks are largely borne by the Employer
o G - Term Contract is a term contract in which various items of work are priced or stated to be on a time basis. Thus the risk of being able to perform the instructed Tasks at the agreed price or staff rates is largely borne by the Consultant, whilst the Employer retains control over the individual Tasks to be carried out.
The Contract provided for the appointment of a Consultant for a term (an agreed period of time). The Consultant prices a task schedule prepared in advanced by the Employer as well as providing Staff rates for different grades of staff. Each price on the task schedule is a lamp sum for that particular item. Some items may be based on time rather as a lump sum.
• Dispute resolution clauses W1 & W2
• Secondary Option clauses:
o X1 Price Adjustment for inflation
o X2 Changes in the law
o X3 Multiple currencies
o X4 Parent Company Guarantee
o X5 Section Completion
o X6 Bonus for Early Completion
o X7 Delay damages
o X8 Collateral warranty agreements
o X9 Transfer of rights
o X10 Employer’s Agent
o X11 Termination by the Employer
o X12 Partnering
o X13 Performance bond
o X18 Limitation of liability
o X20 Key Performance Indicators
o Y(UK)1 Project Bank Account
o Y(UK)2 The Housing Grants, Construction and Regeneration Act 1996
o Y(UK)3 The Contracts (Rights of Third Parties) Act 1999
• Parties stated in the Contract: Employer, Consultant and Employer’s Agent
• No Schedule or Short Schedule of Cost Components
• under option C: payments based on Time Charge based on time spend working on the project and the rates
• Cl 50.1 Consultant submits an invoice at each assessment date
• Cl 60.1 – 12 reasons for CE (1) – Employers gives an instruction changing the Scope (2) Employer does not provide access to a person, place of thing for the Consultant (4) The Employer gives an instruction to stop or not to start work or to change a Key Date (7) Employers changes a decision which has previously communicated to to the Consultant. (9) The Employer notifies a correction to an assumption which he has stated about a compensation event (10) – breach of contract (11) – an event that stops consultant completing the work which neither parties could prevent (12) -Consultant corrects a Defect for which he is not liable under this contract.
• Cl 90 - Contract termination; reasons:
o if the party presented his petition for bankruptcy, had bankruptcy order made against them, had a receiver appointed over his assets, made an arrangement with his creditors
o if the other party is a company and has had a winding-up order made against it, had a provisional liquidator appointed to it, had an administration order made against it, made an arrangement with creditors.
o the Consultant may terminate his obligation to Provide the Services if the Employer has not paid an amount due to the Consultant within 8 weeks of the issue of a notice.
o the Employer may terminate the obligation to Provide the Service if the Employer no longer requires the services or the Consultant has failed to comply with his obligations and not make it right within 4 weeks of the notification.
o the Employer may terminate the contract if the event occurs that stops the Consultant completing their services and neither party could prevent
o Final payment on termination should be made as soon as possible.

NEC3 ECSC - The Short Contract is an alternative to NEC3 Engineering and Construction Contract and is for use with contracts which do not require sophisticated management techniques, comprise straightforward work and impose only low risks on both the employer and the Contractor. This document contains the contract clauses and the form for contract data.
• Contract Data with the Contractor’s Offer and the Employer’s Acceptance rather than Contract Data Part 1 and 2.
• Price List
• Works Information (description of works, drawings, specifications, constrains on how the Contractor Provides the Works, Requirements for the Programme, Services and other things provided by the Employer)
• Site Information
• Parties of the Contract Employer and Contractor,
• No main option clauses
• Defined Cost and Disallowed Cost
• Cl 60.1 Compensation Events (14) reasons
• Termination – 8 reasons to terminate the Works
o when either party has become insolvent (Reason 1)
o when the contractor failed to comply with the contract (Reason 2)
o when the Contractor substantially hindered the Employer (Reason 3)
o when the Contractor significantly broken health and safety regulation (Reason 4)
o The Employer may terminate for any other reason (Reason 5)
o The Employer has not paid an amount due under the contract (Reason 6)
o The Employer has instructed the contractor to stop or not to start any substantial work which is not the Contractor’s fault (Reason 7)
o The Employer may terminate the Contract if an event which parties could not prevent and substantially affected the Contractor’s work (Reason 8)
• No W1 or W2 option but adjudication incorporated to Section 9 clause 93.3
• No Y(UK) option but construction act incorporated as a separate section

Question 23

What are the differences between NEC3 PSC and NEC4 PSC?

Answer 23

NEC 4 PSC Changes
• 3 Main Option Clauses
o Option A: Priced Contract with Activity Schedule
o Option C: Target Contract
o Option E: Cost reimbursable contract
• X8 is now Undertaking to Others not C Collateral warranty agreements
• X10 is now Information Modelling not Employer’s Agent,
• Client, Consultant and Service Manager
• Corrupt Act added
• Fee is the amount calculated by applying the fee percentage to the amount of Defined Cost;
• Consultant submits afp to Service Manager not an invoice
• Clause 60.1 (16) reasons for CE: 15)when proposed instruction is not accepted; 16) additional CEs stated in Contract data part 1
• Clause 90 – 20 Reasons for Contract termination – corruption act added
• Schedule of Cost components and Short schedule of cost components now added.

Question 24

What are the differences between NEC3 ECC short Contract and NEC4 ECC Short Contract?

Answer 24

NEC 4 ECSC changes
•	Scope not works information 
•	Client not Employer 
•	gender neutral language 
•	extra reason for contract termination added when the Contractor does a Corrupt Act.

Question 25

What are the differences between NEC 3 ECC and NEC4 ECC?

Answer 25

• New Contracts:
o Design Build and Operate Contract – a single contract for providing a service which includes the design and build of assets to do so, or perhaps the upgrade of existing assets at any time in the ‘service period’.
o Professional Services Subcontract – the PSC in a subcontract form.
o Term Service Subcontract – the TSC in a subcontract form.
o Dispute Resolution Services Contact, which includes for the members of the new Dispute Advisory Board in secondary option W3 and replaces the NEC3 Adjudicator’s contract.
• gender neutral language (not he or she but them)
• Changes in terminology
o Client instead of Employer
o Scope instead of Work information
o Early warning register not risk register
o Client’s liability instead of Employer’s risk
o In secondary option X12, ‘Partnering’ has been changed to ‘Collaboration’ better to reflect the intent.
• New secondary options
o Option X15: The contractor’s design (ECC only): this has been extended from ECC3’s ‘due skill and care’ to include a requirement for professional indemnity insurance, provisions regarding the use of the design and for retention of documents. Importantly the responsibility of proof is reversed from ECC3: it is now for the client to demonstrate that the contractor has not used ‘the skill and care normally used by professionals designing works similar to the works’.
o Option X10: Information modelling - A new secondary option is added specifically to support the use of information models and digital engineering models. This requires the contractor to provide an information model execution plan either for incorporation in the contract from the outset, or within a period defined by the client.
o Option X21: Whole life cost (ECC only): this is just a prompt to the contractor to propose changes that will reduce whole life cost. It effectively allows the contractor and project manager (on behalf of the client) to ‘do a deal’ within the contract rather than needing an addendum.
o Option X22: Early contractor involvement (ECC only): the NEC’s previously published Z clauses to effect early contractor involvement as a two-stage process within a target or reimbursable contract are now included formally as a new secondary option.
o W1, W2 and W3 dispute resolution and avoidance: The works contracts now include a dispute avoidance option W3 which can be used if the UK Housing, Grants, Construction and Regeneration Act does not apply. This is to refer any dispute to a dispute avoidance board. The benefit of this new option is to encourage and support the parties in resolving any potential dispute consensually, and to support users who wish to use this facility on their projects.
• New features
o Programming changes - There are new ‘dividing date’ provisions similar to those used in compensation events. New provisions provide for ‘treated acceptance’ of the contractor’s programme in situations where the project manager does not respond to a programme issued by the contractor for acceptance, or to a reminder. This is to unlock the impasse which can sometimes occur.
o Early contractor involvement - This is now included as a secondary option, based upon the clauses published by NEC in 2015.
o Dispute negotiation - A 4 week period for escalation and negotiation of a dispute has been introduced, which takes place prior to commencing any formal proceedings. This requires nominated senior representatives of each party to meet and try to reach a negotiated solution.
o Financial agreement - For payment applications and final accounts, there are now procedures aimed at reaching agreement on the final amounts due. Provisions have been introduced to the cost-based contracts (main options C to F) that allow the contractor to instigate a review and acceptance of its defined cost by the project manager, upon request. This encourages checking and agreement of defined cost and disallowed cost progressively as the work proceeds, and not to defer the exercise until the project has been completed.
o Retention - The secondary option X16 for retention now includes the optional provision of a retention bond instead of having money retained.
o Confidentiality - A new core clause deals with confidentiality, restricting the disclosure of project information.
o Communication - The use of a communication system, including an electronic one, are recognised through amended clause 13.2, and if required is defined in the scope.
o Quality - Section 4 quality management provisions introduce a requirement for the contractor to prepare and issue a quality management system and a plan.
o Schedules of cost components - Some changes have been made to simplify the schedules of cost components and associated contract data inputs. The ‘Schedule of Cost Components’ is used only for main options C, D and E and the ‘Short Schedule of Cost Components’ has been removed from these contracts. The short schedule is now used exclusively in options A and B and only to assess compensation events. It adopts a pre-priced approach for people cost to replace the previous cost-based approach.
o Fee percentage - There is now only one fee percentage, with no separate fee percentage for subcontracted works. The application of fee to defined cost is consistent across all main option