NEC Contracts Flashcards
531 What does NEC stand for?
New Engineering Contract?
532 What does ECC stand for?
Engineering Construction Contract
533 Give an overview of the NEC Contract?
Can be used for any engineering or construction projects. No reference to the QS. The PM assumes full responsibility, PM controls time and cost functions, updates risk register and early warning register. Is admin heavy. Programme is a contract document. Requirement for parties to give early warnings.
534 What are some of the preceded advantages of using the NEC contract?
Based on mutual trust and cooperation Encourages you to deal with problems up front. Promotes good project management. Is written in clear and concise language
535 What are the 6 main options?
Option A – Lump sum contract with activity schedule
Option B – Lump sum contract with BOQ (measurable)
Option C – Target cost contract with activity schedule
Option D – Target cost contract with BOQ (measurable)
Option E – Cost reimbursable contact (or cost plus fee)
Option F - Management contract
Main Options
536 Provide an overview of Option A
This is a lump sum contract priced using an activity schedule. The contractor will only be paid for the works when he has completed the activity 100% and it is defect free. The activity schedule can be amended by consent of the PM. The activities can be broken down and spread out, as long it this does not change the overall cost of the project. Compensation events will change the contract sum. The project is usually well defined at tender stage. Suitable for traditional & design and build. Risk of cost sits with the contractor (in theory). Good cost certainty for the Client.
537 Provide an overview of Option B
Similar to Option A in that it a lump sum contract, however this is priced through a bill of quantities and is remeasurable. As a result of the remeasure more of the risk sits with the Client. Basically the contract is paid for the amount of work they have done based on the rate inserted into the BoQ. Unless the change in quantity is significantly more or less than priced then the contractor can have the rate recalculated and applied to the work done. Contract is entitled to be paid for work down and not upon completion like option A
538 Overview of Option C
This is a target cost contract. A target cost for the works is agreed at the start of the project which is made up for the contractors estimate of defined cost plus fee. The contractor is paid defined cost as he works his way through. This contract has a pain/gain share mechanism which incentivises both parties to try and minimise the cost of contraction in the hopes of sharing in the financial gains. The target moves with compensation events.
539 Overview of Option D
This is also a target cost contract but with a Bill of Quantities. This works in a similar way to Option C but with an BoQ as the pricing document.
540 Overview of Option E
This is a cost reimbursable contract where the contractor is paid the cost incurred while delivering the scope plus his fee. This option gives little cost certainty as the final cost is not known till near the end. However, it is useful for when the scope of works is not well defined, like carrying out emergency repairs to assets. The Client takes the financial risk.
541 Overview of Option F
Cost reimbursable management contract. The works are designed and constructed by multiple subcontractors who are contracted to the management contractor. The contractor is paid the amount that they pay the subcontracts plus their own management fee for managing the works. The financial risk rests with the Client.
542 Which NEC ECC main options carries the least amount for risk for the Client?
Option A. As this is a lump sum contract the contract sum is fix (unless altered by a CE) which gives the most cost certainty)
543 Which NEC ECC main options carries the most amount for risk for the Client?
Options E as this is a cost plus contract. It offers poor cost certainty usually because the design or scope is not well enough advanced at tender stage.
544 What are the secondary options under NEC?
W1 and W2 both dispute resolution clauses
X clauses for retention, limitation of liability, KPI, delay damages, Inflation, change in the law, Parent company guarantee, performance bond, advanced payment.
YUK 2 & 3 which deal with UK national legalisation like project bank account, the Housing Grants Construction and Regeneration Act 1996 and Contract rights of third parties act 1999
Z clauses which are bespoke clauses which are inserted by the Client. This can either amend the existing contract clauses or insert wholly new clauses into the contract. Sometimes used to amend, delete or introduce new compensation events
546 What problems can arise when drafting new Z clauses?
As this changes or introduces a new clause into the contract this can change how the contract works legally. It may, in more simple cases give rise to an ambiguity in the contract which will have to be addressed through a compensation event or in the worst case could render the contract legally unenforceable.
STOCK – Poorly drafted Z clauses may not work effectively with core or option clauses. Z clauses should only be drafted by those who have a good knowledge of the NEC and who understand the intention of both parties.
