NEC3 Option C5 Key Contract Mechanisms

Steve Jackson

5 Key Contract Mechanisms

• Disallowed Costs• Compensation Events and Change Control.• How to manage time• Communications.• Defects.

“A child of five would understand this. Send someone to fetch a child of five.”Groucho Marx

The Ground Rules

• Clause 10.1... shall each act as stated in this

ContractAND

In a spirit of mutual trust and cooperation

“The secret of life is honesty and fair dealing. If you can fake that, you've got it made.”Groucho Marx

Contractor’s overriding obligation

11.2(60)

… to do the work necessary to complete the works in accordance with this Contract and all incidental work services and actions which the Contract requires

20 Contractor ..

Advises on the design

Prepares forecasts

Ensures proper integration

To ‘Provide the Works’(He does what it says on the tin)

Financial ControlFinancial Control

Disallow CostsClause 11.2(23)

Control the Target CostCompensation Events

Clause 60

Make DeductionsClause 55

Goal or no goal? You are the Russian Linesman

The PM decides – Clause 11.2(23)

You cannot expect the Contractor not to claim the costs

It is your responsibility to allow or disallow

Disallowed Costs

Disallowable Costs - 1

Disallowable Costs - 2

Disallowable Costs - 3

Disallowable Costs - Summary

• Not ‘Providing the Works’• Any kind of rework (Design or

Construction)• Unnecessary work• Uneconomic work

• Repairing damage

• ‘Other costs’

Clause 11.2(23) is a bit of a jumble – but can be summarised as:

Record Keeping

Site Records

Accounts Records

You set the agenda

Be demanding

Burden of proof lies with you

Records must be communicated

Feed the system!

Don’t expect a happy response

Final thought on Disallowed Cost

But remember what Andy Warhol said ….

“Art is anything you can get away with”

The same applies to costs on a NEC Option C contract!!

Compensation Events

“If anything is certain, it is that change is certain” Philip Crosby

“A Compensation event is like a Cruise Missile – you know its coming but there is f**k all you can do about it” Anon

The Roots of Compensation Events

• Damages: Hadley v Baxendale [1854]– Liable for all losses in the contemplation of the

parties

• Loss and Expense – JCT Contracts– Contractual remedy for damages– Time dealt with separately

• Compensation Events – NEC– Takes account of time and money

Clause 16

Early Warnings & Risk Reduction

Clauses 60-65

WhatAssess

Notify

Quote

PM Assessment

Implement

Compensation Events

• A CE may arise from almost any change in the Works Information– And a few other things besides

• Contractor quotes• PM must assesses if the quote is wrong• State assumptions where necessary

Beware: The Project Manager’s indecision is final! (64.4)

How to Manage Time

“You may delay, but time will not” Benjamin Franklin

Time – the basics

Clause 30Start: on the ‘Access Date’Finish: on (or before) the ‘Completion Date’Fulfil the criteria for the ‘Key Dates’ (on or

before)Proceed: Regularly and diligentlyMitigate delay

Time Management

31 Accepted Programme

32 The Contractor revises the programme – from time to time – New Accepted Programme

63/64 Completion Date is adjusted by Compensation events

Similar to Financial Forecasts

Communications

“The single biggest problem in communication is the illusion that it has taken place.” George Bernard Shaw

PM

Contracto

r Emp

Compare with Cl 10.1

Good communication facilitates working together

13.2communication

is notCommunication

• “This 'telephone' has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.”Western Union internal memo, 1876

instruction

record

registerproposal

submission

certificate

direction

order

message

refusal

non-acceptance

acceptancewarning

13.1 CommunicationCopy – Read – Record

Communication v notification

‘Gee, I’ve never had a pen pal before’

11.2(11) Communication is any form of communication as defined in Clause 13.

Defects

“In a true zero-defects approach, there are no unimportant items” Phil Crosby

43 / 44Contractor corrects all Defects

(whether notified or not)

Corrects Defects at a time to suit himself, but without delay to Completion

Employer may accept a Defect – change to cost and time

“The crack’s no fun when it’s in concrete” - Anon

Thank you!