cfw nec management of change under the nec3

Supply Chain DevelopmentManagement of Change Under the NEC 3

Stuart Brisbane(CFW Consultant)21st Sept 2017

The Vale Hotel - Hensol

Agenda

1. Overview2. Early Warnings 3. Compensation Events

• Clause 60 (Definition)• Clause 61 ( Notification)• Clause 62 (Quotation)• Clauses 63 & 64 (Assessment)• Clause 65 (implementation)

4. Some Points to Note5. Recap

1. Overview

NEC3 Suite of Contracts• Works

• Engineering and Construction Contract (ECC)

• Engineering and Construction Short Contract (ECSC)

• Engineering and Construction Subcontract (ECS)

• Engineering and Construction Short Subcontract (ECSS)

• Services

• Professional Services Contract (PSC) – Architecture, Engineering

• Term Service Contract (TSC) – Maintenance, Management

• Term Service Short Contract (TSSC)

• Supply

• Supply Contract (SC) – Goods, Products

• Supply Short Contract (SSC)

• Others

• Adjudicator’s Contract (AC), Framework Contract (FC)

1. Overview

NEC4 Suite of Contracts

1. Overview


1. Overview

The brand new NEC4 Design Build and

Operate Contract (DBO) allows Clients to

procure a more integrated whole-life

delivery solution. It reflects the increasing

demand for contracts extending into the

operational phase.


1. Overview

Core & Main Option Clauses• The Core Clauses are set out in nine sections and apply in all

contracts. The clauses allow for a flexible amount of Contractor

design.

• Section 1: General

• Section 2: The Contractor’s Main Responsibilities

• Section 3: Time

• Section 4: Testing and Defects

• Section 5: Payment

• Section 6: Compensation Events• Section 7: Title

• Section 8: Risk and Insurance

• Section 9: Dispute and Termination

• The Main Option Clauses provide two options for the dispute

resolution procedure.

• Option W1: Used unless the HGCRA 1996 applies.

• Option W2: Used in the UK when the HGCRA 1996 applies.

1. Overview

Cost Components & Contract Data• The Cost Components are two schedules which contain cost information

supplied by the Contractor. They are used to assess payments to the

Contractor and the cost effect of Compensation Events. Costs are defined in

relation to people, equipment, plant and machinery, utility charges,

manufacture and fabrication, design and insurance.

• Known as the ‘Contract Particulars’ under JCT, the Contract Data provides

data required by the specific conditions of the contract. The section is split

into two parts

• Part 1 - Data provided by the Employer

• Part 2 – Data provided by the Contractor. Information includes...

• Name of Parties

• Insurance Details

• Start and Completion Dates

• Interest Rates

• Retention Percentage if applicable

• Rates for Delay Damages if applicable

1. Overview

Works and Site Information

• The Works Information specifies and describes the Works to be carried

out, including Contractor’s design responsibilities. Most information will be

given in a specification and on production drawings in the traditional

manner. However, it may also include…

• Statement of Constraints on how works are carried out

• Health and Safety

• Details of Contractor’s Design elements

• Information on Specialist Subcontractors

• Details of Tests

• Performance or Advance Payment Bonds

• The Site Information describes the site and its surroundings and is used

to assess compensation for site conditions. Information may include soil

investigations, contamination reports and details of below ground

services.

1. Overview

Managing Change• NEC3 includes a clause which obliges the Contractor and

Project Manager to notify each other as soon as they become

aware of any matter which could increase the Prices or delay

Completion. This is called an Early Warning.

• Under the JCT Type, the procedure for managing change is

known as ‘Variations’. A Contractor’s Schedule 2 Quotation can

be used to obtain a fixed price quotation for a variation.

However, it is not mandatory and typically responsibility lies with

the QS to price variations. Disputes can arise and are often not

resolved quickly.

• Under the NEC3, the procedure is known as ‘Compensation

Events’ and an immediate assessment of the cost and time

implications are made. These are mandatory and binding, with

no provision for later review. They are events which do not

arise from the Contractor’s fault and entitle the Contractor to be

compensated for any effect the event has on the Prices and

Dates.

Compensation Events

are listed in the Core

Clauses and the

Options. The Contract

Data also has

provision for the

Employer to insert their

own additional

compensation events.

1. Overview

1. Overview

Terms in italics are project specificDefined terms have capital initialsThese drafting principles make it easier to understand the contractThese principles should be adhered to when drafting documents & communicating

Clause 11.1:

Terms identified in the Contract Data are in italics e.g.. Period for reply, boundaries of the site

Defined terms have capital initials, e.g. Accepted Programme, Completion, Defect

The index is useful to refer to as it details the links within the contract – it helps build the intellectual map

• There are 19 defined terms relevant to the core clauses

• These are in alphabetic order

• Additional defined terms exist dependent upon the:

– Main Options

– Secondary Options

1. Overview

Clause Defined term & comment Linkage

11.2(1) Accepted Programme – latest Accepted Programme supersedes previous. Vital to have an Accepted Programme in place for the good of the project

31.3, 50.3 (remedy)

11.2(2) Completion – the second bullet serves as a basic filter, the first bullet allows the Employer to be very precise

X7.1 (remedy)

11.2(9) Key Date – critical milestone from the Employer’s perspective, often reflects interface between the Contractor and Others

14.3 (alter),25.3 (remedy)

11.2(14) Risk Register – consists of risks identified as part of the tender process plus early warnings

Contract Data, 16.4

11.2(16) Site Information – factual information about the site 60.1(12), 60.2, 60.3

11.2(18) Working Areas – necessary for Providing the Works & used only for work on this contract

15.1, SCC, SSCC

11.2(19) Works Information – specifies and describes the works or any constraints

14.3, 60.1(1)

Some Defined Terms and Basic Contract Linkages

1. Overview

Clause Defined term & comment

Main Option A, 11.2(20)

Activity Schedule (note the sequential clause numbering)

Main Option A, 11.2(27)

Price for Work Done to Date (PWDD) – completed activities

Main Option B, 11.2(28)

Price for Work Done to Date (PWDD) – bill items

Main Option C,11.2(23)

Defined Cost – definition of what is paid for under Options C-F

Main Option C, 11.2(25)

Disallowed Cost – definition of what is not paid under Options C-F

X5.1 Sectional Completion – references equally apply to Sectional Completion eg clause 16.1

1. Overview

Some Defined Terms and Basic Contract Linkages

Key People• The ECC sets out the responsibilities and roles of the following key

people:

• Employer

Not involved in administrating the contract – no power to issue instructions.

• Project Manager

Known as the ‘Contract Administrator’ under the JCT, the Project Manager manages

procurement of the Works for the Employer. Contract contemplates appointment prior to

the Consultants so that they manage the design process.

• Supervisor

Known as the ‘Clerk of Works’ under the JCT, the Supervisor exercises certain

responsibilities on site for the Employer, including testing, monitoring quality and issuing

the Defects Certificate.

• Contractor

• Subcontractors

• Adjudicator

• Note, no references to an Architect or QS by profession.

Unless delegated the

role or responsibility, the

Architect who produced

the Works Information,

may not have a role in

the Contract and

therefore have no

responsibility to monitor

quality and compliance

with the Works

Information. The

Supervisor may have

limited knowledge of the

Works Information and

this may affect the

quality of the completed

building. Traditionally as

Contract Administration,

the Architect has a

responsibility to monitor

quality.

1. Overview

1. Overview

Communication protocol: Clause 13.1• Clause 13.1 clearly states the methods of communication which the contract requires in a form that can be

read, copied and recorded

• The contract requires professional record keeping

• The Project Manager should discuss and agree with the Contractor which method(s) of communication will be used at commencement of the contract

• The NEC published guidance on communication in April 2013

• Good examples and suggestions are contained within this guidance

1. Overview

• As a minimum, the ECC pro-forma’s are recommended as the means of communicating

• They state the relevant clause

• The communications are structured

• This is not being contractual – it’s following what the contract requires (‘acting as stated’)

Communication protocol: Clause 13.7

• ‘Notified’ matters need to be communicated separately!

• Each early warning should be notified separately

• Each defect should be notified separately

• Each compensation event should be notified separately

1. Overview

Full list of notifications under the ECC (clause 13.7)Clause Issue

14.2 Delegation

14.4 Replacement of the PM or Supervisor

16.1 Early Warning

17.1 Ambiguities and inconsistencies

18.1 Illegal or impossible requirements

31.3 Programmes

40.3 Tests and inspections

42.2 Defects

61.1 Compensation Events



61.5 Decisions on Compensation Events

61.6 Assumptions on Compensation Events

62.6 Quotations for Compensation Events

64.3 Assessments of Compensation Events

64.4 Late assessment of Compensation Events

65.1 Implementation of Compensation Events

73.1 Discovery of objects of value etc

1. Overview

• The Contract Data ‘refers’ to the documents which contain the Works Information.

– Contract Data Part 1 identifies the Employer’sWorks Information

– Contract Data Part 2 identifies the Contractor’sWorks Information for his design

1. Overview

• What happens if there are inconsistencies between the Works Information provided by the Contractor(for his design) and that provided by the Employer?

Clause 17.1

notify

Clause 14.3

Ability to change

Clause 60.1(1),

Second bullet

Changing the Contractor’s WI to comply with the Employer’s is not a compensation event. In that respect, the Employer’s WI is dominant

1. Overview

• What happens if the Employer’s WI contains inconsistencies in drafting and/or is ambiguous?

Clause 17.1,

Notify

Clause 14.3 –ability to change

Clause 63.8, Employer

pays

The Employer compensates the Contractor for any inconsistency or ambiguity

1. Overview

TELEVISIONS – 42” or 24” – 63X £127.99 = £8063.37

• The Risk Register is a new feature under NEC3.

• It is a live document that is formed by the Project Team post-contract (i.e. not acontract document) and will change as the work progresses.

• Risks can be added to the Register as part of the Early Warning process, orremoved because of actions taken by the parties (i.e. soil investigations).

• Risks are allocated a likelihood of occurrence and impact, along with anapproximate cost effect. Regular Risk Reduction Meetings should be held duringthe Contract.

1. Overview

1. Overview

• Clause 80.1 defines the Employers Risks under the contract

• Clause 81.1 sets out that all other risks are carried by the Contractor.

• Clause 83 each party indemnifies the other against events which are at its risk

• Often ITT’s are including preliminary risk registers to help prospective contractors understand what getting into.

• Risk Registers are a practical project management tool , time or cost consequences should fall outside of clause 83 and be addressed through other mechanisms (CE’s) Parties need to be very clear as to how any such risks are allocated.

• Recent difficulties around final entry clause 80.1 which allows additional Employers risks to be specified in the Contract Data in order to include a preliminary risk register .

• Employer will often append or refer to the risk register in the contact data and if that register assigns actions to the employer could be argued that they become part of 80.1

• Broad consensus that risk register operates at a practical level and not intended to alter 80.1 and 81.1 however still limited case law and remains uncertainty.

• Prudent for clarity to amend the contract that items in the risk register are not employers risks.

• Under the JCT Types, the Contractor is required to submit a Programme but

it is not a binding Contract Document and there is no requirement to keep it

up to date.

• In contrast, the Accepted Programme forms part of the Contract Data under

the NEC3 and the Contractor is required to keep it up to date. Any changes

must be accepted by the Project Manager within 2 weeks. It is an important

document and is used to monitor/assess the time effects of Compensation

Events.

Programme should show…

• Start Date/Completion Date/Key Dates

• Planned Completion

• Order and Timing of Operations

• Time Risk Allowances

• Health and Safety Requirements

• Information from Required Others

• Float

1. Overview

• The programme is key – it’s the ‘beating heart’ of the NEC

• The NEC programme is a joint programme

• It provides critical management data

• If the programme is not compliant/accepted it becomes very difficult to objectively assess compensation events

• In order to ensure acceptance it is worthwhile considering a joint review before final submission/acceptance

1. Overview

1. Overview

2. Early Warning

• Early Warnings are very important part of NEC• They are about identifying potential problems before they occur

with a view to avoidance or mitigation• Designed to avoid waiting until they have happened and seeking to

apportion blame• There is no entitlement under Early Warnings• They should not be viewed as claims however if not given or given

and ignored have consequences• Under Clause 16.1 Contractor or PM can issue• Consequences if Contractor not issued when could have – under

options C-F could be disallowed costs• Clause 16.2 gives rights to PM or Contractor to Instruct attendance

at risk reduction meeting.• Issue of EW entails PM must add to the Risk Register• All about encouraging proactive and collaborative working

2. Early Warning

Full list of notifications under the ECC (clause 13.7)Clause Issue

14.2 Delegation

14.4 Replacement of the PM or Supervisor

16.1 Early Warning

17.1 Ambiguities and inconsistencies

18.1 Illegal or impossible requirements

31.3 Programmes

40.3 Tests and inspections

42.2 Defects




61.5 Decisions on Compensation Events

61.6 Assumptions on Compensation Events

62.6 Quotations for Compensation Events

64.3 Assessments of Compensation Events

64.4 Late assessment of Compensation Events

65.1 Implementation of Compensation Events

73.1 Discovery of objects of value etc

1. Overview

The early warning process:

2. Early Warning

The early warning process

• The Project Manager should facilitate and trouble shoot the process

• This is not about casting blame

• Its about mature project management –recognising that both parties will encounter problems

• Its about overcoming them collaboratively

3. Early Warning


•‘Notify’ – separately (13.7)

•4 reasons

•5th reason is discretionary

•Protecting time, quality and cost

16.1 Notify

•May instruct others to attend

16.2 Instruct a meeting

•How to avoid or reduce

•Seek solutions

•Decide on actions

•Update

16.3 Mitigate

•Revise

•Issue to the Contractor

16.4 Update and issue

2. Early Warning


2. Early Warning


•‘Notify’ – separately (13.7)

•4 reasons

•5th reason is discretionary

•Protecting time, quality and cost

16.1 Notify

•May instruct others to attend

16.2 Instruct a meeting

•How to avoid or reduce

•Seek solutions

•Decide on actions

•Update

16.3 Mitigate

•Revise

•Issue to the Contractor

16.4 Update and issue

2. Early Warning


2. Early Warning

Impact if we don’t manage Early Warnings:

Clause 16.1Notify (separate communication:

clause 13.7)

The Prices

Clause 63.5: “…event is assessed as if the

Contractor had given early warning”

Disallowed Cost

Clause 11.2 (25)*….was incurred only because the Contractor did not ….give

an early warning….

Options A-F

Options C-F

Under Options C-F failure to notify early warnings can have a detrimental effect on the Prices (value) and Defined Cost (cost)

*11.2(26) under Option F

3. Early Warning


2. Early Warning

Options A-F


2. Early Warning

Options C-F

Core clauses General 11.2

2. Early Warning

Implementing the key procedures: Early warnings

Procedures in contract

• Risk Register to be compiled by the Project Manager

• Each early warning to be notified and recorded in the Risk Register

• Mitigation & risk reduction to be undertaken as per clause 16.3

Practical suggestions

• Ensure the ethos is right within the team – early warnings are not a pre-empt to a claim!

• Develop the Risk Register from the tender process

• Consider a protocol of picking up the phone and discussing initially. If both parties agree/one feels strongly then follow through with the paperwork?

• Ensure dialogue is maintained• Consider a categorisation system eg. category 1 = critical (meet in the next 24 hours),

category 2 = non-critical (record and discuss at the next progress meeting)

2. Early Warning

2. Early Warning

HANDOUT 1

2. Early Warning

HANDOUT 2

2. Early Warning

HANDOUT 3

3. Compensation Events


Compensation events are defined as events which if they do not arise from Contractors fault, entitle Contractor to be compensated for effect on the Prices, Key Dates and Completion Date

Therefore it is important to remember that compensation events deal with both time and money

What is a compensation event?

• Events which entitle the Contractor to be compensated for the effect on the Prices, Key Dates and Completion Date

• Both time & cost are assessed in a single quotation• Some compensation events may be negative e.g. omit work

from the Works Information (this will have a negative impact on the Prices but will not bring forward the Completion Date)

• This section rewrites the traditional rule book in terms of change management Clearly defined timescales are in place Failure to comply with these timescales can result in the

Contractor being time barred

The timescales are clearly defined with sanctions in place for those that do not follow the process!


What is a compensation event?

• Compensation Events are the ONLY way to change price / and or Completion Date

• All in one place and treated in the same way

• Cost assessed at forecast change in cost

• Time forecast delay based on latest Accepted Programme

• All to tight and defined timescale


1. Overview

Core & Main Option Clauses• The Core Clauses are set out in nine sections and apply in all

contracts. The clauses allow for a flexible amount of Contractor

design.

• Section 1: General

• Section 2: The Contractor’s Main Responsibilities

• Section 3: Time

• Section 4: Testing and Defects

• Section 5: Payment

• Section 6: Compensation Events• Section 7: Title

• Section 8: Risk and Insurance

• Section 9: Dispute and Termination

• The Main Option Clauses provide two options for the dispute

resolution procedure.

• Option W1: Used unless the HGCRA 1996 applies.

• Option W2: Used in the UK when the HGCRA 1996 applies.

1. Overview

The compensation event process – Overview:

• The compensation event process is clearly defined

• Section 6 is divided into 5 main sections: Define,Notify, Quote, Assess, Implement

• Timescales are in place with sanctions for either party if they are not followed

• The timescales are about agreeing the impact notwhen the work is done

• Both time and cost are assessed

• There is no separate prolongation/extension of time


The compensation event process – Overview:


• There is a defined process to agree (or impose) the effects of a compensation event

• Within defined time limits• Definition (60)• Notification (61)• Quotation (62)• Assessment (63/64)• Implementation (65)• Either Party can make sure that process and time

scales are adhered to

What are the reasons for a compensation event?

• There are three main reasons:

• A change of mind/decision

• Failure to do something (a lot relate back to the programme)

• Something has happened that is beyond a reasonable risk


Where are they listed?• There are four sources of compensation events:

• Clause 60.1 (19 reasons)

• A further 3 stated in clauses 60.4, 60.5 & 60.6 (Options B & D)

• Also secondary Options X2, X12.3(6) & (7), X14.2, X15.2 &

Y2.4

• Potentially additional compensation events in Option Z

• NEC 4 also introducing a new category for introduction of

client specific CE’s


Lots of Effort !!!• Many find the Compensation Event process particularly

challenging.

• Need to consider that the conventional contracts have not avoided the need to manage change, in fact most simply push much of the work to the post completion phase resulting in delays , debates, and extended payments.

• NEC3 requires contemporaneous change management and the increased effort should be rewarded by the whole project team having greater certainty of outcome and avoidance of post – completion disputes.


Definition of Compensation events

Clause 60



60. Definition

Essentially is the list of items which are compensation events under the contract.

The first step in administering the Compensation Event process is a simple initial check as to what is / has / could be happening on the project against that list.

Summary of the compensation event clausesClause Description Relevant Clauses

60.1(1) Change to the Works Information 14.3, 27.3 & 44

60.1(2) Access and use of the site 33.1

60.1(3) Employer providing something 31.2

60.1(4) Stop or not start any work 34.1

60.1(5) Employer and Others working times and conditions 31.2

60.1(6) Replying to communications 13.3

60.1(7) Object of value 73.1

60.1(8) Changing decisions -

60.1(9) Withholding acceptance 13.8, 13.4, 24.1,31.3

60.1(10) Instructions to search 42.1

60.1(11) Test or inspection causing delay 40.5

60.1(12) Physical conditions 60.2 & 60.3

60.1(13) Weather -

60.1(14) Employer’s risk 80.1

60.1(15) Take over 35.2

60.1(16) Employer provides materials, facilities and samples 40.2

60.1(17) Correction to an assumption 61.6

60.1(18) Breach of contract -

60.1(19) Unforeseen events 19.1


Compensation event clauses




NEC 4 – adding compensation Events

Compensation events - Additional compensation events

may now be added by the Client in the Contract Data Part One.

Compensation events - A new compensation has also

been added, in the core clauses, entitling the Contractor to

claim for preparing quotations for a proposed instruction which are not accepted by the Project Manager.

Notification of Compensation events

Clause 61



61. Notification

There is a reciprocal duty for the Contractor and the Project Manager to notify each other of any Compensation Event they become aware of.

The details of these obligations are set out in core clause 61.

Notification of Compensation Events



Both Parties have a responsibility to Inform and manage

Many PM’s and majority of contractors need to consider.

The 8 week time barring period does not apply to

compensation events that the project manager should

have notified , in which case the contractor has long as he

wishes to notify up to defects date.

For that reason it is in the Employers best interests for the

Project Manager to notify compensation events in order to start

the procedural clock ticking




Beware contract amendments and Z Clauses Options A-F

Quotations for Compensation Events

Clause 62



62. QuotationsThe Project Manager must instruct the contractor to prepare a quotation , or alternative quotations when a Compensation Event is instigated on behalf of the Employer.

A decision to instruct will depend on the outcome of the quotation.

The Project Manager must also instruct the contractor to prepare quotations for any other Compensation Event.

The timeframe both for the contractor to submit a quotation and for the Project Manager to reply are prescriptive.

Timescales can be altered by agreement between the Contractor and the Project manager although such agreements should be based on genuine necessity.

Quotations for compensation Events


Assessing Compensation Events

Clause 63



63 & 64 Assessing

Compensation Events are assessed relative to Defined Costs and accepted Program.

Quotations deal with both Time & Money

The Project Manager must instruct the contractor to prepare a quotation , or alternative quotations when a Compensation Event is instigated on behalf of the Employer.

Core Clause 63 details the provisions that must be followed by the contractor.

There are circumstances in which the Project manager must assess a compensation Event and these are governed by the detailed provisions set out in Core Clause 64.

Assessing Compensation Events


Project Managers Assessment of

Compensation EventsClause 64



63 & 64 Assessing

Compensation Events are assessed relative to Defined Costs and accepted Program.

Quotations deal with both Time & Money

The Project Manager must instruct the contractor to prepare a quotation , or alternative quotations when a Compensation Event is instigated on behalf of the Employer.

Core Clause 63 details the provisions that must be followed by the contractor.

There are circumstances in which the Project manager must assess a compensation Event and these are governed by the detailed provisions set out in Core Clause 64.

Project Managers Assessment of Compensation Events


Implementing Compensation Events

Clause 65



65 Implementing

Compensation Events are implemented when their time and money are fixed.

These implications are fixed once and once only and not revisited even in the context for a prediction subsequently not transpiring

Time and money are inextricably linked through the Programme and the Defined Cost.

Implementing Compensation Events


Time Barring


The compensation event procedure includes temporal obligations with respect to change management that are both reciprocal and onerous.

The potential time and money rights of the parties in relation to change can be time-barred if the contractual timescales are not followed. Specifically, if the following actions which confer those time and money rights are not taken within the specified time periods, then those rights are extinguished:• The Contractor must notify a compensation event within eight weeks of becoming aware of it – it is a large carrot to notify a compensation event on time if the right to it can be extinguished after eight weeks. • The Project Manager must notify the Contractor within two weeks of receipt if any event is considered not to be a compensation event – it is an equally large carrot to check a compensation event on time if it is deemed to be accepted after two weeks by default, i.e. if it is not proactively rejected if it is considered accepted.

The purpose of such time-barring is to effectively incentivise the parties to perform efficiently and deal with compensation events as they arise. This is a critically important objective of NEC3 in dealing with change contemporaneously and not leaving it for a final account debate.


HANDOUT 4

Agree to meet regularly & maintain dialogue


Consider the contractual loop / Genuine need for Alterations to the periods –And KEEP YOUR CLIENT INFORMED

Implementing the key procedures: Compensation events

Procedures in contract

• Clear timescales and procedures detailed in section 6

• Both parties may ultimately be time barred if they fail to follow the timescales

Practical suggestions

• Meet to discuss appropriate compensation events before final submission

• Discuss any issues – the aim is to informally agree before formal submission

Agree to meet regularly & maintain dialogue



HANDOUT 5

3. Compensation EventsHANDOUT 6


HANDOUT 7

Some Points to Note


• Clause 80.1 defines the Employers Risks under the contract

• Clause 81.1 sets out that all other risks are carried by the Contractor.

• Clause 83 each party indemnifies the other against events which are at its risk

• Often ITT’s are including preliminary risk registers to help prospective contractors understand what getting into.

• Risk Registers are a practical project management tool , time or cost consequences should fall outside of clause 83 and be addressed through other mechanisms (CE’s) Parties need to be very clear as to how any such risks are allocated.

• Recent difficulties around the final entry clause 80.1 which allows additional Employers risks to be specified in the Contract Data in order to include a preliminary risk register .

• Employer will often append or refer to the risk register in the contact data and if that register assigns actions to the employer could be argued that they become part of 80.1

• Broad consensus that risk register operates at a practical level and not intended to alter 80.1 and 81.1 however still limited case law and remains uncertainty.

• Prudent for clarity to amend the contract that items in the risk register are not employers risks.

4. Points to Note

4. Points to Note

Key risks – physical conditions:

• Physical conditions (clause 60.1(12)) are a compensation event if they are over and above the defined risk:

• …… an experienced Contractor ….. such a small chance of occurring ……unreasonable for him to have allowed for it

• When ‘judging’ if it is a compensation event – clause 60.2 lists what the Contractoris deemed to have taken account of

The Contractor needs to take account of the risks which are within the parameters of this definition

On most projects this represents a significant risk

Example: A new housing development on a disused hospital site: Discovery of a redundant drain and telephone cables in different places to those shown on drawings is unlikely to be a compensation event (?)

4. Points to Note

4. Points to Note

Check the Z clauses – Advice is to minimise however increasingly seen used

• Introduction of Provisional Sums• Significantly altering of periods (4 weeks to become time barred)

Note that clause 26.3 sets out the reasons why the Project manager might reject a subcontractor.

The use of any other reason would potentially trigger a compensation event as clause 60.1(9)

So Project Managers must tread carefully when considering such matters.

And as later note that Welsh LA have added further reasons via the amendment of a core clause rather than adding a Z clause.

4. Points to Note

Consider the final part of clause 26.2 the Contractor is prohibited from appointing a proposed subcontractor until the Project Manager has accepted that subcontractor.

Contractor’s should be aware of this prohibition as at clause 91.2 the appointment of a subcontractor for substantial work before the Project Manager has accepted the subcontractor is Reason 13 of the reasons allowing the Employer to terminate the Contract.

The only point for debate in respect of this reason is what is substantial work as opposed to unsubstantial work.

4. Points to Note

4. Points to Note

Recommendations are to keep Z clauses to the minimum

Government and NEC Guidelines available which detail and suggest reasonable and some of the more common uses of Z clauses – such as compliance with Official Secrets act.

Review of this Contract discovered significant amendments to and introduction of new core clauses (Just on compensation events)adds to 60.1(10), removes 60.1(12),60.1(19), 60.2, 60.3 adds 60.4 (confirms contractors risks on risk register not CE’s) and 60.5 liability under common law relating to compensation events.

Recent works with Welsh Contractor reviewing NEC framework Documents issued by Local Authority

4. Points to Note

Inclusion of 33 Z Clauses – covering such items as


Contractors obligations for Security Waste Management & WRAP

Confidentiality and FOIA & EIR Quality and Quality plans

Publicity & Advertising Preliminaries and Value Engineering

Guarantees / Warranties / Insurances Provisional Sums

Community Benefits Welsh Language

BREEAM & EPC CDM

Discrimination Recycling

BIM & Soft Landings Considerate Constructors

Data Protection


4. Points to Note

LA’s added and amended the core NEC 3 clauses – in this case adding Disallowed costs into an Option A contract !!

Significant risks of introducing confusion – NEC3 is a set of standard procedures and processes with supply chain contracts designed to be back to back.

Changes should be via Z clauses

4. Points to Note

Is it really the LA’s intention

to pass obligations down the

entire supply chain


4. Points to Note

LA’s added reasons why the Project manager is able to reject a proposed sub contractor –Again need to be commercially aware of potential ramifications


4. Points to Note

Consider how you might need to add into supply chain agreements – use of vesting certificates ? – Protect your liability?


4. Points to Note

Consider how you might need to add into supply chain agreements – and manage the payment process to protect cashflow


4. Points to Note

Consider how you might need to add into supply chain agreements in relation to Compensation Events.


4. Points to Note

LA’s intention being to pass obligations down the entire supply chain. Contractors involved

in such Frameworks need to consider the practicalities of actually being able to pass these onto their supply chain / or take an

informed commercial risk.


Recap

1. Overview2. Early Warnings 3. Compensation Events

• Clause 60 (Definition)• Clause 61 ( Notification)• Clause 62 (Quotation)• Clauses 63 & 64 (Assessment)• Clause 65 (implementation)

4. Some Points to Note5. Recap

Planned CFW NEC Activities / Interventions

Workshop 2 – Tuesday 10th October 7.30am-11.00pmConway Business Centre, Junction Way, Conwy LL31 9XXImportance of Program control and management under NEC 3 Program is often referred to as the beating heart of the NEC – but what should it include, how often does it need to be updated? How does it relate to compensation events? What is acceptance? We will also explore how the NEC3 deals with inclement weather and acceleration.

Workshop 3 – Thursday 12th October 7.30am-11.00pmNational Botanic Garden of Wales, Middleton Hall, Llanarthne SA32 8HNUnderstanding works information and contract data under NEC 3In this workshop we will be delving a little deeper into the importance of the Works information, Contract data parts 1 & 2 – Where is the key information? What is included? What might you need to be aware of? We will look the functions of the risk register, explore use of activity schedules and the concepts of allowed and disallowed costs.

Management of Change Under

NEC3

Stuart Brisbane

Contact 07981 954 417

Thanks for Listening

21st Sept 2017