Experience Sharing on NEC Implementation and its Effectiveness in Hong Kong
KH FokNEC3 ECC Accredited Project Manager
[email protected]: 9819 4463
17 January 2017
Note:
This set of notes has been prepared according to the speaker’s interpretation of the NEC and related documents and is intended for knowledge sharing purpose only. While every care has been taken in the assembly of this material, no responsibility for loss occasioned to any person acting or refraining from action occasioned by or as a result of any material included herein can be accepted by the speaker.
DEVB's website (for access by the construction industry stakeholders)http://www.devb.gov.hk/en/publications_and_press_releases/publications/standard_contract_documents/practice_notes_for_new_engineering_contract_engi/index.html
Contents in the 120-pages PN
Background Information (Chapters 1 – 3) Pre-Tender Stage (Chapter 4) Tender Stage (Chapter 5) Construction Stage (Chapter 6) Knowledge Sharing (Chapter 7)
This 120-pages PN Part A (a living document) is for ECC only. There will be Part B and Part C for TSC and PSC.
Key Topics in Part A for ECC1. Option selection – A4.2
2. Partnering – A4.3
3. Pain/Gain for target cost contracts – A4.4
4. Pre-tender estimate, contingency and provisional sums – A4.5
5. Tender documents – set of standard documents such as amendments to the NEC clauses, ACC,
etc.
6. Effective project management – A6.1 to A6.4
7. Healthy financial management under target cost contracts – A6.2
8. Cost control and corruption prevention for subcontracting – A6.2
9. Payment checking for target cost contracts – A6.2
10. Equitable risk allocation and management of compensation events – A6.3
11. CSD and alternative proposals – A6.6
12. Performance benchmarking – A6.7
13. Knowledge sharing – 7
34 pages
Coverage in this Seminar
NEC provisions, highlights of the PN and common issues in the following aspects: Time (Programme) Subcontracting Payment Compensation event
Specific issues encountered / anticipated by the participants
Time – NEC Provisoins
Cl. 31.1: Contractor submits a first programme; failing in submitting the first
programme, 25% payment reduction (cl. 50.3)
Cl. 31.2: Programme requirements (detailed requirements like float, time risk
allowances, information from others etc.)
Cl. 31.3: Project Manager has 2 weeks to accept the programme. If not
accept, state reasons
Cl. 32 – Onerous requirement for the Contractor to revise the programme
(prospective approach, no longer retrospective); failing in updating the
programme, Project Manager’s assessment of compensation event (cl. 64.2)
Cl. 36 “Acceleration” – Project Manager may instruct Contractor to submit
quotation for acceleration to achieve Completion before the completion date
Time – Cases for Discussion
1. Whether the Contractor’s Programme should include “time risk
allowance” for inclement weather?
2. Can the planned Completion shown in the Contractor’s programme
go beyond the completion date?
3. If the Contractor’s programme shows a duration for design
acceptance different from the period for reply as stated in the
Contract Data, which duration prevails?
Programme Acceptance:
Better have an Accepted Programme in place, otherwise will become a
compensation event (Cl. 60.1 (9) or Cl. 60.1 (6)),
or the Project Manager to make his own assessment of compensation
event(s) under Cl. 64.2
Programme meeting / workshop to ensure mutual understanding
Detailed sub-programme for next 3 months or so
Identify key changes in subsequent revised programmes
“Programme Register” to trace changes of planned Completion and
Completion Date
PN Highlights on Time
Subcontracting – NEC Provisions
Cl. 26.1: If a Contractor subcontracts works, he is responsible for
Providing the Works as if he had not subcontracted…
Cl. 26.2: Contractor submits the name of each proposed
Subcontractor …
Cl. 26.3: Contractor submits the proposed conditions of contract for
each subcontract … The Contractor does not appoint a
Subcontractor … until the Project Manager has accepted them. …
PN Highlights on Subcontracting
Clause 26 (with amendments) should be followed
Clause C9 of the standard additional conditions of contract sets out the tender
requirements for subcontracting for Options C & D and for compensation events under
Options A & B
Should not prevent the appointment of any proposed Subcontractor on unreasonable
grounds
Project Manager should attend pre-tender meetings
2-stage selection process with alternative designs can be accepted
Ensure competitive tender
Declaration of no linkage
Qualification of tender is not accepted; clarification is needed if there is different
interpretation
PN Highlights on Subcontracting
If insufficient number of return tenders, Project Manager should make decision within
three weeks
If not the lowest tender is proposed, Project Manager should make decision within
three weeks
Practices to ensure a smooth subcontracting process
Benefits from early Project Manager’s involvement in the subcontracting process
Involve Subcontractors in regular meetings during construction
Finalize subcontracts as soon as possible
Discuss whether new Subcontractors will be invited for compensation events with
reasons; if yes, clauses C9 and C11 of the standard additional conditions of contract
should be followed
Subcontracting – Cases for Discussion
4. Will a design consultant be treated as a “subcontractor” in target
cost? How the design fee be recovered – Defined Cost or Fee?
5. Whether the Contractor should follow the subcontracting or
procurement procedures for works / services required at early
construction stage such as hoarding erection, security?
6. Can the Project Manager accept Subcontractor whose tender
return price is not the lowest?
7. If the accepted Subcontractor quits, does a retender process
require or the 2nd lowest tender can be proposed?
Payment – NEC Provisions
Clause 1 – definition of terms (PWDD, Fee, Defined Cost, etc.) Clause 5 – payment process (payment applications [as amended],
payment assessment, payment date, etc.) X1 – Price adjustment for inflation× X6 – Bonus for Early Completion X7 – Delay Damages× X14 – Advanced payment to the Contractor X16 – Retention × X17 – Low performance damages X20 – Key performance indicators
PN Highlights on Payment
Project Manager decides the first assessment date (clause 50.1) PAH 25-day rule – payment to the Contractor within 25 days from
the assessment date for contracts using NEC Clause 51.2 – each certified payment is made within three weeks of the assessment date or,
if a different period stated in the Contract Data, within the period stated
Interest – not for corrected amounts in later certificates due to compensation event or other reasons (clause 51.3 [as amended])
X1 Price Adjustment for Inflation – X1.4 for Options A & B and X1.5 for Options C & D
… A total of 34 pages (out of 120) on checking of payments covering:
Start-up procedures Checklists …
Payment – Cases for Discussion
8. There were confusion in payment related to “People” since the
definition has been amended to exclude “management and
supervisory staff”:
Is a land surveying team entitled for payment under “People” of the Schedule of
Cost Components [as amended]?
Is a “procurement team” classified as “management and supervisory staff”?
Is the MPF for “management and supervisory staff” part of the amount due?
9. Are performance tied payments in X20 subject to retention (X16)?
10. Item 23 of the Schedule of Cost Components is deleted. Will the
Contractor be entitled for full payment of the purchased
Equipment?
Cl. 60.1 – lists 19 situations which are compensationevents if happen
Cl. 80.1 – lists Employer’s risks Clauses 61 to 65 – set out procedures in handling
compensation events
Compensation Event – NEC Provisions
(13): Weather measurement worse than that once in ten years (but has been amended to:)
One or more of the following weather conditions: (i) the hoisting of tropical cyclone warning signal No. 8 or
above, or (ii) Black Rainstorm Warning, or (iii) Red Rainstorm Warning, or (iv) Amber Rainstorm Warning, or (v) inclement weather and/or its consequences adversely
affecting the progress of the works.
Compensation Events – Cl. 60.1
(20): A Change in Law as defined in Clause [A1] of the additional conditions of contract.
(21): A shortage of labour which would have been unreasonable for an experienced Contractor to have allowed for at the tender closing date.
Compensation Events – Cl. 60.1
PN’s Highlights on Compensation Event Amendment to cl. 63.4 – time only
Weather (cl. 60.1(13)) – time only for A & B
Unforeseen physical conditions (cl. 60.1(12)) – difference from the Site Information (cl. 60.2)
Shortage of labour (cl. 60.1(21)) – time only
Utility interface (cl. 60.1(5)) – time only
Change in law (cl. 60.1(20)) – as stated in additional conditions of contract A1; X2 not used
Prevention (cl. 60.1(19)) – time only
Change to the Works Information (cl. 60.1(1)) – similar to “variations”; not applicable to Contractor’s
design
Correction to an assumption of a compensation event (cl. 60.1(17)) – assumption made by PM only
Delay by the Employer or Others (cl. 60.1(2) or (5)) – time only
Failure to respond (cl. 60.1(6)) – Contractor’s design, subcontractors procurement
Change in quantities (cl. 60.4 to 60.6) – re-measurement record
Assessment of prolongation costs – time-related resources; to be established early
Compensation Event Delegate’s authority up to HK$300,000
Talk before submission in view of PM’s authority
Cl. 63.1 effect of compensation event – Defined Cost plus Fee; cl. 63.3 Contractor’s risk
For Options A & B – rates or lump sums can be used if agreed but not subject to fee percentage
Assessment should be properly documented in the Project Office for audit
Programme update
Changes to the Activity Schedule (cl. 54.2) – payment follows the adjusted Activity Schedule
Compensation Event – Cases for Discussion
11. EPD’s notification of increasing the waste disposal charges in
August 2016:
Is this a compensation event?
Such increase does not cause additional resources in the physical works. Does
the Employer need to pay Contractor the Fee?
12. What if Subcontractors’ quotations for compensation events do not
follow the NEC’s approach, i.e. not use the Schedule (or Shorter
Schedule) of Cost Components?