Comparison Between NEC 3 Engineering and Construction

Introduction

In this report I will be carrying out a comparison between NEC 3 Engineering and Construction Contract with extension of time and additional payment with ICE 7 Condition of Contract. The reason within a project it is important to get the contract right is because the main aspects which the contract governs is time, cost, quality, risk exposure, allocation, responsibilities of the parties, governing law and dispute resolution. Throughout this section I will review the compensation events produced and stated by both contracts and compare and contrast them. Also, I will talk about the equitable sharing of risk.

NEC 3

“The NEC Engineering and Construction Contract (ECC) has been developed as multi-disciplinary contract and to meet the current and future needs for a form of contract to be used in the engineering, building and construction industries.”

“Good project management – this is achieved through focusing on communications, cooperation and programming (e.g. early warning, risk reduction meetings and risk register).”

ICE Conditions of Contract, 7th Edition

“This contract was designed to standardise the duties of contractors, employers and engineers and to distribute the risks inherent in civil engineering to those best able to manage them.”

Comparisons

When looking through the two contracts I feel that the ICE conditions of contract is more structured and worded as a legal document than the NEC (engineering and construction contract. This is because the 7th edition of the ICE conditions of contract was produced to make sure that the condition complies with the housing grants, construction and regeneration act 1996 with this frame in mind it shows within the ICE document, that it is more legal because the reference of clauses and sub-clause within the document is more structured as a legal document, which reflects on the wording that is used within the two documents. When looking at the documents, it is very clear to see that NEC 3 document is very thorough and provides a high degree in clarity in terms of what it is getting across, with the use of simple common language and avoiding any legal jargon within the contract. This makes the contract clear in what the duties are and who is responsible of them.

This follows on to the next difference is the wording of the documents when looking at the ICE contract. For example, when looking at the assessment of the delay or assessing compensation events, you can see that reference to the previous statements is not involved in the NEC 3 contract so words like “clause” and “sub-clause”, this make the reader refer to previous clauses which makes the reading of the contract more complex and cross referenced throughout the documents. This plays at part in the clarity of the structure and the simplicity of the document and the organisation of the statements for the reader. (Legal language – clause referencing sub-clause), also a good example found in the NEC using “plain English” is core clause 60.1, which requires the reader to focus on what is intended no assuming anything, which reduces the risk of confusion, presumptions and understanding. Another difference between the two documents is that the person who does the decision making is different between the two contracts. The NEC 3 contracts on a project the employer will appoint the following parties, Project manager who has a key role within the project. Project manager appointed by the employer, either from its own staff within the company, or from an outside body. The project manager’s role is to manage the contract for the employer to achieve the employer’s objectives for the completed project. The project manager could be an engineer, architect, quantity surveyor or any other discipline dependent on the type of project and the employer’s preference, but in all cases it must be someone who has sufficient knowledge of the contract and the role of the project manager to be able properly to carry out that role.

Supervisor appointed by the employer for a particular contract. Again, the supervisor can be either from the employer s own staff, or from an outside body. Essentially, the supervisor’s role is to check that the works are carried out in accordance with the contract. This role can be likened to that of a clerk of works or resident engineer in other contracts.

Within the ICE contract, the employer will appoint the engineer who has the key responsibilities of the project. This is the person who has the same responsibilities as the project manager stated above. This is a difference in terms of names and who can be appointed by the employer but is the same role within the structure, but the ICE contract requires an engineer to be in control but whereas the NEC states that is could be an engineer, architect, quantity surveyor but as long as they have the knowledge of the contract and the ability to carry out the role of project manager.

The major difference in terms of the compensation event is the delay. Within ICE Condition of Contract, within clause 12(1): adverse physical conditions or artificial obstructions this outline the delay event but the difference is the notification of notice gives the contractor 28 days, whereas the NEC 3 states in clause 61.3: “If the Contractor does not notify a compensation development within eight weeks of becoming aware of the event, he is not entitled to a change in the prices, the completion date or a key date unless the Project Manager should notify the event to the Contractor but did not.” (9)

Another point which sets the two documents apart is the mechanism which avoids parties disputes. Firstly, within the ICE 7 there is no formal mechanism or procedure which tries to allow misinterpretation or understanding which encourages the parties to work together to resolve a problem. Whereas within NEC 3, it provides “Early Warning” and “Compensation Event” mechanisms/procedures which are used to resolve matters in a civil manner and quickly, thus avoiding or minimising the development of adversarial attitudes by both parties.

The Familiar basic form of contract meaning that the two forms are structured the same way. This allows users of each document two inter change and use either of the contracts,

The objective of the documents is to eliminate disputes within the structure and allow the project to run smoothly and productively under an organised structure, both of the documents are intending for this to occur. With this implementation, it eliminates the risk on the employer’s side because letting the contractor to run the project on the site front and inform the PM or Engineer about disturbances or problems which would lead to compensation to be introduced for the disturbance. I feel that before the documents are putting the risk on the contractor’s hands and not the employer’s hands.

Risk

When talking about the risk which is involve in the project, the use of contracts can avoid risks, ICE for example, transfers certain specific risks to the contractor.

The most common risks to be transferred are those for unforeseen ground conditions, exceptional weather and dealing with service diversions. For example, A fixed price option can be used where the design is complete at tender stage and the contractor undertakes to provide that design for a fixed price. This gives the greatest degree of control over the design and provides a high degree of price certainty, Does not guarantee a fixed cost. Certain exceptional risks are not transferable and any changes instructed by the client do incur costs, as there is a transfer of risk, tender prices are higher than a contract without this transfer. However, the outturn price is usually lower than for the conventional form of contract.

NEC 3 introduces a risk management system which includes a Risk Register, early warnings, risk review meetings and provides an approval against the Contractor if he fails to give an early warning. This means that if a matter that ought to have been the subject of an early warning (but none was given) becomes a compensation event then that is evaluated “as if an early warning had been given”. That comes from clause 63.5. This result in the risk on the contractor’s hands and not providing these requirements will result in the risk for the contractor and compensation will be consider with this in mind. The procedure for the early warning system is set out in clause 16; the contractor or PM have an obligation to give early warning of any matter which may increase the prices, delay completion or delay meeting a Key Date; this matter is then put on the risk register and the parties thereafter attend a risk reduction meeting to try and work through the issue and decide proposals for dealing with the issue.

Therefore, if a timely early warning would have provided an opportunity to identify a more efficient manner of resolving the issues, then the contractor will only be paid for that economic method of dealing with the event.

Clause 61.3 is effectively a bar to any claim should the contractor fail to notify the project manager after becoming aware of the event in question. This means that any time and financial consequences of any breach of contract if the contractor fails to notify.

Reason for the early warning notice, is to reduce the risk to time, cost, performance and contractor can notify risk to own cost. Co-operation between the parties at an early stage of any issue identified by the contractor or project manager provides an opportunity for the parties to discuss and resolve the matter in the most efficient manner.

The early warning procedures included in clause 16. These provide:

• The contractor to give the project manager warning of relevant matters;

• A relevant matter is anything which could increase the total cost or delay the completion date or impair the performance of the finished works;

• The contractor and project manager are then required to attend an early warning meeting if one or the other party request it. Others might be invited to that meeting; and

• The purpose of the early warning meeting is for those in attendance to cooperate and discuss how the problem can be avoided or reduced. Decisions focus on what action is taken next and who is to take that action.

For example: The types of issues which may be notified as an early warning matter are:

• Insolvency of sub-contractors;

• Shortage of materials; and/or

• Design problems.

Conclusion

After the review of the two contracts, I feel that the NEC 3 contract is more in the avoidance of parties disputing and preventing occurrences of risk on one party and is fair to all parties as dictated by reason and conscience. I feel that the ICE 7 is open to misinterpretation which could lead to disputes and in terms of compensation could lead to disagreements. NEC 3 provides procedures for the contractor to follow and allows for more clarifications and it is easily to navigate through. While doing this report I felt that the NEC 3 contract allowed me to understand clearly what is intended and what is needed within the contract, this was due to the simple language used and the options given. While reading the ICE 7, I felt confused and had to read further to understand each clause. I feel that they are both good contracts but for me to understand and apply, I would be happier to use NEC 3, due to its ease of use, which allowed me to understand each clause. I also feel that ICE 7 a contract which waits waits for problems to occur and then act upon them, where as NEC 3 is tries to prevent the problems before they occur, this shows different philosophies between the two documents.