The first NEC
contract was drafted in 1993 with an aim to encourage collaboration and sharing
of risk and reward within construction. (NEC, n.d.) Using plain language, it inspires
good management and limit disputes between contractor and employer by introducing
compensation events to promote risk prevention over blame delegation. (NEC,
n.d.) There have been 4 iterations published; the most recent being the NEC4 in
2017. (ICE, n.d.) By this time the contract has proved itself in its
procurement of the 2012 Olympics. As a result of the success ICE decided to
solely endorse this form of contract from 2009.
The Joint contracts tribunal was formed in 1931 by the Royal
institute of British Architects and is made up of seven members representing a
wide range of interests in building and construction industries. They have been
responsible for standard forms of contracts, guidance and other standard forms
of documentation used in the construction industry. It focuses on ensuring risk
allocation is balanced between parties, schedules and payment procedures. (Pinsent
Masons, 2012) Unlike the NEC these contracts are only appropriate for those
experienced in construction and risk analysis, that have appropriate in-house contractual
procedures. (Pinsent Masons, 2012) The JCT form of contract has little provision for
dealing with unknown risks arising throughout the project. (NEC, n.d.)
Key features of NEC
and JCT
Both contracts encourage
an authoritative figure that works with the contractor on behalf of the
employer; in NEC a Project manager and in JCT a Contract administrator. The PM
adopts an active role, connecting all parties practically; the NEC’s choice to
open with a collaboration clause[1] promotes this united work
ethic. (Shutte, 2016) This good management and active input from all parties is
encouraged through the risk register[2] and compensation event
procedures[3] (mentioned later) put in
place by the NEC. (Close, 2011) The CA instead has an accounting focus and is
not as proactive in leading parties; their roles include keeping the accounts
and guiding parties through procedure. (Shutte, 2016)
In the case of
expense disputes; the NEC uses a compensation event procedure which considers
both time and costs together, with the ethos being that problems are solved in
real time. (Jenkins, 2014) Compensation events also have a condition precedent
nature, with denial of appeal if the contractor fails to inform the PM within 8
weeks. This time bar makes the resolving of risks an active part of the
contract and a mutual interest between all parties involved. Conversely, JCT
deals with cost and time matters separately and the contractor is obliged to
notify the CA of relevant events/matters, however suffers no contractual
consequence if they fail to do so.[4] (Weld, n.d)
NEC applies condition precedents to ensure compensation events are recognised early[5] (Dalton, 2011) Ensuring cost and time disputes are efficiently resolved so there is limited detrimental effects to the project. In JCT there is no time precedent for risks to be concluded, adopting a ‘pay later’ approach. (Shutte, 2016) The contract therefore resolves disputes in a final account procedure[6] in which adjustments to the contract sum are agreed and the final payment is confirmed. This process can be time consuming and adversarial, making the NEC ‘pay as you go’ angle more appealing to minimise disputes at the end of a project and ensure an efficient closing process. (ICE, 2017)
NEC promotes a risk
register tool to aid in identifying risks and determine appropriate mitigation
for each circumstance. The risk register is started at the outset of the
contractual stage and compiled of risks identified in the contract data. The
list can then be added to accordingly as the project progresses by means of the
early warning[7]
regime. The contract states that either the PM or Contractor must request a
risk reduction meeting[8] to discuss risk
mitigation, solutions beneficial to all, assigning roles and removal of risks
from register if required. Early warning acts as an incentive providing an
agreed pay/time sum efficiently for those involved in the dispute. JCT however
works on standard allocation of risks, where the burden of risk is not shared
but allocated to individuals. These risks are not actively dealt with therefore
solutions are often achieved in a less timely fashion. (Ross, 2017)
Each form of contract
is required to specify their preferred route of dispute resolution procedure.
Under the goal of ‘mutual trust and cooperation’ the NEC encourages
adjudication and then arbitration as their preferred practice (Rousel, 2010);
this process avoids the courts by providing an experienced unbiased third-party
member to consider the contractor and PM’s arguments and come up with a
resolution. This method is ordinarily more efficient, cost effective and tends
to cause less bad blood between the PM and contractor however it is binding, and
parties must agree to whatever award is granted by the arbitrator. There is
usually no option to appeal the final decision as the parties are assumed to
have understood the risks. (Legal-dictionary, n.d) JCT conversely favours
litigation, which can be preferable if the case has a law focus as an
arbitrators’ role is based upon technical expertise surrounding the project. Litigation
however is becoming less desired as it damages the continuity of the plan and
can damage both sides reputation. (Rousell, 2010)
In summary; the PM
role encourages a greater deal of cooperation within projects whereas the CA
still poses a rift between employer and contractor. The compensation event
procedure and time bar clauses have efficiency however there is evidence to
suggest disputes arise from contract lexis (Coward, 2017). The lack of
consequence for the CA if risks aren’t reported can cause disputes later in the
process. Condition precedents and the risk register meetings promote a good
relationship between the contractor and the PM and allow each to stay informed.
The programme update process though is extremely complex and requires a highly
organised and experienced PM for it to succeed. Finally, the push for
arbitration can be positive in a continuing project but the case itself
dictates whether the claim is more effective than if litigation were used.
From this we can see
NEC is overall seemingly more positive due to the promotion of good practice in
industry however discrepancies in wording can hinder projects and the step away
from legalise is something to get used to. It is also important to note that an
experienced and active PM can often make all the difference in NEC’s success.
Disputes
There are still a
great deal of disputes in the construction industry with the UK average value
of disputes at £26m in 2016 and 17. (ARCADIS, 2017) Time taken to resolve these
has seen obvious increases over 2016 and 17. This highlights a need for better
contract administration and more robust documentation, there is also a need for
all parties to be more clear on their contractual obligations. A worldwide
study conducted by ARCADIS in 2017 highlights the main causes of disputes are; incorrect
distribution of contracts, poorly handled claims and a lack of understanding
when it comes to contractual obligations. (ARCADIS, 2018)
The introduction of
4D BIM is an example of the kinds of technology that can aid in mitigating such
disputes. 4D Building information modelling introduces the 4th
dimension ‘time’ and allows CAD to show the project participants a predicted
view of each stage in the construction process. (Patel, 2018) This allows all
members of the project of what tasks, when and how they are carried out giving
them an informed understanding of the plan. Seeing the project allows
individuals to detect and circumvent problems such as an overcrowded work site;
issues that are difficult to spot using the regular critical path method
schedule. This early detection will reduce quick reaction rescheduling and
workarounds will become less common meaning an overall reduction in disputes
over time/cost loss. (NAVIGANT, 2016)
In the case of technology
such as smart phones, virtual platforms and the internet of things. Sharing and
access of information is becoming much easier. When considering contracts such
as NEC4 with a continuously adapting programme in place, internet sharing of
this information will allow all work members to have access to this information
immediately, ensuring they remain informed of their roles in the project. (Dupay,
2015)
This very brief
analysis suggests that the introduction of new forms of technology is a long
process and requires testing in order to earn the trust of the industry. However,
when used correctly, access to information and an increased awareness of site
procedures will aid in the decrease of disputes once the industry becomes
acclimatised to using technology.
Big data and the
Blockchain
Advances in the
storage capabilities of computational data and power and a drop-in sensor costs
means that we can gather more data than ever before. Data regarding anything
from utilities and building management systems to operational cost monitoring can
all be used to understand the behaviour of a complex site. Smart technologies
allow the collection and storage of big data and provide transparency through
being accessible. They can analyse such data and determine how one change may
influence others. Construction 2025 argues that live data will provide an
insight into construction processes resulting in smarter more energy, work
force and material efficient designs. (Designing buildings wiki, 2017)
Project Managers can
use big data in every stage of the project. In the design stage, building
design and modelling, environmental data and even social media can inform what
and where to build. Analysing historical data can pinpoint where similar
projects have failed, this makes the risk detection process much more accurate.
(Burger, 2018)
During the building
stage, weather, traffic and community activity can dictate appropriate times
for construction activities. Sensors allow machine use to be monitored and the PM
can conclude optimum leasing times for equipment in order to reduce fuel usage
and ecological impact. (Burger, 2018) Environmental impacts can be considered
such as noise levels and particulates in the air, this is extremely useful in
built up areas where standards must be met. For example, the tideway tunnel must
conform to the Clean Air Act 1993 which requires monitoring of dust released
into the air. (Thames Water, 2014)
Big data can also be used
to monitor the performance of the build. Bridges can be monitored to detect if
deflection becomes out of bounds, this information can then be fed back to BIM
to schedule maintenance measures.
Blockchains are
decentralised databases which securely records transactions in chronological
order. (Hughes, 2017) Blockchains are both faster and more secure than traditional
systems and much more cost effective. There are usually a wide number of
companies involved in a project and typically there is a wait time on the
sharing of documents and information. Whether it be contracts or changes to the
programme made by the PM. Blockchain’s centralised system means that all this
documentation is easily accessible to all members and wait times aren’t an
issue. This allows management to spend more time focussing on the project than
they would previously have spent transferring data. (Matthews, 2018)
Smart contracts and their implications
Development of
blockchain technology is proposing smart contracts in which software can negotiate
agreement terms, verify their fulfilment and executes these agreed terms. Although
smart contracts are beginning to be talked about due to the success of blockchains
in bitcoin, the idea was originally introduced 20 years ago. As a smart
contract is programmed to process claims, it removes the need for a middle man/
lawyer making transactions more efficient and cost effective. But as the
contract is imbedded in a blockchain, no one oversees the money leading to
questions about virus protection and liability if errors occur. However, the
smart contract has similar features to the blockchain in that it is immutable
thus no one can tamper with the contract and they are distributed meaning
everyone involved must validate the transaction for it to go ahead. (Tania, H n.d)
When dealing with
risks during the project s there is a lack of confidence in the use of AI for
decision making, with tech engineers pushing this alternative means of dispute
resolution. (Hryniewicz, 2018) Perhaps due to fear of the unknown, many
engineers when asked in a study of the opinion of stake holders on smart
contracts said that in the case of resolving a dispute it is necessary for
human interaction. (J, Martin & H, Escott, 2018) AI may limit the to and
fro traditional disputes have, there is an argument that it is common practice
to achieve trust through interaction. (Lewicki, 2003) However, some suggest
that a fully automated system may lead to a greater degree of trust due to ease
of sharing and security. This may pose difficulties when trying to integrate
the NEC’s compensation event format into smart contract code. This in turn
could pose confusion, such as who has the right to claim for compensation
events and who is liable when such risks pose delays or cost impact. (Winfield,
2018)
References
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[1]
Clause 10, NEC3
[2] Clause
11, NEC3
[3] Clause
61-65, NEC3
[4] Clause
2.4, JCT
[5] Clause
16, NEC3
[6] Clause
30, JCT
[7] Clause
16, NEC4
[8] Clause
16.2, NEC4
