ZD MABATHOANA

BSc.QS (Hons), MSc. Real Estate

PrQS, MAQS, MRICS
Lecture Outline

• Outline of NEC
• NEC3 Contracts
• Use of NEC Contracts
• Typical appointments using NEC
• Main Options in NEC3
• Balance of risk for each main option under the ECC
• The ECC
NEC – The New Engineering Contract

NEC3 - 39 Documents NEC4 - 41 Documents

NEC – The New Engineering Contract
• Professional Services Contract
– PSC
• Engineering and Construction
Short Contract – ECSC
• Engineering and Construction
Contract – ECC
• Engineering and Construction
Sub-contract – ECS
• Engineering and Construction
Short Sub-contract – ECSS
• Term Service Contract - TSC
• Framework Contract - FC
• Adjudicator’s Contract - AC
• Professional Services Contract – PSC
• Professional Services Short Contract –
PSSC
• Professional Services Subcontract –
PSS
• Engineering and Construction Short
Contract – ECSC
• Engineering and Construction
Contract – ECC
• Engineering and Construction Short
Sub-contract – ECSS
• Engineering and Construction Short
Sub-contract – ECSS
• Term Service Contract - TSC
• Framework Contract - FC
• Dispute Resolution Service Contract –
DRSC (replaces AC)
• Design Build and Operate Contract -
DBO
 NEC – The New Engineering Contract

• Modern day contract suite that facilitates

implementation of sound project management
principles and practices as well as defining legal
relationships
• Successful implementation depends on users
moving away from a culture of reactive and
hindsight-based decision making and management
approach to one that is foresight based, encourages
a creative environment with pro-active and
collaborative relationships
• NEC4 is a result is the result of feedback from
industry on many years of successful use.
 NEC – The New Engineering Contract

• NEC is a brand name for family of standard

contracts, each of which has these characteristics:
• Its use stimulates good management of the
relationship between the two parties to the
contract and,
• Flexibility: used in a wide variety of commercial
situations, for a wide variety of types of work and
in any location.
• It is a clear and simple document – using
language and a structure which are
straightforward and easily understood
 NEC – Style (Use of initials & italics)
• Terms identified in the Contract Data are in italics
• Defined terms have capital initials
• Examples:
• Completion
• Works Information
• Defect o Equipment
• Plant and Material
• Key Date
• Subcontractor
• Contractor
• Project Manager
• Adjudicator
• Conditions of contract
• Law of the contract
• Method of measurement
NEC 3 – The six main books
 NEC – The New Engineering Contract

• ECC -appointment of a contractor for engineering and

construction work, including any level of design responsibility
• ECS -appointment of a subcontractor for engineering and
construction work where the contractor has been appointed under
the ECC
• ECSC -an alternative to ECC and is for use with contracts which
do not require sophisticated management techniques, comprise
straightforward work and impose only low risks on both client and
a contractor
• ECSS -as a subcontract to ECC or ECSC. It should be used with
contracts that do not require sophisticated management
techniques, comprise straightforward work and impose only low
risks on both the contractor and subcontractor
 Use of NEC Contracts

• PSC -appointment of a supplier to provide professional services

• PSSC -appointment of professional services for lower scale / low
risk projects which do not necessitate sophisticated management
techniques
• PSS – for subcontracting of professional services (NEC4)
• TSC -appointment of a supplier for a period of time to manage and
provide a service
• TSSC -an alternative to the TSC and is for use with contracts
which do not require sophisticated management techniques,
comprise straightforward work and impose only low risks on both
client and a contractor
• TSS – for subcontracting of term service (NEC4)
 Use of NEC Contracts

• SC -for local and international procurement of high-value goods and

related services including design
• SSC -for local and international procurement of goods under a
single order or on a batch order basis and is for use with contracts
which do not require sophisticated management techniques and
impose only low risks on both client and a supplier
• FC -appointment of one or more suppliers to carry out construction
work or to provide design or advisory services on an ‘as instructed’
basis over a set term
• AC -appointment of an Adjudicator to decide disputes under the NEC
family of contracts. It may also be used for the appointment of an
Adjudicator under other forms of contract
• Dispute Resolution Services Contract (replaces AC in NEC4)
• Design, Build and Operate Contract (NEC4)
• Alliance Contract (NEC4)
 NEC Family of Contracts
SC & SSC
Supply Supply Contract & Supply Short Contract

High PSC ECC

Engineering & Construction TSC
Professional Services

Contract
Term Service
Project Complexity

ECS
Engineering & Construction Contract
Contract

Subcontract

ECSC
Engineering & Construction
TSSC
Short Contract
ECSS Term Service Short
Engineering & Construction Contract
Low PSS Short Subcontract

Framework Contract

Adjudicator’s Contract

Business Case Design Construction Operation

NEC Typical Appointments

1. Single appointment for 2. Single appointment for

pre-construction or the supply of goods
construction related
services
NEC Typical Appointments

3. Single appointment for 4. Multiple appointment of

construction works suppliers
NEC Typical Appointments

5. Cascading NEC Contracts

for Works Projects
NEC Typical Appointments

6. Design and Build

NEC Typical Appointments

7. Management
Contracting
NEC Typical Appointments

8. Construction
Management Contracting
 The ECC System – 4 main modules
• Core clauses
• Main Options (A to F)
• Dispute resolution Options
• W1 – used unless the UK Housing Grants,
Construction and Regeneration Act of 1996 applies o
• W2 used in the UK when the UK Housing Grants,
Construction and Regeneration Act of 1996 applies •
• Secondary Options
• prefixed with X for non legal jurisdiction options
• prefixed with Y for options created specifically for
certain legal jurisdictions
• Option Z: Any other additional clauses (prefixed Z)
 The ECC System
The Parties chooses which of modules to use :
• Core clauses (not changed by any of the other NEC standard
options chosen)
• Main Options (A to F) (one is chosen, which determines the
mechanism for payment of the Contractor)
• Dispute resolution Options (one is chosen)
• W1 – can be used in all other cases
• W2 used in the UK when the Housing Grants, Construction and
Regeneration Act of 1996 applies
• Secondary Options (Any secondary Options may be added as
required in order to suit the project or the Parties objectives)
• prefixed with X for non legal jurisdiction options
• prefixed with Y for options created specifically for certain legal
jurisdictions
• Option Z: Any other additional clauses (prefixed Z) (Any number
of Z clauses may be added)
 The ECC Core Clauses
The core clauses are set out in the following numbered
sections:
1. General
2. Contractor’s main responsibilities
3. Time
4. Testing and Defects
5. Payment
6. Compensation Events
7. Title
8. Risks and Insurance
9. Termination
 The ECC – Main Options
• Option A: Priced Contract activity schedule – an activity
schedule is a list of activities prepared by the Contractor which
he expects to carry out in providing the Works. When priced by
Contractor, the lump sum for each activity is the Price the
Employer pays for that activity. The total of these activities is
the Contractor’s price of the whole works including all matters
which are at the Contractor’s risk.
• Option B: Priced contact with bill of quantities – A BoQ
comprises a list of items and quantities. It is prepared by of the
Employer. Standard methods of measurement are published
which state the items to be included and how the quantities are
to be measured and calculated. Employer pays for work done
on the basis of measurement of those items with quantities.
 The ECC – Main Options
• Option C and D: Priced Contract activity schedule – target
contracts are sometimes used where the extend of work to be done is
not fully defined or where anticipated risks are greater. The financial
risk is shared between the Employer and the Contractor in the
following way:
• Contractor tenders a target price in the form of the Prices using
either the activity schedule or a bill of quantities. The target price
includes the Contractor’s estimate of Defined Cost plus other
costs, overheads and profit to be covered by his Fee.
• The Contractor tenders his Fee in terms of fee percentages to be
applied to Defined Cost.
• During the course of the contract, the Contract is paid Defined
Cost plus Fee. This is defined as the Price for Work Done to Date
(PWDD)
Prices are adjusted for the effects of Compensation Events and
inflation if Option X1 is used. For Option D the Prices are adjusted as
the work completed by Contractor is measured.
 The ECC – Main Options
• Option C and D: Priced Contract activity schedule
• At the end of the contract, the Contractor is paid (or pays)
his share of the difference between final total of the Prices
and the final PWDD according to a formula stated in the
Contract Data. If the final PWDD is greater than the final
total of the Prices, the Contractor pays his share of the
difference. Contractor’s share is paid provisionally at
Completion and is corrected in the final account.
• Option E: Cost Reimbursable Contract – should be used
when the definition of the work to be done is inadequate ever
as a basis for a target price and yet an early start to
construction is required. In such circumstances the Contractor
cannot be expected to take cost risks other than those which
entail control of his employees and other resources. He carries
minimum risk and is paid Defined Cost plus his tendered Fee,
subject only to a small number of constraints designed to
motivate efficient working
 The ECC – Main Options
• Option F: Management Contract - conditions applied to this
contract are still evolving. Several different approaches used in
relation to i.e. scope of services, time of appointment and
method of fee payment. Contract is based on:
• Contractor’s responsibilities for construction are the same
as those of a contractor working under one of the options
• Contractor does only a limited amount of construction work
himself as per CD.
• Project Manager has not authority to increase contractor’s
scope of work beyond what is in the CD. Any increase in
scope is to be negotiated between the Employer and the
Contractor.
• Contractor’s services apply mainly to the construction
phase, though he maybe appointed before it starts.
 The ECC – Main Options
• Option F: Management Contract – continued:
• All subcontractors have direct contracts with the Contractor
• Contractor acts as a management contractor
• Contractor tenders his fee and estimated total Prices for
the subcontracts. Subcontract prices are paid to the
Contractor as part of Defined Cost.
• Contractor is responsible for supplying management
services including management of design if required
• Contractor’s Fee will increase if subcontractors’ prices
increase due to CE’s.
The ECC – Main Options in NEC 3
Option Title ECC ECS PSC TSC
A. Priced contract with Activity √ √ √ √
Schedule with
price list
B. Priced Contract with Bill of √ √ x x
Quantities
C. Target Contract with Activity √ √ √ √
Schedule with
price list
D. Target Contract with Bill of √ √ x x
Quantities
E. Cost reimbursable contract √ √ x x

F. Management Contract √ √ √ x
G. Term Contract x x √ x
The ECC – Balance of risk for each Main
Option
The ECC – Characteristics of Main Options
 The ECC – Secondary Options
• X1 Price adjustment for inflation (used only with
options A, B, C and D)
• X2 Changes in the law
• X3 Multiple Currencies (used only with options A
and B)
• X4 Parent company guarantee (often as an
alternative to performance bond)
• X5 Sectional Completion
• X6 Bonus for early Completion
• X7 Delay damages
• X12 Partnering
 The ECC – Secondary Options
• X13 Performance bond
• X14 Advanced payment to the Contractor
• X15 Limitation of the Contractor's liability for his design to
reasonable skill and care
• X16 Retention (not used with option F)
• X17 Low performance damages
• X18 Limitation of liability
• X20 Key performance indicators (not used with option X12)
• Option Y(UK)2 The Housing Grants, Construction and
Regeneration Act 1996
• Option Y(UK)3 The Contractor (Rights of Third Parties) Act
1999
• Z Additional conditions of contract
 The ECC – Identified Roles
The ECC identifies the following roles:
• Employer
• Contractor
• Project Manager
• Supervisor
• Subcontractor
• Adjudicator
Others
 Dispute
Main Options Resolution Secondary Options
Options

either choose choose choose

A with activity X2 change in
schedule X3 multiple X1 price the law
priced contract
or currencies adjustment
B with bills of X4 parent company
quantities if required guarantee
X16 retention
or W1 X5 sectional
completion
either
C with activity as required X6 bonus for early
schedule completion
target contract
or
D with bills of X7 delay damages
quantities
X12 partnering
or or
X13 performance
choose bond

cost E cost X14 advanced payment

X16 retention
reimbursable reimbursable to the contractor
as required
X15 limitation of the
or Contractor's design liability

X17 low performance damages

X18 limitation of liability

W2
X20 Key Performance Indicators

management Y(UK)2 the Housing Grants,

F management Construction and Regeneration Act
contract
1996

Y(UK)3 the Contracts (Rights of

Third Parties) 1999
Z additional conditions of contract