Managing Reality Book Three Managing the Contract Bronwyn Mitchell and Barry Trebes Published byThomas Telford Publishing, Thomas Telford Ltd,1Heron Quay, London E14 4JD. URL: www.thomastelford.com Distributors for ThomasTelford books are USA: ASCEPress, 1801Alexander BellDrive, Reston, VA 20191-4400, USA Japan: MaruzenCo. Ltd, Book Department, 3–10 Nihonbashi2-chome, Chuo-ku, Tokyo 103 Australia:DA Books and Journals,648WhitehorseRoad, Mitcham 3132, Victoria First published 2005 Also available in this series from ThomasTelford Books NEC – Managing Reality:Introduction to the Engineering and Construction Contract. ISBN 07277 3392 3 NEC – Managing Reality:Procuring an Engineering and Construction Contract. ISBN 07277 3393 1 NEC – Managing Reality:Managing change.ISBN 07277 33958 NEC – Managing Reality:Managing procedures.ISBN 07277 33966 NEC – Managing Reality:Complete box set. ISBN 07277 3397 4 Also available from Thomas Telford Books NEC3(complete box set).ISBN 07277 3382 6 A cataloguerecord for thisbookis available from the British Library 98 7654 321 ISBN:0 72773394X # ThomasTelford Limited 2005 In this document, except where the context shows otherwise, words in the singularalso mean in the plural and the other way around and words in the masculine also meaninthe feminine and neuter. All rights,including translation,reserved. Except as permittedby the Copyright, DesignsandPatents Act 1988, nopart of thispublication may be reproduced, storedin a retrieval system or transmitted in any form or byanymeans, electronic, mechanical, photocopying or otherwise, without the prior written permission of the Publishing Director,Thomas TelfordPublishing, Thomas TelfordLtd, 1Heron Quay, LondonE14 4JD. This bookis published on the understanding that the authorsare solely responsible for the statements made and opinionsexpressed in itand that its publication does not necessarily imply that such statements and/or opinions are or reflectthe viewsor opinionsof the publishers.While every efforthas been made to ensurethat the statements made and the opinions expressed in this publication provide asafeandaccurate guide, noliability or responsibility can be accepted in thisrespect by the authorsor publishers. Typeset by Academic + Technical, Bristol Printed and bound in Great Britain by Bell &Bain Limited, Glasgow, UK Preface Now more than a decade on from its initial formal introduction (1st edition 1993), the NEC form of contract remains radical in its ethos and contemporary in its management principles for delivering successful projects in the business environment of 21st century construction. Although conceived in the mid-1980s, in what could be described as a decade of success and excess, with a construction industry racked by conflict and confrontation, the NEC owes much of its current widespread and growing usage to the deep recession of the early 1990s, which forced the construction industry to rethink its approach and performance, as much from a need to survive as from a desireto improve. It is generally recognised and accepted that Sir Michael Latham’s Constructing the Team, published in 1994, and Sir John Egan’s Rethinking Construction, published in 1998, were the two main catalysts and energisers of change and improvement within the construction industry throughout the last decade of the 20th century and into the 21st century. Arguably the NEC was the third key driver of cultural reform and management discipline; indeed the NEC was formally recognised by Latham as being the contract form which, more than any other, aligned to his vision for future construction and Egan similarly embraced the NEC as part of hismovement for innovation. Usage has brought with it practical experience and accordingly the thrust of this book is about dealing with the reality of real-life projects. The authors have a combined knowledge and hands-on experience of NEC-managed projects spanning some 20 years and have therefore written the book with the specific purpose of advising and assisting those who would wish to use or even those who already do use the ECC, on the concepts of modern contract practices, procedures and administration. Thisbookis about ‘how to’: how to manage the ECC contract and how to admin- ister it. As such, it does not attempt to give a legal treatise or a blow-by-blow review of each and every clause and certainly is not a rehash of the NEC/ECC Guidance Notes. It is intended to be complementary to other publications, which give excellent theoretical and legal perspectives. This book is about managing reality. Although now regarded as a ‘mature’ form of contract the ECC is still relatively young when compared to more traditional forms. Therefore, even with current practitioners, experience will vary both in duration and depth. With this in mind the book has been consciously structured so as to be presented as a five-part book-set that covers the needs of the student professional or prospective client, through to the novice practitioner and experienced user. It provides a rounded view of the ECC, whatever your discipline, on both sides of the contractual relationship and is aimed at enabling everyone to realise the business benefits from using the NEC suite of contracts generally and the ECC in particular. Since the NEC’s official launch in 1993, adoption and usage of the NEC, renamed Engineering and Construction Contract – ECC in 1995 (2nd edition), has grown, such that it is now the most frequently used contract form for civils, transportation infrastructure and utilities works and is increasingly the pre- ferred form for building construction projects. The latest edition of the contract (NEC3)was issued in July 2005. www.neccontract.com # copyrightnec 2005 iii Managing the Contract The wide acceptance of the NEC generally and its elevation in stature as the preferred contract form is further reinforced by the Office of Government Commerce’s endorsement of the third edition (NEC3). These five books take accountof the changesintroducedto the contract within NEC3. iv # copyright nec2005 www.neccontract.com Foreword As almost the first UK client to use the NEC, even in its consultative form prior to its launch in 1993, IbelieveNEC: Managing Reality to be a welcome addition to the construction bookshelf: an essential introduction to the NEC for the prospective ‘novice’ practitioner and an excellent aide-me´moire reference book for the regularuser of thisform of contract. Thejoy of this new book is that it brings togethera wealth of practical expertise and knowledge from two of the UK’s most experienced NEC practitioners written in a style that keeps faith with NEC principles of clarity and simplicity, while respecting differing levels of knowledge within its potentialreadership. I have always believed that choosing the contract form is as much a business issue as a construction decision and that business success only results from good management. Certainly this book gives emphasis to the ethos of managing for success rather than the reactive debate of failure. It imparts knowledge, understanding and practical experience of the Contract in use and equally stresses the roles, responsibilities and discipline of the management procedures that apply to everyone. I particularly like the five-module format, in that it presents itself in readable, manageable chunks that can be readily digested or revisited whatever the reader’sprevious experienceof its use. This book educates,giving guidanceand confidenceto anyone dealing with real contract issues, following both the spirit as well as the letter of the Contract. It is arguably the most comprehensive practical treatise to date on how to manage and administer the ECC. It is a must for the professional office. Every ‘home’ should have one. DavidH Williams,CEng, FICE Chairman, Needlemans (FormerlyGroup Construction and Engineering DirectorBAA plc; founding Chairman, NEC UK Users Group: 1994–1997) www.neccontract.com # copyrightnec 2005 v Introduction General This series of books will provide the people who are actually using the Engineer- ing and Construction Contract (ECC) in particular, and the New Engineering Contract (NEC) suite in general, practical guidance as to how to prepare and manage an ECC contract with confidence and knowledge of the effects of their actions on the Contract and the other parties. Each book in the series addresses a different area of the management of an ECCcontract. . Book One – NECManaging Reality: Introduction to the Engineering and Construction Contract . Book Two – NECManaging Reality: Procuring an Engineering and Construction Contract . Book Three– NECManaging Reality: Managing the Contract . Book Four – NECManaging Reality: Managing Change . Book Five– NECManaging Reality: Managing Procedures . Book One (NEC Managing Reality: Introduction to the Engineering and Construction Contract) is for those who are considering using the ECC but need further information, or those who are already using the ECC but need further insight into its rationale. It therefore focuses on the fundamental cultural changes and mind-shift that is required to successfully manage the practicalities of the ECCin use. . BookTwo(NECManagingReality: Procuring an Engineering andConstruction Contract) is for those who need to know how to procure an ECC contract. It covers in practical detail the invitations to tender, evaluation of submis- sions, which option to select, how to complete the Contract Data and how to prepare the Works Information. The use of this guidance is appropriate for employers, contractors (including subcontractors) and construction professionalsgenerally. . Book Three (NEC Managing Reality: Managing the Contract) is essentially for those who use the contract on a daily basis, covering the detail of practical management such as paying the contractor, reviewing the programme, ensuring the quality of the works and dispute resolution. Both first-timeand experienced practitioners willbenefitfrom this book. . Book Four (NEC Managing Reality: Managing Change) is for those who are managing change under the contract; whether for the employer or the contractor (or subcontractor) the management of change is often a major challenge whatever the form of contract. The ECC deals with change in a different way to other more traditional forms. This book sets out the steps to efficiently and effectively manage change, bridging the gap between theory andpractice. . Book Five (NEC Managing Reality: Managing Procedures) gives step-by-step guidance on how to apply the most commonly used procedures, detailing the actions needed by all parties to comply with the contract. Anyone administering the contractwill benefit from thisbook. www.neccontract.com # copyrightnec 2005 vii Managing the Contract Background The ECC is the first of what could be termed a ‘modern contract’in that it seeks to holistically align the setting up of a contract to match business needs as opposed to writinga contractthat merely administers construction events. The whole ethos of the ECC, or indeed the NEC suite generally, is one of simpli- city of language and clarity of requirement. It is important that the roles and responsibilities are equally clear indefinition andownership. When looking at the ECC for the first time it is very easy to believe that it is relatively straightforward and simple. However, this apparent simplicity belies the need for the people involved to think about their project and their role and how the ECCcan deliver theirparticularcontract strategy. The ECC provides a structured flexible framework for setting up an appropriate form of contract whatever the selected procurement route. The fundamental requirements are as follows. . The Works Information – quality and completeness – what are you asking the Contractor to do? . TheSite Information –what arethe site conditionsthe Contractor willfind? . The Contract Data – key objectives for completion, for example start date, completiondate,programme –when doyou want itcompleted? The details contained in the series of books will underline the relevance and importance of the above three fundamental requirements. The structure of the books Eachchapterstartswithasynopsisofwhatisincludedinthatchapter.Through- out the book there are shaded ‘practical tip’ boxes that immediately point the usertowardsimportantremindersforusingtheECC(seeexamplebelow). Clarity and completeness of the Works Information is fundamental. There are also unshaded boxes that include examples to illustrate the text (see examplebelow). Imaginea situation in which the Supervisor notifiesthe Contractor that the reinstatement of carriageways ona utilitydiversion projectis not to the highway authority’s usual standards.However, the Works Information is silent about the reinstatement. Although it is not to the authority’s usualstandard, itis not a Defect because the testof aDefectis non-conformancewith the Works Information. In thissituation, ifthe works needto be redone to meet the authority’s requirements,the Contractor isentitled to a compensation eventbecausethe new requirementsare a changeto the Works Information. Other diagrams and tables are designed to maintain interest and provide another medium of explanation. There are also standard forms for use in the administration and management of the contract together with examples. Throughout the books, the following termshavebeen used in a specific way. . NEC is the abbreviation for the suite of New Engineering Contracts and it isnot the name of any singlecontract. . ECC is the abbreviation for the contract in the NEC suite called the EngineeringandConstruction Contract. The NEC suite currently comprises the . EngineeringandConstruction Contract . EngineeringandConstruction Subcontract viii # copyright nec2005 www.neccontract.com Introduction . Engineering and Construction Short Contract . Engineering and Construction Short Subcontract . Professional ServicesContract . Adjudicator’sContract . Term Service Contract . Framework Contract www.neccontract.com # copyrightnec 2005 ix Acknowledgements We would like to thank the following individuals and companies who have sup- ported the book. Andy Door, who gave advice on procurement within the public sector. Mike Attridge of Ellenbrook Consulting who reviewed the book on behalf of the authors. David H. Williams who provided guidance and support in the develop- ment of the book and everyone at Needlemans Construction Consultants and MPS Limited. x # copyright nec2005 www.neccontract.com Series Contents Thefollowing outlines the content of the five booksin the series. Book 1 NEC Managing Reality: Introduction to the Engineering and Construction Contract Preface,Foreword, Introduction andAcknowledgements SeriesContents, Contents, Listof tables,Listof figures Chapter 1 Introduction tothe Engineeringand Construction Contract,concepts and terminology Synopsis Thischapter looks at: . An introduction to the ECC . An identification of some of the differences between the ECC and other contracts . A brief outlineof differencesbetween ECC2and ECC3 . An outlineof the key features of the ECC . Conventions of the ECC . Conceptson which the ECC is based . Terminologyused in the ECC . Terminologynot used in the ECC . How the ECC affects the way youwork Appendix 1 Summary of differencesbetween ECC2and ECC3 Chapter 2 Rolesin the Engineering and Construction Contract Synopsis Thischapter describesthe roles adopted in the ECCincluding: . How to designate arole . Discussion of the roles describedin the ECC . Discussion of the project team . How the ECC affects each of the roles Appendix 2 Listof duties Book 2 NEC Managing Reality: Procuring an Engineering and Construction Contract Preface,Foreword, Introduction andAcknowledgements SeriesContents, Contents, Listof tables,Listof figures Chapter 1 Procurement Synopsis This chapter looks at the concept of procurement and contracting strategies anddiscusses: . Procurement and contract strategy . What tender documents to include in an ECC invitationto tender . How to draft andcompile acontractusing the ECC . Procurement scenarios that an employer could face and how to approach them www.neccontract.com # copyrightnec 2005 xi