NEC Contract Options

What is NEC Contract Option C (Target Contract with Activity Schedule)?

NEC Option C is a cost reimbursable contract set against a target contract price, more commonly known as the target cost.

The NEC defines cost through its schedule of cost components (SoCC). There is also definition as to what is allowable and disallowable. The Contractor is paid his ‘defined cost’ on a monthly basis after presenting his application for payment to the Project Manager, who accordingly assesses the amount due.

If you’re considering whether to use this form of contract, the key question to ask yourself is: what is the likelihood of overspending on your project when delivering against the target? Alternatively, what are the chances on an overall saving? If the Contractor overspends and exceeds the target price of the contract then the Contractor and Employer will share this overspend. This is called the ‘pain share’. Equally, if the Contractor delivers the final cost within the target price then this benefit is called the ‘gain share’ or, formally known as the ‘share ranges’.

Contracting parties don’t intend to overspend but it remains a possibility. The best tactic to avoid this is to set your target contract so that it offers a real incentive to the Contractor and Employer to collaborate in successfully delivering the project. This ‘shared’ saving creates an ideal win-win for all parties.

We recommend that you avoid competitively tendering a target cost contract as this puts the onus on Contractors to provide an unsustainable price to win the contract. When this happens, you incentivise the Contractor to chase contract variations or ‘compensation events’ and increase the target price as opposed to delivering real cost savings.

How do you avoid this scenario? Negotiate a target contract with all parties with complete transparency on the following:

• What is included within the price?
• The extent of the scope
• An agreement of rates up front
• An understanding between all parties of where responsibility lies for each risk, with appropriate allowances made

Contract Arrangement and Setting Up

The commercial risk of defined cost expenditure is shared, so now you need to set the share ranges to an appropriate level. A 50/50 share on any savings and overspends is the most equitable. However, savings are often broken down into increments. For example, on the first 10% of overspend or underspend the split may be 50/50, but then for any further increases in overspend the Employer wishes to take less of the burden so sets the split at 70/30 to the Contractor.

To offset this the Employer also defines the opportunity for any gains over 10% at the same ratio. There are many ways to balance the incentives, but you should focus on incentivising all parties to work together with a common aim to successfully deliver the project.

A charge for overhead costs incurred in the working area is calculated by applying the working area overhead to the cost of people as described in the SoCC. You should inform your decision here on how the works are likely to be delivered. For example, if the Contractor decides to self-deliver part of the works using their own labour instead of subcontracting, this could result in a large liability if a high percentage is used. For this reason, you should carefully consider the working area overhead, alongside the fee with scenarios run, as to all possible outcomes when making tender assessments.

Once in contract, pay attention to the monthly programme updates and the progress made against the baseline. Study this progress against the Contractor’s monthly forecast updates of their defined cost to completion to ensure one reflects the other.

Programme Management

The Employer sets the parameters of when the contract should be completed by, when the Contractor can have access to the works and the contract start date. The Contractor then provides a programme that delivers to these constraints. The Contractor must detail how the activities on the Activity Schedule relate to the operations on each programme. Here, you should provide an Activity Schedule to a suitable level of granularity such that programmes can be assessed in detail.

Once a programme is reviewed and acceptable, it becomes the baseline programme with progress performance measured against it at the stated intervals in the Contract Data. Each month the Contractor will input actual progress against this baseline, which will provide a ‘planned completion date’ against the ‘contract completion date’.

On a lump sum or re-measurable form of contract, the financial risk of finishing late almost always resides with the Contractor, but here the risk is shared. It’s important to create a detailed programme that is:

• Fully linked to logic
• Resource and cost loaded
• Complete with a clear critical path

All points above are paramount to providing real intelligence in measuring levels of manpower required versus actuals. On a project of particular complexity or sizeable duration, a detailed programme can accurately provide a likely end date and final bill.

When reviewing programmes, consider the Employers obligations to keep programming and avoid these activities being manoeuvred onto the critical path, which in most cases can be used to derive entitlement to a compensation event. Such sharp practices by Contractors should be dealt with before agreeing the baseline programme.

Financial Management

The Contractor provides forecasts of the total defined cost for the whole of the works at intervals stated in the contract data. In nearly all cases it makes sense to match this to the same intervals as the revised programmes. Every four weeks is common practice. They are also to provide an explanation of any changes between forecasts. Getting early agreement on format is important here.

If you master the programme and receive robust and accurate cost forecasts that match the rate of progress, you’ll be on the front foot in terms of being able to make decisions in good time as opposed to being reactive to issues as they arise.

The schedule of cost components dictates what can be claimed, or is allowable, in terms of defined cost and therefore what is not stated here is by default deemed to be included in the fee. Either listing a breakdown of headings for the fee or requesting one as part of a tender return is good practice as it can avoid any ambiguity or inconsistencies between the parties later down the line. It can also help in normalising any tender returns.

Value Management

It’s critical to mitigate any changes in good time and issuing early warnings should not be something administered by the Contractor alone. The contract states that early warnings can be issued if either party becomes aware of any matter that could increase the total of the prices.

Compensation events are administered in the usual fashion i.e. they are based on actual defined cost or forecast defined cost including any affect to the planned completion date plus suitable risk allowances. Once agreed the target contract price is increased by the value of the compensation event.

When should Target Contracts be used?

Like any contract price, the target contract is only as good as the Scope, Works Information or general contract drafting that supports it.

What must be considered is the stage of project development at which you are procuring. If you’re at early stage development works and the Employer wishes to procure a full detailed design and build, be prepared to agree to a large amount of risk incorporated into the price and then manage that risk accordingly. Conversely, if the scheme is more developed, an Employer should expect a more palatable value of uncertainty risk. Experience tells us that when a detailed preliminary design, plus a suitably worded output specification, is used to provide an Activity Schedule, then you’ll likely set a realistic Target Contract.

Specific Contract Nuances

Be aware of the contract nuances in NEC Option C, such as Disallowed Costs, which can be invoked by the Project Manager if she decides that cost has been incurred only because the Contractor did not give a required early warning. Either party can issue early warnings, therefore to operate this clause the Employer will have to demonstrate they were not aware of the issue at the time themselves. These ‘nuances’ can also be used ‘when the Project Manager decides’ as opposed to by agreement. Maintaining ‘mutual trust and cooperation’ is vital.

The Project Manager can disallow costs for plant and materials on the basis the costs incurred were not to Provide the Works. Similarly, disallowed costs can be invoked if resources were not used to Provide the Works or not taken away from the Working Area when requested by the Project Manager. This offers some protection for the Employer when certifying payment and puts the onus on the Contractor to adequately manage their costs or face the risk of not being paid for poor cost control.

When administering payment, be aware that in assessing the Price for Work Done to Date, the Project Manager must forecast Defined Cost, which will have been paid before the next assessment date. This exerts a certain amount of trust in the Contractor that they will indeed make such payment before the next assessment date. However, the Contractor must keep proof that payments have been made and such records are to be made available to inspect at any time within working hours.

The contract also prescribes that the Project Manager makes a preliminary assessment of the Contractor’s Share at Completion, then later a final assessment based on the final Price for Work Done to Date and the final total of the Prices.

This approach could mean the Employer overpays the Contractor until Completion is achieved in the event of a likely overspend. This is not an ideal situation and bad practice can occur whereby Contractors can delay completion until they have pressed their case for more compensation events to prolong any negative certificate being issued.

To avoid this occurring, Z Clauses are often drafted to allow the Project Manager to make interim assessments of the Contractors Share if forecasts of the final Price for Work Done are predicted to be more than the final total of the Prices.

Summary

If set up correctly, with suitable buy in from all operating parties, NEC Option C can be a success. It requires a full open book approach and policy on Defined Cost to be in place during the administration of the project. Any changes must be agreed with a similar level of opportunity as the original Target Contract to maintain the same level of incentivisation through the contract term.

However, what should be remembered is that if early indicators are showing signs that all is not going to plan, take immediate corrective action to mitigate the impact for the benefit of all parties.

NEC Option D

Programme Management

A mutually accepted programme is important. With emphasis placed on regularly updating the programme to reflect any acceleration, delay or re-sequencing etc.

Option E Structure

With the intent of not going into depth on each clause, the below summarises the structure and clause content of NEC Option E:

Core clauses

• General
• The Contractor’s main responsibilities
• Time
• Testing and Defects
• Payment
• Compensation events
• Title
• Risks and insurance
• Termination

Dispute resolution

• Option W1
• Option W2

Secondary option clauses

• X2 Changes in the law
• X4 Parent company guarantee
• X5 Sectional Completion
• X6 Bonus for early Completion
• X7 Delay damages
• X12 Partnering
• 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
• X17 Low performance damages
• X18 Limitation of liability
• Y(UK)2 The Housing Grants, Construction and Regeneration Act 1996
• Y(UK)3 The Contracts (Rights of Third Parties) Act 1999
• Z Additional conditions of contract
• Note Options X1, X3, X8 to X11 and Y(UK)1 are not used

Schedule of Cost Components

Shorter Schedule of Cost Components

Contract Data

Index

Which Contract is Option E used Under?

Of the ten available contract types under NEC 3 or twelve under NEC 4, there are seven under which Option E is applicable as listed below.

• ECC Engineering and Construction Contract
• ECSC Engineering and Construction Short Contract
• ECS Engineering and Construction Subcontract
• ECSS Engineering and Construction Short Subcontract
• TSC Term Service Contract
• TSSC Term Service Short Contract
• PSC Professional Services Contract

For reference, the ECC is typically the most frequently used with Option E.

NEC Contract Option E (Cost Reimbursable Contract) Explained

Option E is a cost reimbursable option, often referred to as “cost plus.” Under this option the developer will largely take on the financial risk. The contractor is reimbursed for all of their actual costs plus a pre-agreed overhead and profit percentage.

There are many scenarios where this form of contract is useful – such as when works cannot be properly defined at the project outset and/or risks associated with the works are high. For example, emergency work to a fire damaged commercial office, requiring immediate remediation to permit business re-occupation.

How is Option E Cost Reimbursable Implemented?

“Cost Plus” is not to say the use of Option E means a blank cheque book for the contractor. The terms and cost elements for which the contractor is to be reimbursed should be set out very clearly within the contract. This will include determining the direct project costs, like:

• Site management
• Labour
• Material
• Hired-in plant
• Subcontractors.

A stark difference between NEC Option E and Options A to C is the inability to accurately plan cash flow – a drawback which affects both the developer and contractor. From the contractor’s perspective you may push to enact clauses that allow certain liabilities to be claimed early.

Option E is implemented based on ‘defined cost’ and on an open book basis. As the developer you will need to verify claimed costs and ensure they are realistic – in the case of hire-in plant this could mean maintaining a signed plant register.

As the developer you may wish to stamp out inefficiencies by incentivising the contractor through the introduction of a target cost partway through the project when better clarity is known about the scope and risks.

What is Defined Cost?

Dependant on the NEC option implemented, the definition of “defined cost” varies. Under Option E, it is the basis on which reimbursement of the contractors work to date is assessed i.e. ‘actual cost’.

Assessing actual cost is very difficult on a large and complex project, with many contractors’ costs likely not to be project specific i.e. a contractor makes a bulk material order of sand for use across multiple sites, one of which is your development site. Within Option E and its defined costs, there will be rules over what costs can be claimed and how.

In a scenario where you are using the ECC contract with Option E, defined cost is the amount of payment due for work without taking account any amounts deducted for:

• Retention
• Payment to the Employer as a result of failing to meet a Key Date
• The correction of Defects after Completion
• Payments to others
• The supply of equipment, supplies and services included in the charge for overhead cost within the Working Areas of the contract
• The cost of components in the Schedule of Cost Components for other work
• Less any Disallowed Cost

Where assessment of the actual cost is not practical, Option E utilises a pre-agreed Schedule of Cost Components. The SCC is used to assess compensation events and determine the price for work done to date. It is split into the following sections:

• Staff
  • Considerations in assessing such costs include – holidays, sick time, overtime, benefits in kind (fuel etc), pay rises etc.
• Equipment and Plant
  • The agreed % fee will be applied to hire-in plant invoices. With an agreed set of rates for any contractor owned plant. For any agreed purchase of plant, payment would consider the residual value to the contractor upon completion of the project, unless the client takes ownership
• Materials
  • Costs would be assessed based on invoices, purchase orders and delivery notes. Pre-agreements should be made on any potential buying gains the contractor may achieve
• Charges
  • Pre-agreed rates on any site-specific utility charges
• Manufacture, Fabrication and Design
  • Pre-agreed factory hour/design rates, which consider the anticipated factory capacity required and overheads. Similarly, design rates will be set based on estimated total cost of design resource
• Insurance
  • Costs of procuring any project specific insurances. And potentially a proportion of any general company insurances i.e. public and employer’s liability

Verifying Defined Costs

The key to the successful operation of Option E is the verification of defined costs payable to the contractor. Takeaway points to consider are:

• There is a need to put in place an audit process to validate contractor’s costs
• The contractor is required to keep these records:
  • Proof of payment records
  • Communications about and assessments of compensation events for Subcontractors
  • Other records as stated in the Works Information

Disallowed Costs

Disallowed costs are those that do not form part of the agreed contract definition of a defined cost and can be ‘disallowed’ by the developer. These can include the following:

• Costs which are part of the defined costs but have only been incurred due a failure or default of the contractor
• Amounts not justified by the contractor’s records
• Accruals
• Costs incurred because the contractor did not follow a procedure within the Works Information
• Costs as a result of early warnings which were not given

Programme Management

Like other Options, a mutually agreed programme is a key feature of Option E. In light of the high-risk projects Option E is used for (often with a lot of unknown variables), there is greater emphasis on regularly updating the programme to reflect any acceleration, delay or re-sequencing etc.

Considerations:

• It’s the contractor’s duty to issue a programme to the Project Manager
• It should demonstrate actual progress and its effect on the timing of the remaining works
• The impact of any actioned compensation events
• Measures to remedy any delays and/or notified defects
• Any other changes proposed by the contractor

Variation Administration

Compensation Event (CE) is the all-encompassing term used within the NEC, equivalent to the JCT term “variation” i.e. events that have a time and/or cost impact.

In the scenario of Option E, without a schedule of defined works and as a cost reimbursable contract compensation events are effectively part of your contract claim for payment.

Summary

Cost reimbursable contracts are ideal in scenarios where the works cannot be accurately assessed and quantified. For this reason, it presents a higher risk for the client developer, as initially, there is no contract sum or target cost. Vitally important is the successful agreement of defined costs and their verification. Careful consideration is important before opting for this route.

From a contractor’s perspective, such a form of contract can be straight forward and lucrative, but great care must be taken to record costs as required by the contract and conduct operations in the collaborative spirit of the NEC.

NEC Option F

Introduction to Option F (Management Contract)

Over the past decade the Option F Management Contract has been one the most widely used forms. This is due to the growing emergence of contractor/developers at both SME level and beyond.

It’s a cost reimbursable contract wherein the works are designed and/or constructed by multiple subcontractors who are contracted to a management contractor. The management contractor will ultimately be responsible for the procurement, co-ordination and implementation of the works in exchange for a fee i.e. the cost/tendered price of works + an agreed percentage. Often, the client takes on the financial risk.

Management Contracting Explained

Management Contracting is a procurement route where the client/developer engages the services of a third-party firm to procure and manage the necessary trade contractors to completion of the works. This may also include for cost consulting and design services, albeit the client/developer may choose to employ these services separately. It is not to be confused with Construction Management, where the trade contractors are employed directly by the client, with the construction manager acting as an ‘agent’ to oversee the works.

A management contractor will be procured early in the design process in order to best utilise their experience to advise on value engineering, risk management, buildability, cost and operational/logistical challenges.

While schemes will have budgets produced by the client/developer’s cost consultants, working with a management contractor refines the costs further. That said, price uncertainty remains until detailed design is complete and the trade packages are let because costs can only be finalised when subcontractor procurement is concluded.

The agreement between client/developer and management contractor will cover pre-construction and require a notice to proceed with construction activities. Before this point, trade contracts can be tendered but not let.

Compared with the construction management route, management contracting can be a simpler administrative process. Rather than having multiple trade contracts to administer, the client/developer only has one contract to manage. Albeit, individual trade contractor/parent company collateral warranties may still be required in the unfortunate scenario of a management contractor becoming insolvent.

The fee structure to a management contractor can be implemented in several different ways including: fixed, variable (based on costs + management percentage) or on a target cost basis. For more on this topic, see the section on NEC Option D.

Services of a Management Contractor

The services of a management contractor can be varied depending on the scope of works of the contract with the client/developer but they will often include:

• Offer guidance on the development brief
• Recommendation and management of project appointments (fire consultants, engineers, inspectors etc)
• Advise on feasibility, buildability and design
• Guidance on statutory approvals
• Defining key performance indicators for work contractors
• Managing mock-ups, samples and testing
• Acting as principal contractor
• Cost planning and control
• Devising the project programme
• Creating/approving risk and methodology statements
• Tendering work packages
• Organising and adhering to statutory requirements i.e. provision of welfare, water supply, site security, drying rooms etc.
• Setting out main datum points
• Provision of labour for general site maintenance/upkeep
• Witnessing tests and co-ordinating commissions
• Collating as-builts, O&M’s, health & safety file, F10 project notification, construction phase plan
• Client communication and management

In addition, the client/developer can also transfer the management of design and cost consulting to the contractor.

Considerations in Appointing a Contractor

It is fair to say the reputation of a contractor is demonstrated by the character and ability of their management teams to drive a project forward while balancing cost, quality and fulfilment of the employer’s (developer’s) requirements.

The management contractor’s cost/fee can typically account for 5-7% of project total costs. If you consider this alongside the contractor’s direct influence on quality and efficiency it is easy to argue that the contractor can account for project costs fluctuating by up to +/- 10% as well.

Even within large contractor organisations, such as a Balfour Beatty or Mace, it is not uncommon to put forward the project portfolio and CV of the intended management team during tender. Be it the project director, commercial lead, site manager or planner.

The development process, from concept design to practical completion, can be a lengthy process. Be mindful that your prospective management appointees will themselves work as a cohesive team and you will be able to maintain a close rapport with them. We recommend that you conduct interviews (both in formal and informal settings) and take references in the tender process for a Management Contractor.

Programme Management

In line with previous options, a mutually agreed programme is a key feature of Option F. Some take-away points to consider include:

• It’s the contractor’s duty to issue a programme to the Project Manager
• It should demonstrate actual progress and its effect on the timing of the remaining works
• The impact of any actioned compensation events
• Measures to remedy any delays and/or notified defects
• Any other changes proposed by the contractor

Variation Administration

In the NEC the term ‘variation’ is known as a Compensation Event (CE). It is the all-encompassing term to describe events that have a time and/or cost impact. Although do not be mis-led by the word compensation, as the price can go up or down.

As a developer you will be presented with compensation events by the contractor, where it is deemed the contractor has incurred a time/cost implication due to no fault of their own. For example, a specification upgrade where glazing screens have gone from non-fire rated to fire rated. Conversely, there are scenarios where neither party is at fault and for which a compensation event can be submitted. Such as extreme adverse weather. In this situation, the cost associated with said would be proportionally allocated between parties.

Option A, clause 60.1 contains 19 events as standard. Albeit the employer (developer) can add further events within the Z clauses. Administrating compensation events can be segmented into four parts:

• Notification
• Quotation
• Assessment
• Implementation

Summary

Option F provides the client/developer the flexibility to employ a Management Contractor to procure and manage the necessary trade contractors to complete the project works. This can be done on a fixed sum, cost plus or target cost basis.

It’s beneficial for the developer, especially those entering the market, as the risk/responsibility in procuring and managing works is with the management contractor. Albeit the burden of cost predominately sits with the client/developer.

Careful selection of the management contractor is of great importance and while making up a significant proportion of the project costs, if successful the cost and quality benefits achieved make it a worthwhile procurement route.

NEC Option G

Option G Term Contract (use with PSC)

New Engineering Contract (NEC) Option G: Term Contract is the pricing mechanism most typically used with the Professional Service Contract (PSC) for the appointment of consultants. Consultants are professionals appointed by the developer to perform expert tasks on a project and will often include:

• Architect
• Quantity Surveyor or Cost Consultant
• Structural Engineer

Like an activity schedule, Option G, when used with a Professional Services Contract, uses a priced task schedule in the appointment of a consultant. Factoring in different rates for different grades of staff or services.

Service tasks can either be priced as a lump sum or on a time basis. The consultant carries the risk of being able to perform the tasks to the agreed prices. As the project manager, when the developer (employer)/project requires a service you will simply instruct the consultant in line with the task schedule.

Should there be a service not included on the task schedule, but required by the developer, this will be treated as a compensation event (a variation). This results in additional payments.

Professional Services Contract

Option G is utilised with the Professional Services Contract (PSC) contract. But what is a PSC?

A PSC is a contract intended for use in the appointment of a supplier to provide professional services. It can be used for appointing project managers, supervisors, designers, consultants or other suppliers under NEC contracts.

Interestingly, it can also be used for appointing suppliers on non-NEC construction projects or for non-construction projects. This is useful if you’re dealing with previous projects or joint venturing on an existing live project.

When a consultant is instructed, fees are calculated by the time expended against the relevant task schedule and/or a proportion of any lump sum. The service provider will be required to keep account of records and expenses for the developer’s peace of mind.

Expectations

Working for the developer, in implementing Option G (use with PSC) you should expect the consultant to carry out their duties to a Standard of Care, which can be defined as the “skill and care normally used by professionals providing services similar to those contracted”.

Whilst this may seem a woolly definition, the contract stipulates some absolute obligations, emphasised by the contract being written in the present tense. Some of these key and absolute obligations include:

• Clause 30.3: requires the consultant to complete contracted works by the key date
• Clause 21.1: requires the consultant to provide services in accordance with the scope
• Clause 25.1: requires the consultant to obey an instruction, given by the Employer

Intellectual Property

When employing an external consultant who may be concurrently working for other developers, the question of intellectual property is a pertinent one and this is covered by the contract as follows:

• Clause 70.1: the developer is permitted to use the material provided by the consultant for the purposes stated in the scope (for example, issuing and sharing architectural drawings for tendering to subcontractors)
• Clause 70.1: the consultant may use material provided by him for other work unless stated otherwise in the scope
• Clause 70.4: the scope will determine the extent of the intellectual property license and this is why it is crucial that details are included therein

Limits of Liability

Regards limitations of liability, when engaging an external consultant different considerations should be taken compared to that of a trade contractor. This is particularly true with smaller consultancy firms or a single personal consultant.

The NEC Option G contract contains the following provisions to assist you in this regard:

• Clause 82 defines the limits of liability
• A cap on total liability, limits the total liability to developer in contract and tort, which should be stated in the contract data
• Excluded matters can include liquated damages, intellectual property infringements and loss/damage to 3^rd party property
• Net contribution clause, limits consultant’s liability to proportion of the employer’s losses for which the consultant is responsible
• Limits under Option X18
• Cap on indirect and consequential losses can be included
• No liability on consultant for a matter unless he is notified before the end of liability date

Risk Allocation and Management

Across the NEC suite of contracts, proactive management of risk is crucial. Emphasised by Clause 15, and the provision for Early Warning Notices (EWNs).

An Early Warning Notice is a requirement for either the developer or consultant to provide notice of any event or matter that could (Clause 15.1) lead to:

• An increase in the price/ total cost
• A delay to completion of the works
• A change in sequence to the accepted programme
• A delay in meeting a key date
• Impairment of the usefulness of the services
• An impact on the work of the developer or others

To further support the team in drawing out risks, Clause 15.2 and 15.3 makes provision for a risk reduction meeting to happen, if either party requests it. In these meetings collaborative proposals and/or solutions should be discussed to identify risks relating to any given EWN. Following the meeting, Clause 15.4 requires the risk register to be updated and actioned.

In accordance with Clauses 61.5 and 63.5, if extra time or cost has been incurred because of failure to give an early warning notice, this extra time or cost will not be recoverable in a compensation event. Whilst this seems harsh and administratively onerous, the underlying rationale is to deal with risks cooperatively as and when they arise in the spirit of proactive risk management. Overall this benefits the project.

Compensation Events

In the NEC the term ‘variation’ is known as a Compensation Event (CE). It is the all-encompassing term to describe events that have a time and/or cost impact. Although do not be misled by the word compensation, as the price can go up or down.

As per Clause 60.1, the contract lists the events for which compensation entitlement is due. This includes:

• A change to scope/schedule of services. Be it an add/or omit
• Employer changing mind on an agreed item
• Employers breach of contract
• Force majeure

Clause 61.3 has a strict time limit of eight weeks for notification of compensation events. Failure to do so will result in a loss of entitlement: notification is a condition precedent. This time limit is removed if the Compensation Event arises from an employer’s instruction to change an earlier decision or to correct an assumption.

Once the alleged event has occurred and been notified, the developer will decide whether the event is a qualifiable Compensation Event, as per Clause 61.4. If the event qualifies, as project manager you will assess the Compensation Event in respect of both time and cost and either approve or disapprove based on clause 64.1.

Programme

Clause 31.1 provides clear and objective requirements for a detailed programme, together with method statements and their continuous update.

Any programme should be prepared, updated and issued to the employer for approval to the timescales specified within the contract data. Clause 31.2 specifies the items that should be included on the programme, such as:

• Key Dates
• Completion dates
• Time provisions/float

Programme management may be considered arduous for a consultant’s appointment, so the appointed consultant needs to have sufficient resource to maintain and manage the programme. Pertinent clauses relating to programme include:

• Clause 30.3: this place an obligation on the consultant to meet key dates
• Option X7: ‘delay damages’ which allows provision for damages should completion dates not be achieved
• Clause 41.1: this places an obligation on the consultant to rectify defects. Defects in the case of a consultant are defined as any level of service that does not comply with the scope. The employer may notify any given defect to be corrected up to the ‘defect date’ stated in the contract data

Summary

The NEC Option G Term Contract (use with PSC) provides the client/developer a one-stop shop to engage an external consultant. It provides enough flexibility whether you are employing a single person consultant or a multi-national consultancy firm.

As with any contract, the scope and accurate pricing of the task schedule is of vital importance. To ensure the obligations of both parties are met.

When the required services and respective requirements are fully understood at the project outset, there is little that should go a-rye. Nevertheless, in such an eventuality the limits of liability will be crucial.