NEC3 Engineering Research Articles

Discussion: Briefing: Time-bar provisions of the NEC3 Engineering and Construction Contract clause W1.3

Discussion: Briefing: Time-bar provisions of the NEC3 <i>Engineering and Construction Contract</i> clause W1.3

Briefing: Time-bar provisions of NEC3 Engineering and Construction Contract clause W1.3

This briefing expounds on the time-barring mechanism of the NEC3 Engineering and Construction Contract, which has been used incorrectly to time-bar contractors from referring to adjudication claims for payment of the precise amount of money due to the contractor. This briefing demonstrates that such claims may be referred to adjudication within 2 to 4 weeks of the notification of the dispute given at any time, provided that the notice of the compensation event arising from the project manager’s negligent assessment of the amount due is given before the defects date.

Kennedy Town swimming pool, Hong Kong, China – an NEC journey

The stylish new Kennedy Town community swimming pool in Hong Kong was designed and built in two similar phases between 2008 and 2017. It replaced an original pool on the site, which had to be demolished during construction of the new West Island line. Client MTR trialled the NEC3 Engineering and Construction Contract for the £64 million second phase of the pool to see how it compared with the conventionally procured first phase. This paper describes the tendering, team-building and construction performance of the second phase and shares the lessons learned on NEC contract administration and implementation.

Briefing: Time-bar provisions of the NEC3 Engineering and Construction Contract clause W1.3

This briefing examines the scope of clause W1.3(2) of the NEC3 Engineering and Construction Contract, which bars the contractor from referring disputes concerning actions of the project manager to adjudication. The briefing highlights a tendency of adjudicators and judges to expand the ambit of a dispute about project managers’ actions to include a dispute about the product of their actions, as is demonstrated in the case of WSP Cel Ltd v. Dalkia Utilities Services PLC.

Delivering the Cheung Chau submarine pipeline in Hong Kong using NEC3

The Cheung Chau submarine pipeline between Hong Kong’s Lantau and Cheung Chau islands is a 1·4 km long, 500 mm diameter water main installed by horizontal directional drilling. It is one of the largest trenchless pipeline projects undertaken in Hong Kong. Drilling through a variety of rock strata up to 100 m below sea level was inherently risky, so use of an appropriate procurement strategy was pivotal to controlling costs and ensuring successful delivery. The government’s Water Supplies Department opted to adopt the Institution of Civil Engineers’ NEC3 Engineering and Construction Contract for the project. This paper describes the scope of the work, how an appropriate contract strategy was chosen and how NEC3 facilitated effective risk management during construction. It concludes with a recommendation that NEC3 brings valuable benefits and is suitable for use in future similar projects.

Risk apportionment in target cost contracts

Much of the current literature on target cost contracts is approached from the perspective of the client–contractor relationship. While the financial risk of a project is shared between the parties, the share formula is predominantly set by the client, which demonstrates little evidence of collaboration. The contractor’s business risk is not explicitly taken into account outside of the fee percentage. However, from a contractor’s perspective, the risk in a target cost contract has to be taken into account on two levels: first, the shared risk of the target cost contract (i.e. the financial risk apportioned through the share formula) and, second, the contractor’s own risk in relation to their tender price (i.e. the business risk of the contractor that relates to their profit). The way that five NEC3 Engineering and Construction Contract option C target cost contracts in South Africa actually concluded in practice was examined as a means to develop a better understanding of how risk actually accrues to the parties. A decision-support framework that links project risk with contractor’s risk is proposed. The framework presents nine risk/reward scenarios that contractors tendering for target cost contracts can use as a basis for risk-pricing decisions.

Hong Kong’s first public sector NEC contract: lessons learnt

This paper takes a retrospective view of the Hong Kong government’s now-completed NEC pilot contract for Fuk Man Road nullah. It describes the detailed preparation and trial use of an amended NEC3 Engineering and Construction Contract option C (target cost with activity schedule) to procure contract DC/2008/02 for the Drainage Services Department between 2006 and 2012. The HK$72 million (£7 million) pilot proved successful at introducing contractual partnering on a Hong Kong public works project, resulting in NEC contracts becoming widely adopted by the government’s works departments. The pilot also identified a number of areas for improvement in the way the NEC was amended and implemented. This paper sets out the lessons learnt for future users of NEC in Hong Kong.

Late disputes and the NEC3 Engineering and Construction Contract

Surveys show growing use of the third edition of the New Engineering Contract (NEC3) family of contracts. One of the reasons for project owners’ choice of the NEC3 Engineering and Construction Contract is the avoidance of the risk of claims and disputes long after project completion. In several cases not involving NEC3 contracts, UK courts have been presented with difficult questions concerning adjudication after project completion and delayed reference of adjudicated disputes to the applicable final tribunal. This paper critically examines these questions, the courts’ answers to them and their implications for the NEC3 family of contracts. It concludes that the drafters of future editions of the NEC3 Engineering and Construction Contract should consider provisions targeted at: ensuring that the test of awareness for the purposes of the clause 61.3 time-bar is on an objective basis; conclusive evidence clauses that impose a disincentive against seriously delayed challenges to assessment of compensation events and payment; and providing that the decision of an adjudicator becomes finally binding if the dispute decided is not referred to the tribunal within a stated period.

Briefing: Construction (Design and Management) Regulations 2015 and NEC contracts

Great Britain’s Construction (Design and Management) (CDM) regulations were updated in April 2015. This article explains the key aspects of the changes and how CDM and health and safety more generally interface with the NEC3 Engineering and Construction Contract, one of the most commonly used standard forms of contract in the UK.

Adoption of New Engineering Contract for procuring E&amp;M works services

New Engineering Contract (NEC) is widely adopted in the private and public sectors of the UK construction industry, and with great success. The Government of the Hong Kong Special Administrative Region (the Hong Kong Government) has selected a number of projects in various works departments to adopt the NEC form of contract. The first successful NEC pilot project is Fuk Man Road nullah improvement project in Sai Kung managed by the Drainage Services Department (DSD). To promote a wider adoption of the NEC in Hong Kong, DSD selected a direct electrical & mechanical (E&M) project to be one of the NEC trial projects, which will be the first direct E&M government contract adopting the NEC in Hong Kong. In this paper, the six main options among the NEC3 Engineering and Construction Contract (ECC) have been preliminarily analysed. Option C – target contract with activity schedule is considered more appropriate for this proposed E&M works project. Furthermore, this paper also addresses possible challenges when t...

Nuclear decommissioning contracts: the legal and commercial issues

A fundamental aspect of the UK Programme of Decommissioning and Waste Management is the desire of the Nuclear Decommissioning Authority to achieve more for less. This requires the use of ‘incentives’ and target-cost arrangements. This paper examines the role and use of the NEC3 Engineering and Construction Contract and the Institution of Chemical Engineers Burgundy-Book conditions of contract. Questions are now arising about how incentives-based contracts/target-cost contracts actually work in practice. How do they provide an incentive and allocate the risk of cost/time overrun? What are the problems that are leading to disputes? These questions are addressed, as well as exploring the specific areas that contracting parties should now consider before signing up to an incentives-based or target-cost contract. The paper concludes by examining the desire in the industry to use ‘hybrid contracts’ that incorporate elements of fixed price, or longer-term target plus fee (for workstreams or sites where analysis of risks is required or where work needs to be better understood and characterised).

Managing a programme under the NEC3 ECC contract

A well thought out, detailed contractor’s programme should be used such that is a proactive management tool for both managing the works on a day-to-day basis, and a mechanism to demonstrate the effects and hence entitlement (if any) when change occurs. The NEC3 Engineering and Construction Contract (ECC) in terms of programme management is essentially a set of good practice project management requirements that, if followed, should benefit all concerned. This paper considers some of the practical problems in managing such a system and offers some practical advice to both contractor and project manager to help to ensure that the up-to-date accepted programme that the contract is striving towards becomes the reality.