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NEC3 Engineering and Construction Contract Option A: Price contract with activity schedule

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Lenehan, E., The Good, the Bad and the Ugly: A Brief Guide to Z Clauses, Coniston Construction Associates, accessed 7 October 2022 Like Option C, financial loss and financial gain are shared by both Contractor and Client. However, unlike Option C, this Option utilizes a Bill of Quantities to make up the price of works. The NEC3 treats Defined Cost under Option A and B as the costs under the Shorter Schedule of Cost Components, whether work is subcontracted or not (see 11.2 (22) under Option A). Thankfully, the NEC4 recognises the Defined Costs of Subcontractors as separate under both the Short Schedule and the (full) Schedule, which is a far clearer approach. This contract is for anyone providing a service, rather than undertaking any physical construction works. Designers are the most obvious party to fit into this category. Whilst they are producing a design for an employer or contractor, they would sign up and follow the clauses within the PSC. Most of the clauses within this contract are the same or similar to those in the main ECC contract, so that all contractors, designers and subcontractors have broadly the same obligations and processes to follow as each other. The PSC can be used in a wide variety of situations with relatively little change required. [20] Under the ECC there is no separate concept of a contract sum. The ECC uses the term Prices, which has a different meaning in each of the options:

For the contractor, continuous monitoring should take place on the difference between the value and cost. This is slightly less important under cost contracts like option C,D &E. However, under option C it’s imperative the contractor keeps on top of their outgoings. For example, monitoring of, subcontract management, task efficiency and good Quality Management Systems (QMS) to keep defects to a minimum. This option contains a priced lump sum contract. The lump sum contract is then linked to a contract programme with an activity schedule. Each activity on the schedule is then allocated a price. a b Garrett, A., NEC4 - Facilities Management – more contracts, published 18 July 2021, accessed 12 September 2022 NEC, Additional public sector Z clauses required to comply with the requirements of The Public Contracts Regulations 2015, accessed 10 January 2023

The works are constructed by multiple subcontractors who are directly employed by a management contractor. The management contractor will be responsible for the procurement, coordination, and implementation of works in exchange for a fee. This means the client often takes on the financial risk. So far in this article we have used two types of terminology, activity schedule and Activity Schedule. The former is the original tendered activity schedule (as included in the Contract Data Part 2), the latter is that original schedule “changed in accordance with this contract” (see clause 11.2(20)). But it may not; it may contain an activity which is not in the Works Information or it may fail to include an activity which is in the Works Information. The consequences depends on whether the contract is Option A or Option C. Three other NEC contracts – the Engineering and Construction Contract (ECC), Term Service Contract (TSC) and Professional Services Contract (PSC) are also approved further reading for the APM Body of Knowledge 6th edition. It is essential that the Contractor recognises the need to maintain the relevant records to justify all of its costs. It is also necessary for the Employer and Project Manager to have appropriate resources to be able to properly analyse and deal with the detail in the applications by the Contractor when received.

Price for Work Done to Date under option B: The Price for Work Done to Date that the Contractor can claim for each period is: In April 2013 APM and NEC collaborated to produce the Professional Services Short Contract (PSSC) which is APM’s standard form for appointing project managers. The same types of clauses can be mirrored to subcontractor’s/designers by choosing one of the contracts within the NEC family. The Engineering and Construction Subcontract (ECS) In a previous articlewe explored the different NEC Main Options. We gave a brief overview of each option, aiming to provide basic knowledge of what each option means. This article will dig deeper into one of these options. NEC Option A: Priced Contract with Activity Schedule. However, as mentioned above, the Guidance Notes prescribe, for Option A at least, that the list of activities is prepared by the Contractor. The Guidance Notes are silent on this point for Option C. It must be remembered, of course, that the Guidance Notes, while helpful, do not form part of the Contract and so the Parties are free to decide who prepares the list amongst themselves. What should be included in the schedule?Under each option assessment of the financial impact of a compensation event is made by reference to the impact on Direct Cost and the resulting Fee. Changes to the Prices are assessed as the impact of the compensation event on the actual Defined Cost for work that has been done, the forecast Defined Cost of work not yet done and the resulting Fee. It is important that the activities are clear and distinct so that the parties know when they are completed. The Contractor is only entitled to be paid for completed activities. From the Contractor’s perspective, therefore, it will want to ensure that the works are split into as many activities as possible. In contrast, an Employer may want to ensure that activities are described such that elements of work are only paid for when related elements of work are complete. This can be achieved either by ensuring that the relevant activity includes all related elements of work, or by grouping activities. Across each of the contracts the Fee is calculated by the application of an agreed percentage against Defined Cost. The fee percentage needs to cover all costs of the Contractor not covered by Defined Cost, and also provides the Contractor its profit and an allowance for risk.

These options offer a framework for tender and contract clauses that differ primarily in regard to the mechanisms by which the contractor is paid and how risk is allocated and motivated to control costs. Clause 60.6 mistakes in the Bill of Quantities: The Project Manager gives an instruction to correct mistakes in the Bill of Quantities that are either departures from rules for item descriptions in the method of measurement, or due to ambiguities/inconsistencies with any other contract document. Any such correction will be a compensation event, which can result in either an increase or decrease to the Prices.A Contractor can propose a change to the activity schedule if it no longer reflects how they plan to do the works. This revised activity schedule needs to be accepted by the Project Manager before it becomes the new one. The only reasons to reject it would be 1) it is not in line with the programme, 2) the total does not add up to the Prices, or 3) costs are not evenly distributed. Items on the activity schedule should relate to items on the programme. The ultimate step would be to cost load the programme so they are equally aligned and valuations can be done direct from the programme Often used upon appointment of a contractor to carry out infrastructure, highways, buildings, and process plants. Can be used regardless of the level of design responsibility.

Under NEC, there are 7 different options for procuring work. This article will provide descriptions of how each option works and explore the pros and cons to establish which option works best for you. Briefly, the options are titled as follows:Providing a prescriptive process for assessing change (compensation events) for which there is a strict series of processes to follow and within certain timescales. These result in a contractual conclusion, with the event being “implemented” and not liable for subsequent change or challenge from either party. The timely issuing of notifications is essential to the NEC’s collaborative way of working. Continuous communication between all parties will ensure disputes are kept to a minimum. Should Contractor price the Bill of Quantities or the Scope?: The Contractor only has the opportunity to price the items in the Bill of Quantities. Clause 20.1 obligates the Contractor to provide the works in accordance with the Scope. The Bill of Quantities is not Scope, so any ambiguities between an item in the Scope but not allowed for within the Bill of Quantities will need to be identified as an ambiguity in accordance with clause 17.1. This will require an instruction by the Project Manager to resolve the ambiguity, and assuming what is stated in the Scope is what is required, will need to correct the mistake within the Bill of Quantities (60.6). This should then also be confirmed as a compensation event under clause 60.7. The Contractor will be entitled to assess the cost and time implications that have resulted due to the error in the Bill of Quantities.

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