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Answered: NEC3 ECC: Failure by PM to respond to a CE

February 15, 2016, 10:23 am
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What he can do is detailed in clauses 62.3 and 62.4.
If he has not done so, you should request that he does.
If you don't agree with his reasons you have the option to re-issue the same quote.
I can't understand what the Project Manager may get from simply re-instructing you to issue a quote for the same work.
If it's an instruction under clause 62.1 he his simply delaying the date that the work can start.  
If it's an instruction under clause 61.1 then you are already progressing the work and this new notification won't change the switch date between actual cost and forecast cost in the quotation because that is based on the original date of the instruction, as detailed in clause 63.1.
I've made every effort to answer the questions you've asked based on the information provided. But, if I've missed the point, or not answered your question fully, please don't hesitate to ask for further information.
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Answered: NEC3 ECC: The requirements of Early Warning Clause 16.1

February 19, 2016, 9:07 am
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I am not sure there is actually a question in there. However, a couple of observations.

16.1 identifies 4 must early warns (increased Price, missed Completion,  missed Key Date and impaired performance) and then says that an early warning MAY be given for any other mater which COULD increase the total cost. Obviously there is an important distinction between the total of the Prices and total cost (the later being expenditure and the former, broadly, being recovery).

You say that missing planned Completion is not mentioned but firstly, the second bullet under 16.1 says Completion not the Completion Date and is therefore focussed on finishing the work, ie planned Completion. Also I would be surprised if a contractor could honestly say that missing planned Completion could not increase his total cost. So, put another way, missing planned Completion probably falls within the optional notification provision anyway.

Missing planned Completion is a compulsory early warning matter. While you could say that the employer is only entitled to the project by the Completion Date so what happens in the interim is not (or at least is less) contractually significant,  that misses the point of the NEC approach.

I can understand your point about contractors wanting time to consider delay that is at their risk. However, I don't agree with it. Better I would say to get the fact of the delay on the table and then work together as a team to solve the problem. Who knows, early engagement might get a very positive reaction from the PM and Employer.
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Answered: NEC3 ECC: Does the notification of a defect automatically require a response without specifically asking for one?

February 19, 2016, 9:35 am
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In answering this question,, I am assuming you are the Supervisor or have been delegated his / her powers under the contract.

Under clause 42.2, "the  Supervisor notifies the Contractor of each Defect as soon as he finds it and ... ". I am assuming you are notifying the Defects under this clause as opposed to clause 40.3 where you do a test or inspection and then notify the other of the results.

Under the contract as written, the Contractor has no obligation to correct a Defect until the end of the 'defects correction period' (in italics) which would start at Completion. That is unless the Defects were so major that they prevented the Employer from using the works or Others from doing their work - see clause 11.2 (2).

There is no specific requirement under the contract for the Contractor to respond to your notification of a Defect even if you say "I want a response" so strictly speaking, by the contract wording, the Contractor is right.

If you believe that it is a major Defect which if lefty unaddressed might delay Completion or impair the performance of the works in use, then the Project Manager - not you as a Supervisor (which seems a bit of an oversight) - can notify and early warning from which actions etc can flow.
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Answered: NEC3 ECC: Can you please advise what happens if the final account exceeds the target cost.

February 24, 2016, 5:03 am
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If the target (total of the Prices) is exceeded, then the Contractor shares the overspend in line with the percentages outlined in Contract Data part 1. If for example the Contractor share for anything over the target was 50%, then the Contractor would be paid £125k using the numbers in your example. If the Contractors share was 100% for anything over the target then they would only be paid £100k (but then again knowing those percentages at tender stage would have meant the target would have been set higher in the first place) .

This is the pain/gain principle of option C. Contractor "shares" benefit of any savings below target but limits risk to some degree if they go over - the amount of benefit/risk being purely dependent upon the percentages identified in contract data part 1. The Employer needs to consider carefully prior to tender as to what those percentages should be to encourage the behaviors/risk profile that they are looking to achieve.
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Answered: NEC3 ECC: Assessment of the Effect of Weather on a Delayed Activity

February 26, 2016, 3:15 am
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I am not sure why the PM is looking at 60.1(13) here which is what drives the 1 in 10 event assessment of the CE. As you have described it this is not a 60.1(13) CE it is a 60.1(2) delayed access CE which you then go on to forecast. It is complicated by the fact that you don't seem to have followed the contract and are now looking back with actual data rather than doing a forecast.

Doing it properly under the Contract you would have forecast the direct and risk consequences of the delayed start. Part of that would certainly be a change in weather conditions. You would not look at the 1 in 10 measure but what would be reasonable to expect as the change due to the change in date. As a forecast you might therefore want to look at the differences in the 1 in 10 data as a baseline expectation and then build risk around that.

However, given that you are now trying to evaluate the event with actual knowledge I think your approach is probably appropriate as it mimics the contract (if you got your risk analys8is perfectly correct you would have achieved the result that in fact occurred) but it also leaves the event risk and cost neutral overall for the contractor who is, after all, being compensated for an Employer risk event.

I can see where the PM is coming from in his follow up argument but that still misses the point that the RISK to the contractor has changed and that should have been dealt with or the reality was different (ie your method) and therefor that should be the basis. You really cannot mix and match approaches just to achieve a lower cost outcome.
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Answered: NEC3 ECC: X18.4 Limitation of Liability

February 26, 2016, 3:41 am
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The loss which the Employer will suffer is the key here. Is THAT loss being directly or indirectly caused by the lateness of the subcontractor. The event is irrelevant it is the loss you need to focus on. That said, a straight forward delay related loss is likely to directly cause a loss in most situations.

There are quite a few ways a main contractor could make a recovery from a subcontractor ranging from making deductions from his account for amounts due from the SC to the MC (this will depend on the terms of the contract) through to taking legal action to recover the sum due. However, the starting point will be where is the right/obligation in the contract to complete and what, if anything, does the contract say the consequences are (ie is there an X7 for delay damages or similar)
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Answered: NEC3 ECC: Should the cost of flood damaged equipment be covered by the Contractors insurnace?

February 26, 2016, 10:31 am
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I think you are right to look at Section 8 of the Core Clauses for matters of insurance. The relevant clauses are clause 80.1 and clause 81.1. Clause 80.1 lists the Employer's risks under the contract and clause 81.1 confirms that any risk not covered by clause 80.1 is a Contractor's risk. So in terms of insurance, if this particular risk is not explicitly listed as an Employer's risk in your contract, then I think the flooding damage is a Contractor’s risk.
For the amount to be paid you should refer to Core Clause 50.2, Option E Clauses 11.2(29), 11.2(23) and the Schedule of Cost Components clause 22 and clause 7. In my interpretation of these clauses the cost for repairs is not a Defined Cost so it is not included in the Price of Work Done to Date or the amount due. And if any other People, Equipment, Materials costs in the Afp are related to the insurable event then these costs should actually be deducted from cost, as per Schedule of Cost Components clause 7.
Since this is an Option E contract, I don’t think that a clause 60.1(13) compensation event has any effect on the amount due to the Contractor, because the Prices are simply the Defined Cost plus the Fee. However the Contractor may well be entitled some extra time.
In summary, I think the flooding damage is a Contractor’s risk, and therefore he is incorrect to include the repair costs in his Application for Payment.
I hope this helps. If you have any further questions please don't hesitate to let me know.
Regards
Dave Parkinson
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NEC3 ECC: Secondary Option X7 & x18.4 - Damages

March 1, 2016, 12:21 am
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Employer wants to recover loss / damages he will incur due to Contractor delaying project.  X7 is limited to 10% of contract value, and this will only be on overall Completion.  X18.4 (limit of liability) - 100% of the total of the prices. Four questions,

1.  Can Employer recover the loss  he had to pay others for standing time and acceleration as well as penalties , under 18.4 , as X7 will never cover all the costs.
2.  Can this loss be seen as consequential / indirect, even if it is as a direct result of Contractor lack/ poor performance.  
3.  How do you recover this money, what's the procedure to be used as I can not issue a negative CE , back charge or claim or a reduction in the prices as far as I know.  Does the NEC recognise a "claim" can I issue a notice of claim? and if I do, does this fall outside the contract (NEC)  and become a legal matter?
4.  I understand that X7 is for delay damages, but what is X18.4 for, and can you claim under X7 and X18.4?

Thank you
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NEC3 TSC: Who owns the target cost in a TSC and who is responsible for errors and omissions?

March 1, 2016, 11:17 pm
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Within the Term Service Contract, option C. Who is responsible for the Price List when a target contract is agreed at the start of a scheme?

I'm currently working on a scheme where more regulating material was required by the Contractor whilst on site. All documents were available when the scheme was targeted using a mix of Price List items and new 1st principle items.  No changes to the works information has occurred but the Price List did not contain enough regulating material.

Is a Compensation Event for the shortfall in regulating  ok as this is an Employers Risk or do we share the omission jointly once we agree a Target Cost?
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NEC3 ECC: Option C fee % basic question

March 1, 2016, 11:17 pm
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As a Contractor, on a project we have a good understanding of our estimated range of site costs (activity costs) and fixed back-office overhead costs that will go into the Fee, along with our target profit. In £ terms we understand what our Target Cost should be. This is a very basic question as we need some understanding on Option C contracts, how do we express the Fee is terms of % e.g. of Target Cost or Activity Cost?
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NEC3: Is a programme submitted as part of a quotation submitted for acceptance

January 3, 2016, 12:53 pm
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Thanks for the response.

I agree that a quotation is submitted for acceptance and is required to contain alterations to the Accepted Programme otherwise the PM should assess.

However what I'm not clear on is the status of the programme submited as part of the quote.

If the alterations to the Accepted Programme were submitted in the form of a new (full) programme would acceptance of the quote constitute acceptance of the programme and hence mean that the programme becomes the Accepted Programme ie is the alterations to the Accepted Programme submitted for acceptance as well as the quotation (effect on Prices and effect on the Completion Date).
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Answered: NEC3 ECC: Option C fee % basic question

March 3, 2016, 11:23 am
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You get to claim one fee (well two really, as you have subcontract fee percentage for subcontracted elements and direct fee for everything else). To build up your target price that you are committing, it will be the actual cost you think you will incur plus the fee (which includes head office costs and profit). That will therefore be a percentage of the "activity cost" as you have called it.

This fee is then carried forward when it comes to assess compensation events. It will be forecast defined cost, plus the fixed fee. If the target cost is £10mil which is made up of £9mil cost + £1mil head office costs + profit then your fee is 10%. That fee needs to be enough to cover the same extra over costs for a CE that you can't claim for within the schedule of cost component elements. You obviously don't particularly need to justify what proportion of fee is within your target cost, but given that you complete within contract data part 2 what your direct fee percentage is they will obviously have a fair idea.
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NEC3 ECC: Failure of fabricated Plant and Materials test and workmanship,

January 6, 2016, 6:04 am
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If fabricated Plant and Materials failed in material and workmanship test, can the Project Manager Disallow the cost of the said Plant and Material?
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NEC3 ECC: Direct/Subcontractor fee percentages when using Option A

January 8, 2016, 2:47 am
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I am trying to find an answer to what I think should be a simple query when using ECC Option A.

Contract Data Part 2 asks for a Direct Fee Percentage and a Subcontracted Fee Percentage.

Cl. 11.2(8) states that the Fee is the sum of the amounts calculated by applying the subcontracted fee percentage to the Defined Cost of subcontracted work and the direct fee percentage to the Defined Cost of other work.

Cl. 11.2(22) states that Defined Cost is the cost of the components in the SSCC whether the work is subcontracted or not excluding the cost of preparing compensation events.

When assessing compensation event I usually go through the following process:

People – apply % for people overheads
Equipment – apply % adjustment for equipment
Materials – no %
Total – apply Direct Fee %

Subcontractors – apply subcontractors fee %

As I read the above clauses in conjunction with the guidance notes I am now coming round to the idea that I should be assessing compensation events in this way:

People (including Subcontractors People) – apply % for people overheads
Equipment (including Subcontractors Equipment) – apply % adjustment for equipment
Materials (including Subcontractors Materials) – no %
Total – apply Direct Fee %

If this is the case how, if at all, is the Subcontractors Fee % applied when using Option A?
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Answered: NEC3 ECC: Option C fee % basic question

March 6, 2016, 10:37 am
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Before I answer your question I’d like to explain how payments are made under an NEC3 ECC Option C Contract.
This contract is a cost based contract and at each assessment period you’ll be paid “Defined Cost” plus Fee. The Schedule of Cost Components explains how the Defined Cost for People, Equipment, Materials and Charges is calculated. Clause 11.2(23) explains how the Defined Cost for Subcontractors is calculated. Clause 11.2(8) explains how the Fee is calculated. The contract also states “Any of your costs that are not included in Defined Cost are treated as included in the Fee”.

To make sure you are able to calculate the Fee percentage accurately it’s worth checking that your “activity costs” only include any items that are “Defined Cost”. Once you’ve done this you’ll know your costs for items that are Defined Cost. All your other costs (including profit, insurance, overheads) are in the Fee. The Fee percentage is the ratio of the Fee to the Defined Cost expressed as a percentage.

Relevant Clauses
Core Clauses: 11.2(8), 50.2, 52.1. Option C Clauses: 11.2(23), 11.2(29)

If you find this answer useful I’d be grateful if you can give it an up vote. I’d also be interested to know how you get on with this issue, and if you’d like to keep me informed my contact details are on my User Page.
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Answered: NEC3 ECC: Do you include a programme when you submit a compensation event under Option B?

March 6, 2016, 11:14 am
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The fact you are option B is actually irrelevant as it is the same answer for options A-F. Core clause 62.2 states that "if the programme for remaining works is altered by the compensation event, the Contractor includes the alterations to the Accepted Programme in his quotation". The guidance notes for this clause suggest the quotation should include a revised programme.

So the simple answer is yes, unless the compensation event has had not effect on the programme (the CE is to change the taps from brass to gold - there is no change to programme but big change to price).

You are trying to justify your CE quotation and the clearest way you have of doing this is with a clear transparent programme.
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NEC3 ECC: Cl 32.1 - Changes to the Accepted Programme

January 13, 2016, 10:38 am
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NEC3 ECC Option C unamended.

The PM is not accepting the Contractor's revised programmes on the grounds of clause 31.3 bullet 2.

The PM is asking the Contractor to list out the proposed changes made to the Accepted Programme as clause 32.1 bullet 4.

The PM wants a list of all of the programme activities that have been updated and the nature of the changes made.

The Contractor is providing headline statements of general operations that have given rise to the changes to the Accepted Programme but is not providing any reference to programme ID's or details of what changes have been made to those programme ID's.

The Contractor maintains that it is complying with clause 32.1 bullet 4. and the PM argues to the contrary.

Who is correct in this scenarion?
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NEC3 ECC: What is the process for dealing with unexpected ground conditions?

January 15, 2016, 4:17 am
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Beta contractors has an  NEC3 ECC Option A ‘traditional strategy’ contract to construct a bypass which includes a new bridge over the River Avon designed by Cheta consultants. Warwickshire County Council (WCC) is the Employer and the Site Investigation was carried out for WCC by Missit Ground Engineering.

Whilst excavating a rock formation is found which was not shown in the Site Information.What would be the contractual process and the arguments that should be raised to gain P.M's agreement for a compensation event?

The bridge has two abutments. Whilst excavating the first one, the South abutment, Beta encounters a rock formation which is not shown in the site information.

The Completion Date is 15th September 2016 and Beta’s Planned Completion, shown on the accepted programme is 20th August 2016.  The Defects Correction Period is three weeks. Dates are very important on this contract, because the new bypass must open before the 20th October 2016 for the start of the 2016 Stratford carnival.
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NEC3 ECC: Revised programmes

January 15, 2016, 4:17 am
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The Contractor is submitting programmes at the required intervals however these programmes have a "progresses to" date which pre-dates the submission date by 2 weeks.  

This is an A-road dialling scheme with 16 months remaining and 2000 activities to complete.

The PM is stating that the 2-week "lag" date is unreasonable and that the programme programmes should be submitted within 1 week of the "progressed to" date.  Accordingly the PM is not accepting the programmes as they are not reflect the Contractors plans realistically by virtue of the 2 week lag between submission and "progressed to" date.  The PM is saying that by the time it comes to reviewing progress on the submission which could be 3 weeks after submission then people's memories aren't what they could be compared to if the review was undertaken within 2 weeks.

In your opinion in this case is 2 weeks too long or is it to be expected?
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NEC: ECC Option A - how do I assess Compensation Events when the Shorter Schedule of Cost Components does not include rates for People?

January 15, 2016, 4:17 am
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Working for the Main Contractor and have notified a compensation event due to weather conditions experienced in the period. The PM has instructed me to submit a quotation. The planned Completion will be delayed by 8 days and I need to assess the cost implications of this additional period on site for People working within the Working Area (build manager etc..).
Within Contract Data Part 2 the Shorter Schedule of Costs Components does not include agreed rates for People within the Working Area and a specimen copy of the Contract does not provide a space to encourage the Contractor to identify rates at Contract formation (unlike the Equipment and Design sections). I am struggling to agree acceptable rates for People with the PM and want some advice on how we can agree rates on this Project.
I am about to set up a new Project using Option A and also wanted to know if I can, or should, include rates for People within the Working Area within the Shorter Schedule of Cost Components to ensure this type of dispute does not arise moving forward.
Thanks for your assistance.
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