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NEC3 Short contract termination

January 24, 2016, 12:00 pm
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I have received a termination notice under reason  5 within the NEC3 Short form. What I am trying to clarify is following 92.1 and what the amount due on termination includes.

What is the amount due assessed as normal payment? Is this a percentage of the outstanding work value for my profit and then 5% of the profit value submitted??

Any advice would be appreciated.
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NEC3 Is a programme accepted by default?

January 26, 2016, 2:02 am
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If the PM does not accept or reject a clause 32 programme in the allotted time, does this become the accepted programme by default?
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Answered: NEC3 ECC: What is the implication of 3rd bullet point of Clause 32.1?

March 12, 2016, 6:04 am
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Your first question established that yes they should show the effect of non-implemented compensation events on the programme which may well take planned Completion beyond Completion Date. You now ask if this could be rejected due to the third bullet (how Contractor plans to deal with any delays). The answer is no, it cant be rejected for this reason and would not be relevant in this case. Even if this was not a CE and a Contractor delay - they are showing you what they plan to do about it - which is nothing! Not a reason to reject the programme, but will be a reason to charge them delay damages(assuming you have X7)  if they now exceed the Completion Date.
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Answered: NEC3 ECC: Early warning notices on the revised Programme

March 12, 2016, 8:19 am
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My slant as to whether the Contractor should show an early warning on a programme depends on the likelihood of it occurring :
- if it's 10%, the answers almost certainly not;
- if above 80%, the answer is is almost certainly 'yes';
- somewhere in between : have a discussion about it and what you are going to do about it i.e. a risk reduction meeting and then decide based on some established protocols
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Answered: NEC3 ECC: Substantiation of a quotation for a CE under option A

March 12, 2016, 8:27 am
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Clause 62.2 middle sentence says that "The Contractor submits details of his assessment with each quotation" and a generic reason for rejecting any submission for acceptance is that "more information is needed in order to assess the Contractor’s submission fully." (see clause 13.4)

On the basis that the change in Defined Cost = additional use of resource (whether in time or extra resource) x Defined Cost, I think the PM is entitled to see records of time that resource was used in order to compare the effect of the CE on resource usage versus the pre-CE method and resource in the current Accepted Programme.
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NEC3: Should a CE be put together with a view when the impact occured or at the point of accessment. NEC3 Option C

January 20, 2016, 4:50 am
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An event (client delay) has happen in Feb 15 which has had an impact on the critical path moving the planned completion from Mid July to Mid September. A EW has been raised but no NCE has been raised or PMI issued at this point.  The CE was then assessed in June by the contractor (The lateness of assessment was due to the event evolving and was agreed between client & contractor to wait until the event become more clear and the correct solution could be used for the assessment, rightly or wrongly).

During this time between the event and the actual assessment ( Feb to June) some of the normal works dates, which was the previous critical path back in Feb was delayed until the end of Aug but still remained non critical (Contractors delay).

The two questions I have are

1. Should the assessment be made as in everything forward of the event date (Feb) is a forecast or  the forecasting should be from the point of the assessment (June) ?

2.  Does the delay of the normal works (non critical) have an effect on the prelim cost  or is this just using the total float created by client delay event.

Thanks
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Answered: NEC3 ECC: If a subcontractor goes bust does that mean a CE is valid under option A 60.1 (19): delay due to event of low likelihood? Or does 26.1 overrule such a reason by the contractor being fully responsible for subcontractors?

March 14, 2016, 1:35 am
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It would not certainly not automatically be a reason to claim a CE under (19). It could be that the Contractor had not done their homework on them with credit checks and things like that, and therefore why should an Employer have to take on the liability of the Contractors poor choice of subcontractor?

Having said that there is nothing to stop the Contractor from notifying it as a CE and seeing if they get any sympathy from the Employer. There could be circumstances where they are more sympathetic – e.g. if the Employer “nominated” the subcontractor, or if the subcontractor was the only one the Contractor could really have gone to.

Hope this makes sense. To summarize – default position would be “no not a CE”, unless there are circumstances that make this more of the Employers liability by limiting the Contractors choice of supply chain.
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NEC3 ECC: Deemed acceptance of inconsistencies

January 28, 2016, 10:10 am
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The Project Manager claims that a Contractor must be aware of the inconsistency between or within contract documents at contract date, otherwise he loses all the rights to Compensation after 8 weeks "time bar". Is this allowed?
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Answered: NEC3 ECC: Remeasuring items by the PM in the BoQ where quantites have been reduced.

March 14, 2016, 6:15 am
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The answer is potentially a bit of both! It all depends how much the quantity has changed by. If you look at clause 60.4, it is assessed as a compensation event if an individual BofQ line item changes by more than 0.5% of the original total of the Prices. Other than that you use the rates in the BofQ to assess the reduction. I say reduction, but in truth if the Contractor has done less of it, they will just have been paid for a lesser quantity.

Important to recognize that it is only the extra over that is assessed as a CE using first principles (Defined Cost). If the quantity is 21 less widgets and 20 widgets takes it to the threshold in 60.4, then it is only one widget that would be assessed as the compensation event using "first principles". However, also note clause 63.13 which states that BY AGREEMENT rates and lump sums can be used to assess compensation events. You now need to go to a dictionary (rather than the contract) to see what "by agreement" means!!
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NEC3 ECC: Delay to the works

January 28, 2016, 10:05 am
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Whilst the PM agreed that a delay occurred the subject NCE was rejected on the basis that the Contractor was not ready to start the works due to their fault and as such no entitlement existed, however this delay would have impacted the existing agreed programme, was the PM correct to reject this NCE on this basis due to their interpretation of no impact on defined cost ?
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NEC3 ECC: Option D - Consequential Costs due to Defects caused by Contractor not complying with the Works Information

January 28, 2016, 10:16 am
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Under NEC 3 Option D, it is clearly stated that the "cost of correcting Defects caused by the Contractor not complying with a constraint on how he is to Provide the Works stated in the Works Information" can be disallowed by the PM.

My question is, can the PM disallow also the consequential costs due to this defect (for example cost of standby equipment which cannot proceed to the succeeding activities, extended formworks rental, productivity losses)? If not, how can the PM recover these costs as I think it would be unfair for the Employer to bear these costs.

Looking forward to your opinion on the matter.
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Answered: NEC3 ECC: What does clause 60.1(8) cover?

March 15, 2016, 10:10 am
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You could look at the PM deciding that the works do not meet the condition for a key date and then changing that decision (clause 25.3) or perhaps changing a decision on the date for Completion (clause 30.2). These both specifically refer to decisions of the PM. However, I think for 60.1(8) you are looking more broadly than a contractually specified "decision" and looking at any time the PM makes a decision in the normal English sense of the word.
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Answered: NEC3 ECC: Secondary Option X7 & x18.4 - Damages

March 15, 2016, 10:24 am
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Question 1 - Delay Damages will be a complete remedy for time related costs. Therefore, no standing time cannot be claimed above the delay damages limit.

Question 2 - Under X18.4 this is total liability, that is both direct and indirect. There are two different percentages with different regimes, you seem to be mixing them. I cannot see standing time as consequential, it is really direct.

Question 3 - If you have X7 for delay damages then that is one of the matters to be taken into account in the monthly payment (ie amounts the contractor owes to the employer). If you do not have a delay damages provision then you would make the deduction in the same way but stated as a consequence of breach of contract so damages.

Question 4 - X18.4 is for total liability howsoever arising except for the excluded matters. So, examples could be defects, damage to adjoining property, environmental prosecution and so on. X7 is excluded so does not fall under the total cap. So, if the total cap is £1m and delay damages are capped at £1m and you suffer £800k of damage to adjoining land and the delay damages calculation amount to £1.5m then you have the whole of the £800k and £1m of delay damages total recovery £1.8m
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NEC3 ECC: "Confidential" Records of the Contractor

March 16, 2016, 12:44 am
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Clause 52.3 of NEC3 states that:

"The Contractor allows the Project Manager to inspect at any time within working hours the accounts and records which he is required to keep."

Meanwhile Clause 14.2 states that:
"The Project Manager and the Supervisor, after notifying the Contractor, may delegate any of their actions and may cancel any delegation. A reference to an action of the Project Manager or the Supervisor in this contract includes an action by his delegate."

Hence, with the PM's delegation, the PM's representative may inspect Contractor's records as if the PM would have inspected the records himself.

Relative thereto, can the Contractor deny the delegated person by the PM to view records required to verify the Defined Cost if he reasons out that the information is confidential to project-level personnel?
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NEC3 ECC: Compensation Events and Fees

January 28, 2016, 10:05 am
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A Subcontractor has submitted a quotation for works for us to forward onto the employer, the works only involve this subcontractor.

They have broken the elements down into cost and have a line for the direct fee percentage.

Do we simply take their quotation and add our direct fee on and that forms our quotation to the employer?
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NEC3 ECC: Clarification of who is responsibility for notifying compensation events

February 1, 2016, 3:55 am
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Under the NEC3 Contract (Option C): Which compensation events is the Project responsible for notifying, and which compensation events is the Contractor responsible for notifying?

For the compensation events that are the Contractor's responsibility to notify, does the Project Manager need to take any action if the Contractor doesn't notify these events?
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Answered: NEC3 ECC: Cost of Correcting Defects

March 17, 2016, 1:25 am
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If you have been instructed to do something by the Project Manager then under clause 27.3 you are obliged to follow that instruction. If this is something that they may perceive to be a defect, it is up to you to notify that this instruction is a compensation event - stating why within clause 60.1 it is one. Providing they agree it is one, they then request a quotation and you will assess that in terms of defined cost like you have highlighted.

If the Project Manager responds to your notification that they do not agree it is one - you have no contractual recourse other than formal adjudication to over turn that decision. When you initially notify it is a CE you need to make it very clear why it is one with all the evidence you have - i.e. put the Project Manager in a position where they can't say it is not a compensation event (unless of course it isn't!)
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NEC3: Does Deductible cost for insurance part of the Defined Cost?

February 1, 2016, 11:55 pm
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We are currently engaged in an Option D Contract. Construction is ongoing and then Defects were found on constructed Bored Piles. The Bored Piling Works was Subcontracted. The Contractor says the cost of rectifying the defects will be covered by their Contractor's All Risk Insurance. But the Contractor shall pay the Insurance provider USD250,000.00 as Deductible Cost for every event. Does this cost should be charge to the project cost or should be charged to the Subcontractor of the Bored Piling Works? Note that Defect was cause by the Contractor not following a constraint on hoe he is to Provide The Works stated in the Works Information. The cost of correcting the Defect is a Disallowed Cost in accordance with Sub-clause 11.2(25) main bullet 5. But Item 7.2 in the Schedule of Cost Components includes The cost to the Contractor of procuring and maintaining insurances and any deductible as a consequence of an event.
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NEC3 ECC: What happens if an "implemented" CE does not go ahead

February 1, 2016, 11:56 pm
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What happens if an implemented CE does not occur? i.e the need for the works that were a CE goes away but the CE has been implemented?
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Answered: NEC3 ECC: Is no Time Risk Allowance a reason not to accept the programme?

March 17, 2016, 4:07 pm
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You would be within your rights not to accept this programme as time risk allowance is a requirement in clause 31.2, and if not complied with a reason to reject under clause 31.3 (doesn't show the information the contract requires. Also could be rejected as "it is not realistic". If TRA is included within the activities the planned Completion will be much more realistic. If they do not need/use the TRA then the planned Completion will start to come forward, which results in terminal float which the Contractor then still owns.
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