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Basic changes required to implement NEC

Kelvin N. F. Lau – Associate Vice President

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OUTLINE • NEC ECC in Brief

• Video to introduce NEC in DSD Pilot Contract (DC 2008/02) using ECC Option C

• Mindset Changes from a Consultant’s angle

• Highlights of Contract Management in DC2008/02- Compensation Event / Defect / Payment

• Feedback Sharing

B&V 1 Nov 2013

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Introduction of NEC Engineering Construction Contract (ECC) – Option A to D

1 November 2013 B&V

New projects – Engineering and Construction Contract (ECC)

Option A / B – Fixed price

Financial risk more on Contractor

Option C / D – Target cost

Fairer risk sharing

Open book accounting

Pain/Gain Share

Option E – Cost reimbursement

Option F – Management contract

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Understanding of Choice of Options Option Charateristic

A (Priced contract with price list – Lump Sum)

•Scope well-defined •Lump Sum payment

B (Priced contract with bill of quantities)

•Scope defined but quantity may vary •Paid by Re-measurement

C (Target contract with activity schedule)

•Scope well-defined •Cost saving incentive •Fair risk sharing •Actual payment + Fees

D (Target contract with bill of quantities)

•Scope defined •Cost saving incentive •Fair risk sharing •Actual payment + Fees •Site Measurement taken throughout contract

1 November 2013 B&V

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Video

1 November 2013 B&V

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NECs in B&V’s hand Contract NEC Type Sum Client Contractor Commence

ment Status

DC2008/02 Fuk Man Road Nullah Decking

ECC Option C 76M DSD/DP Chun Wo Aug 2009 for 33mths

Completed

DC2012/09 Pak Hok Lam & Sha Tau Kok Sewerage

Framework + ECC Option B

187M DSD/CM Kum Shing Jun 2012 for 50mths

On going

DC2012/05 Yuen Long Kam Tin Sewerage Stage 3, Pkg 2

ECC Option D 144M DSD/SP Kwan On Sep 2012 for 48mths

On going

1/WSD/13 Improvement of Fresh Water Supply to Cheung Chau

ECC Option C 180M WSD/C China Road - China Pipeline JV

Oct 2013 for 24mths

Just Started

1 November 2013 B&V

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NEC-ECC Project Organization

•Employer (DSD)

•Contractor (CW)

•Project Manager (DSD/DP)

•Supervisor (B&V)

GCC Project Organization

Difference in Project Organization

•Contractor (CW)

•Employer (DSD)

•Engineer (B&V)

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GCC NEC

Notes to Tenderers Notes to Tenderers

General & Special Conditions of Tender General & Special Conditions of Tender

General Conditions of Contract Core Clauses & Secondary Option Clauses

Special Conditions of Contract Z Clauses

(i.e. Additional Conditions of Contract)

Articles of Agreement Articles of Agreement

- Schedule of Articles of Agreement

BQ Activity Schedule

Form of Tender Form of Tender

Appendix to Form of Tender Contract Data Part 1

- Contract Data Part 2

Site Investigation Information (if any)

(Not forming part of Contract) Site Information

General & Particular Specifications Works Information

Drawings Works Information

Document Framework GCC Vs NEC3 Option C

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Role of the Consultant in the Pilot Contract

Purpose of NEC conditions of contract

Foreword to NEC conditions

• Stimulating good management and relationship between the parties to contract and , hence, of the work included in the contract

B&V 1 November 2013

NEC GCC

Title of B&V in this Pilot Contract

Supervisor Engineer

RSS in this Pilot Contract

Supervisor’s Representative (RSS post – RE)

Engineer’s Representative

Role

Offering support to the Project Manager in execution of the day-to-day project management

Carry out the duties and exercise the power specified in the Contract. i.e. contract administration; watch & inspect the Works; test & examine materials; workmanship….etc

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Changes in Rules – changes in mindset (1)

The Contract is to be run by mutual trust and cooperation developed amongst Client, Consultant & Contractor with the interests of the project.

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Why do Trust and Cooperation so important in NEC?

Client Mission - to ensure project on time &

within budget

Contractor Mission – to

maximise profit

Consultant Mission – to

ensure quality safe

ty

safety

safety

Apart from safety, there is no common objective formed within 3 parties.

If there is no trust and cooperation between each party, who will be the winner? Result – Probably all losers.

Normal GCC

Emphasis on Obligation of individual party

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Changes in Rules – changes in mindset (2)

• Emphasis on effective communications

– new rules for responding on project matters

• Transparency of Information and Decision Making

• Risks and Responsibilities Sharing concept

• Payment for Option A/B similar to GCC; Contractor will price a Fees for management of “Changes”

• Payment for Option C/D = Contractor’s actual expenses + Fees ; this fees will also be used for management of “Changes”

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Changes in Rules – changes in mindset (3)

• In addition to the contract basic requirements such as scope of works and time for completion, new thoughts outside the target of the original contract are formed for the team to meet after signing contract. They are more than the contract commitments.

• To meet this, more effort are required from the team.

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Group Discussion on Common Goals in DC/2012/09 (set in July 2012 Workshop)

•OPTIONAL TITLE •COMPANY DIVISION •PRESENTER NAME

Related Goal Short Term (6 mth) Evaluation up to 9/13

Progress ±5% of programme Y (X% behind Prog)

Expenditure ±10% Y (X% behind Prog)

Safety 0 incident Y

Environmental 0 NC Y

Complaint (justified) ≤1 N (total nos = X)

UU damage 0 Y

Commendation letter from stakeholders

>0 Y (XX nos.)

Submission/Approval <2 days in average ?

Compensation Event (except IW)

<5 ?

Performance Score >60 Y

Organized Activity for team Min. 2 Y (Drinks & Soccer)

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Ideas for improving communication and working relationship in DC/2012/09 (set in July 2012 workshop)

•OPTIONAL TITLE •COMPANY DIVISION •PRESENTER NAME

Idea Short Term (6 mth) Evaluation up to 9/13

Smart phone Everyone have a one for communication for Whatsapp!

Y

Working meeting between RSS and KS

weekly Y

Share office Agree setup within 1 month

N(XX weeks late)

Training in partnering, manners, requirements to frontline staff

≥3 ??

Happy hour/meal monthly ??

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Highlights of Contract Management in DC2008/02- Compensation Event / Defect / Payment

16 November 2010 B&V

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Compensation Event (NEC characteristic)

• A “new term” for all issues related to TIME & COST change. (Such as VO, claims, disruption..etc)

• Procedure designed with an aim to Quick Settlement (pre-event agreement)

Typical types of Compensation Events are listed in NEC –ECC Core Clauses 60, Contractor doesn’t need to wait a long time for a VO

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Compensation Event - Contractor get paid on EOT due to EOT Inclement Weather, Utility Work & Special Circumstances

• All the above related CEs covers Time + $

(vs GCC: inclement weather, utility work, special circumstances Time only)

CE for inclement weather covers increase in Prices more competitive bids for the Employer in long term

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Compensation Event - compared with VO and Claim

NEC-ECC

• Quotation for CE ALWAYS covers both time and cost (ECC62.2)

• No differentiation as VO or Claim

GCC

• EOT and money are separately considered

• VO – $ only

• Claim – Time or Time + $

More efficient project management

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Compensation Event - compared with VO and Claim

NEC-ECC

• An Agreement process between PM and Contractor

• Definite timeframe for both PM and Contractor

GCC

• Valuation or Assessment by the Engineer

• No timeframe for reply

Better Co-operation & Quicker finalization

More resources & focus onto the project works

Average agreement time in FMR : 52 days

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Compensation Event - Notification of CE

NEC-ECC

• PM within one week replies a Notification of CE (ECC61.4)

GCC

• No response time requirement on the Engineer

More favourable to Contractor

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Compensation Event - Assessment of Quotation for CE

NEC-ECC

• Changes to Prices are effect of the CE upon COST + Fee

GCC

• VO Valuation is based on contract rates

(BQ rates, adjusted BQ rates or star rates as per GCC61)

COMPENSATION principle(cost + fee)

Open book account Cost information readily available

Easier Agreement of Quotation + Solid Back-up

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Handling of Defective Works (1) – Responsibility is owned by the Team (not just the Contractor)

Handling of in Defective Works by Supervisor

• Issue of Notification of Defective Works

• Checking on Defect rectification

• Ensure Defects rectified within defect correction period (12 weeks after Completion)

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Handling of Defective Works (2) – Flexible approach to clear the defects

• Cost of defect correction Included as part of Defined Cost

Exception:

• Disallowed Cost (Defect corrected after Completion, Defect due to Contractor not complying constraints in Works Information)

Incentive for earlier correction of Defects

Focus on Clearing the Defects (Not Blame)

Advance Defect notification to assist Contractor

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Handling of Payment - Payment Mechanism

• Payment based on the PAID elements of Defined Cost

Quick settlement of wages & payment to subcontractors and suppliers

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Handling of Payment

• Disallowed Cost (Examples)

• Defects correction after completion

(e.g. defect repair for roundabout)

• Not justified by the Contractor’s record

(e.g. payment record missing)

• Resources not used to Provide the Works

(e.g. extra staff or unreasonable material wastage)

• Resources not taken away from the Working Area after PM’s request

(e.g. idle water pumps)

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Handling of Payment – Price Adjustment for Inflation

• Price Fluctuation not owned by contractor only.

• Calculated and Frozen at each IP to “offset” the effect of fluctuation

• Adjustment to Target Price (not amount due)

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- Feedback from Trial Experience In General

• More Engineering and Project Orientated

• Real Partnering ( building trust not hatred )

Contract Finalization

• Easier settlement due to Open Book Account system

• Stipulated timeframe makes agreement process start when things are still fresh (right people and right time)

Variations

• Quick settlement & Compensation Principle allows focus on factual issue and less on guessing tactics

• Better decision making on project management (Contractor, Client & Consultant views taken)

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Up-to-date Observations from Fuk Man Road NEC Main Contractor & Subcontractors

Successfully made their money from the contract

Consultant

• Less Conflicts

• More Job Satisfaction

Client

• Save time (5.5 months ahead)

• Save money (Approx. $4M)

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16 November 2010 B&V

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Hi Young Engineers, Are you ready for a change?

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Q&A

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Compensation Event - Assessment of Quotation for CE

CE Quotation = Estimated Actual Cost* + Fee (*Estimated cost includes Risk)

Agreed CE Quotation = Change to the Prices

Original ceiling (Target Price)

CE1 CE2 CE3

Agreed CE quotations = Change to the Prices

Adjusted ceiling

Pain-Gain share between Employer and Contractor Based on Final Adjusted ceiling vs Actual Cost