NEC3 Contract Trainning

www.ulster.ac.uk/ceni Best Practice | Innovation | Best Value

Workshop 4 – Delivering the

Contract

Colin Smyth MRICS MBA

Gary Bogle BSc (Hons) LLM MRICS FCIArb

Wednesday 20th September 2011


Our Agenda for Today

Delivering a project under a JCT or NEC Contract

Contract Planning & Programming

Risk Management & Cost Control

Budgeting & Cost Management

Resolving Disputes

Company and Project Performance Measurement


General Procurement


General Procurement Methods 2007


General Procurements Methods 2007


Overview of the JCT

JCT Suite of Contracts

Adjudication Agreement

Collateral Warranties

Construction Management

Consultancy Agreement (Public

Sector)

Design and Build Contract

Framework Agreements

Generic Contracts

Home Owner Contracts

Intermediate Building Contract

JCT – Constructing Excellence

Contract

Major Project Construction Contract

Management Building Contract

Measured Term Contract

Minor Works Building Contract

Partnering Charter

Pre-Construction Services

Agreement

Prime Cost Building Contract

Repair and Maintenance Contract

Standard Building Contract


SBC/Q

Appropriate for major works designed and/or detailed by or

on behalf of the Employer. The contract is based on

drawings and bills of quantities to define the quantity and

quality of the works

Where a Contract Administrator and Quantity Surveyor have

roles to play in the administration of the conditions

Variants:

Where the contractor is to design discrete parts of the work

(Contractor‟s Designed Portion)

Where the work is to be carried out in sections

By both private and local authorities

SBC/Q - 2005


There are nine sections in the SBC/Q

outlining the provisions of this contract Section 1 - Definitions and Interpretation

e.g. Activity Schedule, Architect/CA, Health & Safety Plan

and Electronic Communications

Section 2 - Carrying out the Works

e.g. Contractor‟s Obligations, Adjustment of Completion

Date and Defects

Section 3 - Control of the works

e.g. Access and Representatives, Person-in-charge,

Architect/CA‟s Instructions

SBC Conditions (1)


Section 4: Payment

e.g. Contract Sum and Adjustments, Certificates

and Payments, Retention and Loss and Expense

Section 5: Variations

e.g. The Valuation Rules

Section 6: Injury, Damage and Insurance

e.g. Injury to Persons or Property and Insurance

SBC Conditions (2)


Section 7: Assignment, Third Party Rights and

Collateral Warranties

e.g. Assignment, Rights for Purchasers and Tenants,

Contractor‟s Warranties

Section 8: Termination

e.g. Meaning of insolvency, reinstatement and Corruption

Section 9: Dispute Resolution

e.g. Mediation, Adjudication and Arbitration

SBC Conditions (3)



Overview of the NEC 3

The NEC Journey so far ……..



The NEC3 Suite – The Contracts

The NEC Suite of Contracts:

Generic name for a family of contracts published for the Institution of Civil Engineers by Thomas Telford Ltd.

NEC 3

Engineering and Construction Subcontract

Engineering and Construction Short Contract

Engineering and Construction Short Subcontract

Professional Services Contract (PSC)

Adjudicator‟s Contract

Term Service Contract & Guidance Notes

Framework Contract


The NEC3 Suite – The Contracts

Catalyst for NEC:

Sir Michael Latham‟s industry report

„Constructing the Team, 1994‟

Believed NEC complied with most of the

principles that the report advocated.

NEC 3 - Background


Latham

Improving industry‟s performance

Teamwork better VFM

NEC 3 - Background


Latham

Clients

Well informed – know what they want & take decisive

steps to achieve it

Knowledgeable but not necessarily modern in their

approach

Others are feeling their way under new administrative

arrangements

Some know nothing & need extensive help & guidance

for formulate their wishes then match them to the

available budget

NEC 3 - Background


Latham

Client Objectives

VFM

Pleasing to look at

Free from defects on completion

Delivered on time

Fit for the purpose

Supported by worthwhile guarantees

Reasonable running costs

Satisfactory durability

NEC 3 - Background


NEC 3 - Background

• Sir Michael Latham• Believed NEC complied with most of the principles

that the report advocated.

• Constructing the Team• A specific duty for all parties to deal fairly with each

other, and with their subcontractors, specialists and suppliers, in an atmosphere of mutual cooperation.

• Firm duties of teamwork, with shared financial motivation to pursue those objectives. These should involve a general presumption to achieve “win-win” solutions to problems which may arise during the course of the project.


NEC 3 - Background

• Constructing the Team• A wholly interrelated package of documents which

clearly defines the roles and duties of all involved, and which is suitable for all types of project and for any procurement route.

• Easily comprehensive language and with Guidance Notes attached.

• Separation of the roles of contract administrator, project or lead manager and adjudicator. The Project or lead Manager should be clearly defined as the client‟s representative.

• A choice of allocation of risks, to be decided as appropriate to each project but then allocated to the party best able to manage, estimate and carry the risk.


NEC 3 - Background

• Constructing the Team• Taking all reasonable steps to avoid changes to pre-

planned works information. But, where variations occur, they should be priced in advance, with provision for independent adjudication if agreement cannot be reached.

• Express provision for assessing interim payments by methods other than monthly valuation i.e. milestones, activity schedules or payment schedules. Such arrangements must also be reflected in the related subcontract documentation. The eventual aim should be to phase out the traditional system of monthly measurement or remeasurement but meanwhile provision should still be made for it.


NEC 3 - Background

• Constructing the Team• Clearly setting out the period within which interim

payments must be made to all participants in the

process, failing which they will have an automatic

right to compensation, involving payment of interest at

a sufficiently heavy rate to deter slow payment.

• Providing for secure trust fund routes of payment.

• While taking all possible steps to avoid conflict on

site, providing for speedy dispute resolution if any

conflict arises by a pre-determined impartial

adjudicator/referee/expert.

• Providing for incentives for exceptional performance.


NEC 3 - Background

• Constructing the Team• Making provision where appropriate for advance

mobilisation payments (if necessary, bonded) to contractors and subcontractors, including in respect of off-site prefabricated materials provided by part of the construction team.


Emergence of NEC:

Client Dissatisfaction

Questioned if existing standard forms adequately

served the best interest of all parties

Time, cost and quality of projects

Greater need of certainty of outcome

Required appropriate allocation of risk that

other contracts did not provide

NEC 3 - Background



NEC 3 - Background


NEC 3 - Background

UK Construction Industry highly capable

Concern that industry is under-achieving

Low profitability

Invests too little in capital, research &

development and training

Aim of Task Force based on their

experiences in other industries

Deliver improvements in

• Quality

• Efficiency

Egan – Rethinking Construction


Committed leadership

Focus on the customer

Product team integration

Quality driven

agendaCommitment to people

Drivers forChange

Product

development

Production of

components

Project

implementation

Partnering

the

supply chain

Improving theProject Process

5-4-7 Mantra of Rethinking Construction

Targets forImprovement

Capital cost

Construction

timePredictability

Defects

Accidents

Productivity

Turnover & profits

-10%

-10%

+20%

-20%

-20%

+10%

+10%



Using experience

Set ambitious targets

Effective measurement of performance

Improvement



An industry wide group developed a set of

simple headline Key performance Indicators

(KPIs) based on the 7 Rethinking Construction

targets but with the addition of Client

Satisfaction measures:

Product

Service

Performance


Rethinking Construction KPI‟s


Committed leadership

Focus on the customer

Product team integration

Quality driven

agendaCommitment to people

Drivers forChange

Product

development

Production of

components

Project

implementation

Partnering

the

supply chain

Improving theProject Process

5-6-10 Model

Targets forImprovement

Construction costConstruction time

Predictability (cost)

Client Satisfaction - P

Profitability

ProductivitySafety

SustainabilityRespect for

People

Predictability (time)

Client Satisfaction - S

Defects

Egan – Performance Measurement


Industry

Changes in culture & structure to support

improvement

Safe working conditions

Improve management & supervisory skills at all

levels

Design projects for ease of construction

Maximum use of standard components &

processes



Industry

Replace competitive tendering in favour of

Long term relationships based on

• Clear measurement of performance

• Sustained improvements in quality & efficiency



Demonstration Projects

Leading edge organisations that demonstrate

Innovation

Change which can be measured & evaluated



Ambition of Rethinking Construction

50 projects

Total value £500m

Accelerating Change - Actual

400 projects

Total value of over £6bn

38% are housing projects

62% the rest of the construction industry



These provide examples of:

Off-site fabrication

Standardisation

Use of new technology

Sustainability

Respect for people activities

Partnering

Supply chain integration

Demonstration Projects



Bring together those committed to

“rethinking construction”

Encourage openness, sharing and learning

Develop benchmarking and co-operation

Demonstrate innovation and best practice

Disseminate to the whole of the industry


Difference in NEC3 and other standard forms

of contract:

3 clear objectives:

Flexibility

Clarity and simplicity

Stimulus to good management

Cultural change

Assessment of change

Trust and cooperation

Collaboration

NEC 3 - Background



NEC 3 - Background

3 clear objectives

• Flexibility

• Clarity and simplicity

• Stimulus to good management


NEC 3 - Background

Objective 1- Flexibility:

• Multi-disciplinary – can be used by any

discipline in the industry

• Design – can be used for Employers design

or Contractors design, or partial design

• Pricing – 6 main options ranging from fixed

price to cost reimbursement

• Applicable – worldwide on a variety of

projects


NEC 3 - Background

Objective 2 – Clarity and simplicity:

• Plain English which avoids excessive use of legal jargon

• Simple structure:

• short sentences,

• same format,

• no cross referencing,

• no reference to the Law

• Procedures are not open ended or conflicting


NEC 3 - Background

• Objective 3 – Stimulus to good management:

• Encourages collaboration and forward planning

• Clear allocation of responsibilities

• Early warning procedure

• Detailed procedure for dealing with changes

• Programming facilities that is used in joint decision-

making by the contractor and project manager

Growth of NEC3:

OGC ‘recommends the use of NEC3 by

public sector construction procurers on their

construction projects’.

Office of Government Commerce 2005

Engineering & Construction Contract



Structure of ECC:

„pick and mix‟ arrangement

9 Core Clauses

6 Main Options

• Employer must select main option

2 Dispute resolution procedures (ECC 3 only)

• Employer must select dispute resolution option

18 Secondary Options


Engineering & Construction Contract

Structure of ECC:

9 Mandatory Core Clauses:

• 1 – General

• 2 – The Contractors main responsibilities

• 3 – Time

• 4 – Testing and Defects

• 5 – Payment

• 6 – Compensation events

• 7 – Title

• 8 – Risks and Insurance

• 9 – Disputes and Termination

Core Clauses


Structure of ECC:

Options:

A – Priced Contract with activity Schedule

B – Priced Contract with bill of quantities

C – Target Contract with activity schedule

D – Target Contract with bill of quantities

E – Cost reimbursement Contract

F – Management Contract


Main Options

Secondary Option Clauses:

X1 – price adjustment for inflation

X2 – changes in the law

X3 – multiple currencies

X4 – parent company guarantee

X5 – sectional completion

X6 – bonus for early completion


Secondary Options


X7 – delay damages

X12 – partnering

X13 – performance bond

X14 – advanced payment to the contractor

X15 – limitation of the contractors liability for

design

X16 – retention


Secondary Options


X17 – low performance damages

X18 – limitation of liability

X20 – key performance indicators

Y(UK)2 – Housing Grants, Construction and

Regeneration Act 1996

Y(UK)3 – Contract (Rights of Third Parties)

Act 1999

Z – Additional conditions of contract


Secondary Options


Questions ?


Introduction to the NEC 3 Short Contract


NEC 3 Short Contract

Formally Launched 30 July 1999

• Not a minor works form

• No financial ceiling on value of projects

Used for contracts which

• Do not require sophisticated management techniques

• Comprise straightforward work

• Impose only low risks on both the employer and the

contractor



• Provisions• Early Warnings

• Programmes

• Compensation Events

NB: Shortened to suit the simpler nature of the contracts

• Structure• No main options

• No secondary options

• Additional conditions can be inserted on page 3

• Price list allows for a number of pricing arrangements (lump sum or rates)



Contents

1. Contract Data

2. Clauses

3. Index


Programming under NEC


Purpose of NEC Programme

Co-ordinate Works

Assess CE‟s

Monitor Progress (to learn lessons)

Maintain Focus

Identify Problems


Short Form Programme

Clause 31 – The Contractor submits

programmes to the Employer as stated in the

Works Information


ECC Clause 31.1

Cl 31.1 Contractor must submit a first programme within the period stated in the Contract Data

Cl 31.2 Detailed Programme

• Starting date, access dates, Key Dates & Completion Date

• Planned Completion

• Order & timing of operations

• Provision for float, time risk allowances, health & safety

Cl 31.3 Project Manager accepts or rejects


Early Warning


Early Warnings

Cl 16.1 – Contractor and Employer give early warnings

by notifying the other as soon as either becomes aware

of any matter which could

• Increase Prices

• Delay Completion

• Impair the works

Cl 16.2 - Contractor and Employer co-operate in making

and considering proposals and recording actions


Compensation Events



Compensation Events• Cl 60 – Cl 63

• Cl 60 – Reduced number of CE‟s

• 14 in total

• Provisions for dealing with change are largely same as ECC, but Contractor only notifies change!

• Cl 61 – Notifying compensation events

• Cl 62 – Quotations

• Cl 63 – Assessing


Clause 61 – Notification (1)

• Cl 61.1 - Contractor notifies Employer if:

• He believes it‟s a CE

• Employer has not notified him

• 8 week long stop then NO COMPENSATION

• Cl 61.2 – Employer decides if it:

• Arises from a Contractor default

• Hasn‟t or won‟t happen

• Doesn‟t effect time or cost

• Isn‟t on the list

Otherwise, Employer asks Contractor for a quotation


Clause 61 – Notification (2)

• Cl 61.3 – Employer notifies missed early warning

• Cl 61.4 - Employer may decide effect of CE is too

uncertain to reasonably forecast, so

• He makes stated assumptions

• If assumption is wrong Contractor notifies

correction

• Cl 61.5 – No notification after “defects date”


Clause 62 – Quotations (1)

• Clause 62.1 - Quotation comprises Contractor’s

assessment with details of:

• Changes to prices

• Delay to Completion Date

• Contractor submits a quotation within 2 weeks of being

instructed or within 2 weeks of the CE notification if no

instruction was received



• Cl 62.2 – Contractor does not put a proposed

instruction or change into effect without a instruction

from the Employer first

• Cl 62.3 - Contractor submits within 2 weeks.

Employer replies within 2 weeks:

• Notifying that instruction will not be given

• Accepting; or

• Does not agree



• Cl 62.4 – If Employer doesn‟t agree with quote

• Contractor can submit a revised quotation within 2

weeks

• If Employer still doesn‟t agree with quote

• Assesses the CE

• Notifies the assessment

• Cl 62.5 – Employer can ask for alternative quotations


Clause 63 – Assessment (1)

• Clause 63.1 – CE that only affects quantities of work shown

on Price List

• Changed quantities X Price List rates = assessment

• Clause 63.2 – Other CE‟s are assessed by forecasting the

effect upon the Defined Costs; or

• If event has already occurred, the Defined Costs due to the

event which the Contractor has incurred



• Effects on Defined Costs are assessed separately for

• People employed by the Contractor

• Plant & Materials

• work subcontracted by the Contractor and

• Equipment



• Clause 63.3 – Defined Costs are assessed at open

market or competitively tendered prices

• The following are deducted from the Defined Costs for

assessment

• Cost of events for which the contract requires the

Contractor to insure

• Other costs paid to the Contractor by insurers



• Clause 63.4 - Delay is effect of CE on the Completion

Date

• Clause 63.5 – Failure to warn, may mean reduction

• Clause 63.6 – Cost and Time risks are included

• Clause 63.7 – We assume Contractor reacts

competently and is promptly, additional cost and delay

are reasonable

• Clause 63.8 – Ambiguities are assessed in the

Contractor’s favour

• Clause 63.9 – CE can‟t be revised if a forecast upon

which is was based is later shown to be wrong


Questions ?


Contract Planning & Programme

Stages of Project & Types of Planning Programme

Project Stage Type of Programme Who Plans?

Overall Project Project master schedule The client or Project

Manager

Design Project master schedule Designer: Architect/

Engineer

Tender Pre-tender programme Tendering Contractors

Pre-contract Master programme

Target programme

Subcontractors’

programme Procurement

programme

The Main Contractor

Contract Stage programme

Short-term programme

As-built programme

The Main Contractor and

Subcontractors

Reasons for Overall Planning Programme

To establish a realistic project master schedule

To identify key dates or gateways at critical stages of the

project

To facilitate control of the design and tendering process

To identify potential risks to progress and avoid possible

delays to project completion and revenue generation

To facilitate the arrangement and draw-down of client

cash funding

To establish a realistic time period for the construction

stage

To monitor actual progress and take corrective action


Microsoft Project

Project Management Software

Helps with assigning resources and tasks to a given

project

Assists in monitoring budgets, production progress and

workloads

Can help companies maximise the use of physical and

human resources on numerous production projects


Microsoft Project

Entering Production Tasks:

The production of buildings can be broken down into a

series of tasks that must be carried out to achieve the

overall result

A task is an activity that requires a period of time or the

input of a physical or human resource, for example:

Concrete and adhesives need a certain amount of

time to cure

Pouring concrete or applying adhesives need human

input before they can cure


Point and click

your cursor in the

first „Task Name‟

cell.

Text also appears

in the entry bar.

When you press

Return, notice this

task has been

given a duration of

1 day

Entering production tasks

If mistakes are made when entering

tasks they can be changed in two

ways.

Firstly, by clicking on the erroneous

cell, or by navigating using the arrow

keys, a wrongly entered task can be

re-entered correctly. This requires

the whole task to be re-typed.

Secondly, by clicking on the

erroneous cell, or by navigating

using the arrow keys, the entry bar

can be used to change a specific part

of the task.

Re-entering misspelled tasks

Deleting tasks

In order to delete a task, all

attributes of that task must be

deleted. The whole row must

be selected. This is done by

clicking on the number

identifier as highlighted

Deleting tasks

Note: Erect front formwork has

been deleted and all

subsequent tasks have moved

up

Note: after „Erect front

formwork‟ is deleted, the row

with the fourth task remains

highlighted.

Inserting tasks

In order to insert a task you

must select the task which is

going to become the next task

in the list.

For example, the task to be

inserted now will become task

4, so the current task 4 „Place

concrete‟ will become task 5.

Inserting tasks

Assigning task duration

Notice that the default duration applied

to each task is „1 day?‟. This shows that

the default duration is one day however

it is also asking “Is this the duration to

be assigneed to this task”?

In order to assign a different duration,

highlight the duration cell for the

specific task. Input the new duration. If

the duration is one week input 1w, if the

duration is two days input 2d and if the

duration is three hours input 3h.

Applying task duration

Notice that as the task

durations were

applied, the Gantt

chart changed to

reflect these changes.

Applying milestones

Tasks 1 and 9 are changed

to milestones by giving

them a duration of 0d as

they are specific points in

time and do not have any

duration.

Assign task relationships (1)

Notice how all

tasks have been

linked in the Gantt

Chart. To link two

or more tasks,

select the tasks in

the „Task Name‟

column.

Assigning

a

relationshi

p between

tasks can

be done in

threes

ways.

Firstly, when

tasks have

been selected

use the link and

unlink

commands

under the Edit

menu,

Secondly, when

tasks have

been selected

use the link and

unlink

shortcuts on

the Standard

menu toolbar.

Thirdly, the mouse

can be used to

link tasks by

clicking on one

task and dragging

the mouse cursor

to another task.

Assign task relationships (1)

The relationships in the previous slide are

all „series‟ relationships. This means that

they happen one-after-the-other.

There are times when tasks can be run

simultaneously, or „parallel‟

TASK 1 TASK 2

Series tasks

TASK 1

TASK 2

Parallel tasks

Parallel relationships

The predecessors

tab is used to

change tasks from

running in series

(or one-after-the-

other) to parallel.

Note that tasks 3

and 4 are now

parallel tasks that

can be carried out

at the same time.

Task 4 through 9

continue in series

with this parallel

pair (task 2 and 3).

The task

information box

can be accessed

by double clicking

on the task or

clicking on the

Task Information

shortcut on the

standard toolbar.

Network diagram

The network diagram

can be accessed by

selecting Network

Diagram under the

View menu.


Questions ?


Risk Management

Application of RM in Construction

RM Application stages

Initial appraisal

Outline or sketch

design

Detailed design

Contract strategy

Construction

Potential for

Risk Management


Risk Management Framework

Risk Identification

Risk Classification

Risk Analysis

Risk Response

Risk Identification

Risk Assessment /

Classification

Risk Analysis / Evaluation

Risk Response / Control

Risk Management Process


Risks in construction projects: How they

arise?

Decisions lead to activities which may differ from expectations

Uncertainties are the cause of differences

Information allows to foresee results

Helps the decision maker

Example: deep basement construction

Decisions Activities

Expectations

Results

Risk


Defining Risk in Construction

Risk in construction projects

The possible occurrence of an uncertain event or outcome, which should it occur, will cause significant variations or consequencesAdditional costs (cost risk)

Delays (time risk)

Substandard quality (quality risk)

Risks occur due to risk causes or risk factors

Bad weather

Industrial action

Turbulent economic conditions, many more……..


Nature of Risk

Risks occur as a result of poor prediction?

Measured by chance or probability of happening

3 Attributes of risk

Risk factor - Range of outcomes

• Optimistic outcome, pessimistic outcome, most likely outcome

• Only one will actually happen

Individual consequences

• Consequence of each outcome

• OO – Profit, PO – Loss

Probability

• Assess the probability of each of the outcomes occurring


Purpose of Identifying Risks (Risk Analysis)

Identification of major risks that affect project

objectives

Possible outcomes and consequences of risks

Likelihood of project objectives being attained

Methods of controlling or accommodating risks

Increased confidence in investment decision

Provides a framework for identifying & managing

risks


Example of Construction Risk Types

Techniques for Identification of Risk

Brainstorming

Team based: identify potential risks

Creative process: generate ideas, no criticism

List of large number of potential risks

Group output better than individual: sense of

involvement

Tree diagrams

Traces: causes, origins and consequences of risks

Multi-level analysis, graphical

Uses probability values for each risk


Techniques for Identification of Risk

Risk Registers

List of pre-identified typical risks

Developed through consultation

example


..\Additional Notes\John Findlay F+G\RISK REGISTER - Example.pdf

113

114

115

Risk

Sources

Source Event Effect

Example:

Risk Analysis

Quantitative evaluation of risk factors

Risk to the project

Consequences of risk

Individual risk

Combined consequences of all risks

Risk profile of the project

Possible future events and probability of occurring

Adopt strategy to deal with major risks


117

Risk Analysis

Process

Risk Analysis Process

Alternatives and options

Risk attitude

Identify and classify risks

Measure the risk: quantitatively & qualitatively

Interpretation of results

Strategy to deal with risks

What risks to deal and what risks to allocate


Example of Analysis

Likelihood of damage to adjoining buildings as a result of pile driving

Risk Measurement

Involves finding what is more risky

Different techniques used

Probability analysis

Sensitivity analysis

Simulation technique (Monte-Carlo simulation)

Scenario analysis

Correlation analysis


Probability Analysis

How probable is the risk

Uses probability distribution against all possible occurrences of risk

Probability classified as:

Objective probability - common

Subjective probability

Defined from experience, intuition

Standard probability distributions used for interpretation


Probability Analysis Example

Scenario:Estimate: need for connection to gas main

Full survey not done, hence, uncertainty as to the exact condition of the gas main connection costs

Typical cost of new gas main £ 2,500

Highly competitive: many sub contractors looking for work

Fixed price job

Estimate the cost of new gas mains to minimise risk to the contractor


123

Probability Analysis Example

Option Price Probability Probable

Cost

A Some

modification

£5000 0.50 £2500

B No modification £2000 0.30 £600

C Substantial

modification

£15000 0.20 £3000

Risk free

estimate

£6100

Risk Response

Risk Retention

Risk Absorption

Risk Reduction Risk Transfer Risk Avoidance

Risk Response


Risk Response Options

Retention

Not all can be transferred, not economical to do so

Consider risk reward: insurance - limited excess

provision

Reduction

Spread of risks to other parties

Sub contractors, work packages

Methods:

Education and training (staff training)

Physical Protection (e.g. sprinkler system, protective gear)

Checking & monitoring (QA)


Risk Response Options

Transfer

Reduce the burden, not the possibility

Insurance: professional indemnity, all risk

Retention to cover residual risks

• 1-5% of contract sum

• Performance bond

Avoidance

Refusing to accept risks (non contracting)

Rescind the contract for fundamental breach

Usually avoidance occurs at early stage of projects

Use of exemption clauses



Questions ?


Budgeting & Cost Management

Cashflow Forecast

Cash flows for the company are usually

prepared on a contract – by – contract basis

and accumulated for the company as a whole

so as to give a complete picture of what is

happening

This helps a company to predict the minimum

and maximum cash required over the trading

year so as to arrange a comfortable working

capital facility


Company Cash Flow for a Small Contractor

Value Forecasting Using the Bar Chart

Expenditure Forecasting

Strategies for Improving Cash Flow

At Tender Stage

These methods will bring in early money but must be done

before submitting the priced bills:

Load money into under measured items

Load money into early items such as excavation and

substructures

Load money into mobilisation items in the preliminaries



During the Contract

These methods will reduce working capital requirements:

Submit interim applications on time

Over measure the work in progress

Over value materials on site

Agree on the value of variations as soon as possible

Keep good records and submit claims early

Deal with defective work quickly to avoid delayed payment

Make maximum use of trade credit facilities



Post Contract

These methods will increase profit levels:

Submit all documentations as soon as possible

Ensure timely release of retentions by submitting

health and safety file information on time

Agree on final account as soon as possible

Collect outstanding retentions on time



Questions ?


Dispute Resolution

Dispute Resolution

Dispute Resolution:

Litigation

Arbitration ?

Alternative Dispute Resolution

Civil Procedure Rules 1998 – the courts are to actively

manage the process by „encouraging the parties to use an

“alternative dispute resolution” procedure if the courts

consider that appropriate and facilitating the use of such

procedure‟ r 1.4 (2) (e)


Dispute Resolution

Alternative Dispute Resolution:

Negotiation

Mediation

Conciliation

Med-Arb

Mini Trial

Expert Determination

Adjudication



Features:

Third party

Is not binding unless parties agree

Consensual

Emphasis on encouraging parties to reach

settlement



Negotiation:

Bargaining position of the parties

Relationship between the parties

Who is undertaking the negotiation

Amount in dispute

Relative strength of case/legal argument

Personal style of negotiator


JCT Provisions

There are 4 methods of dispute resolution:

1. Mediation

2. Arbitration

3. Adjudication

4. Litigation


JCT Provisions

Article 7: Adjudication

If any dispute or difference arises under this Contract,

either part may refer it to adjudication in accordance with

clause 9.2


JCT Provisions

Article 8: Arbitration

Where Article 8 applies, and subject to Article 7… any

dispute or difference between the parties of any kind

whatsoever arising out of or in connection with this

Contract, whether before, during the progress or after the

completion of abandonment of the Works or after the

termination of the contractor‟s employment, shall be

referred to arbitration in accordance with clauses 9.3 to 9.8

and the JCT 2005 Construction Industry Model Arbitration

Rules (CIMAR)


JCT Provisions

Article 9: Legal Proceedings

Subject to Article 7 and (where it applies) to Article 8, the

English courts shall have jurisdiction over any dispute or

difference between the Parties which arises out of or in

connection with this Contract.


JCT Provisions

Clause 9.1 Mediation:

Parties have the right to resolve dispute via Mediation -

they are not obligated to do so

A footnote directs the reader to the Guide which says

that while supporting the use of Mediation and ADR in

suitable cases the JCT did not think it appropriate to

endorse any particular method or body


JCT Provisions

Clause 9.2 Adjudication

Parties have the right to resolve dispute via Adjudication

and JCT has adopted rules in compliance with the Scheme:

Appointment:

Adjudicator named in the contract particulars

Nominating body to be stated

The Adjudicator should have appropriate experience/

expertise

If the adjudicator does not have appropriate experience/

expertise there is provision to appoint an expert witness


JCT Provisions

Clause 9.3 Conduct of Arbitration:

Arbitration shall be conducted in accordance with JCT 2005

– Construction Industry Model Arbitration Rules (CIMAR)


JCT Provisions

Clause 9.5 Powers of an Arbitrator:

Power to obtain advice

Powers set out in s 38 of the Arbitration Act

Power to order the preservation of work, goods and

materials

Power to request the parties to carry out tests

Power to award security for costs

Powers to review and revise any certificate, opinion,

decision, requirement or notice and to disregard them if

need be


NEC Provisions

Clauses W1 & W2:

Option W1 used, unless the HGCR Act 1996 applies

Option W2 is used when the HGCR Act 1996 applies

Employer states in the contract data which option applies


NEC Provisions

Clause W1:

Specifies what disputes can be referred to

adjudication

What notifications are to be given

It allows eight weeks for the adjudicator‟s decision to

be given


NEC Provisions

Clause W2:

W2 is compliant with the HGCR Act 1996

It is not restrictive on what disputes can be referred or

when

It allows four weeks for the adjudicator‟s decision to

be given (subject to extension by consent)


NEC Provisions

Review by the tribunal

Tribunal should be stated in the contract data

In the event none is stated

Litigation will apply by default


NEC Provisions

Review by the tribunal

The tribunal settles the disputes referred to it

The tribunal has power to reconsider any decision of

the adjudicator and to review and revise any action or

inaction of the project manager or the supervisor

related to the dispute

A party is not limited in tribunal proceedings to the

information, evidence (and in W1.4(4) arguments) put

to the adjudicator



Questions ?


Company and Project Performance

Measurement

Centered upon projects completed during 2010

Sharp fall in profitability from 7.7% to 5%

Workloads have fallen

Margins squeezed

Previous improvements in client satisfaction sustained

Predictability of project delivery, both to cost and budget has improved further


2011 UK Industry Performance Report















Questions ?


Workshop 4 – Delivering the

Contract

Colin Smyth MRICS MBA

Gary Bogle BSc (Hons) LLM MRICS FCIArb

Wednesday 20th September 2011

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