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If you want to use the NEC contracts successfully, then you've got to keep talking to each other. That was the key message to be taken from a talk titled “NEC in Practice” recently hosted by the King’s College Construction Law Association in conjunction with the Chartered Institute of Building. The theme of the talk was to consider major projects’ experience in using the NEC contract and the speakers were David Gibson (David Gibson Associates), Mark Reynolds (deputy programme director for the ODA) and Martin Rowark (head of procurement for Crossrail).
It was clear that all three speakers wanted to make a point of highlighting the processes (for example, early warning notices) within the NEC contracts that aid project management. All agreed that effective and frequent communication is a necessity when using these contracts, particularly so on major projects.
David Gibson kicked off proceedings by considering risk and cost management when using NEC Option C – the target contract with activity schedule. David sees the obligation to act in a spirit of mutual trust and co-operation as a key tool in ensuring a successful project. So to create cost certainty both parties need to understand the contract and work proactively together to keep costs down.
To develop this, in David's experience it has been invaluable for all new members of the team (whether they are from the employer, the project manager or the contractor) to be trained on the contract when joining the project. The whole team must understand the concept of the NEC contracts, work as an integrated team and be proactive. From the contractor's perspective, understanding the contract should also help minimise disallowed cost when using Option C. To do this, David offered the following tips: (i) keep proper accounts and records, (ii) manage subcontractors according to their sub-contracts, (iii) give early warning notices immediately, and (iv) manage the programme proactively.
Mark Reynolds spoke from his experience of using the NEC contracts on various BAA projects and more recently on the Olympics. On a huge project such as the Olympics there is an immediate need to build trust and co-operation and Mark's view is that this can be achieved with the assistance of the transparency of the NEC contract.
For example, Mark considered that the procedure for early warning notices is a vital risk management tool. However, he considers that the industry still does not generally understand how the early warning process should work and that the word "warning" can misguide those who are unfamiliar with NEC contracts.
Nevertheless, the Olympic Delivery Authority seems to view early warning notices as a positive thing. Indeed, approximately 21,000 early warning notices have already been given on the Olympics project, helping to keep all parties informed of what's happening. Of course, you're going to need some very good project management tools to deal with all of this, but it's the fact that early warning notices are encouraged rather than discouraged that is the key point.
Martin Rowark then spoke about the procurement policy for Crossrail and why the NEC contracts are going to be used on this project. The major works will mostly be procured on the NEC Option C contract with a “light touch” approach to amendments. For Crossrail, securing value for money will be vital. They will also be looking for responsible procurement throughout the supply chain and optimal contractor involvement.
Again, early warning notices will be encouraged. Echoing Mark Reynolds' comments, Martin's view is that experience on CTRL and elsewhere has shown that the purpose of early warnings (which is to help save time & money) is very often misunderstood and hence they are not used to their potential full effect.
So a ringing endorsement for the NEC contract on major projects from key users, but make sure you're using it to its full potential.
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Readers' comments (1)
Ed Cooke, Partner, DLA Piper | 27 Apr 10 10:54 am
This neatly reiterates a point that we often try to emphasise as lawyers - once the contract is signed, don't just stick it in the drawer and forget about it! The parties should manage the contract in accordance with the contractual procedures and need to adopt an attitude to management that is consistent with the contractual aims. If it is a well drafted contract (and the NEC3 suite has very many positives), then it should not only seek to deal with risk apportionment, but also should introduce sensible mechanisms to help the parties to manage the contract and those risks. The NEC suite, and in particular the accompanying guidance notes, do this well in my view - but the parties and the PM must seek to manage the contract as it is drafted. Go "off piste" and the contract will not protect the parties, and the consequences of that could be very unexpected! The very first clause of the NEC3 suite talks of the parties working "in a spirit of mutual trust and co-operation". That statement is intended to set the tone for contractual behaviour. I agree it is an important theme for the NEC3 suite and is intended to encourage open and frank communication. A contractor should not fear that negative consequences might flow from raising his hand and issuing an "early warning notice". The purpose is to get whatever issue is causing delay/expense out in the open, so a discussion can take place about how to manage it. For some, that will require a considerable shift in mindset.
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