The non-adversarial NEC3 contracts could serve the Olympic project well, but the design team needed to drive it forward raises some tricky questions of its own
Ray Payne, head of procurement at the Olympic Delivery Authority, made an important announcement at the recent New Engineering Contract users' group annual seminar - the ODA would be using the NEC3 suite of contracts for design and construction works.
This is in line with a recommendation in the National Audit Office report Improving Public Services through better Construction, published on 15 March 2005. The NAO said: "The Engineering and Construction Contract is one example of a contract written in plain English that embeds the principles of good project management in its procedures, and promotes role clarity.
"It encourages early issue resolution, and contains options as to the choice of procurement route. It is non-adversarial in its tone and spirit, and as such many clients have adopted it for use in long-term collaborative working arrangements."
This report was based on the use of NEC2; we now have an updated NEC3 version, of course.
This announcement by the ODA has sent out a clear message that adversarial relationships and contracts aimed at risk dumping will not be tolerated. The challenge for the ODA will be to ensure that this message is heeded by all members of the supply chain; the NEC3 package should be used for every firm in that chain.
Unfortunately, we have had experience of public sector clients insisting on the use of the NEC and then discovering that, downstream, all kinds of bespoke arrangements are being used with little hint of collaboration.
To realise the full potential of NEC3, the appropriate procurement strategies and relationships must be put in place. Central to this is the establishment of a design team of consultants, project managers, specialist contractors and manufacturers who, together, can thrash out the design solutions and, ultimately, own the design.
All these people can be appointed under the NEC3 professional services contract. Like consultants, the contractors should be paid a fee for their design services. But it is essential the contractors are also appointed to deliver the construction works to ensure seamlessness between design and construction.
On the assumption that the delivery team is prepared to work together as a team, care has to be taken over the NEC options used. The partnering option is appropriate in this context but care would have to be taken in the use of other secondary options to avoid contradicting the partnering ethic. For example, use of the delay damages option and retention option would indicate a lack of trust.
We have had experience of public sector clients insisting on the use of the NEC and then discovering all kinds of bespoke arrangements are being used
The Office of Government Commerce has endorsed the use of NEC3 and recommends it for public sector construction procurers on their construction projects. To date within the public sector the most popular type of payment mechanism for use in collaborative relationships has been the NEC target contract, but with activity schedules the cost-reimbursable contract could be a viable alternative.
The strength of the NEC is that it requires a close working relationship between the parties to achieve effective project management. The contract is, in effect, a working tool rather than a document that simply lists rights and obligations.
However, further thought is required to adapt the NEC to a truly integrated team. Here we have a situation where there is no need for separate or fragmented appointments of team members and the team itself has a flat structure rather than a hierarchical one.
Some are sceptical about this, but there are examples of it in the industry. The best known is Taylor Woodrow's strategic alliance partnership, now comprising all the key trades in terms of value added. Work on project insurance - to underwrite the whole team - is at an advanced stage and a number of public sector clients are interested in piloting project insurance, which is only relevant to fully integrated teams. The NAO recommended the use of project bank accounts as another facilitator of integration.
There is a model agreement for an integrated project team, available on the Strategic Forum for Construction website (link below).
A fully integrated delivery team using the model form of integration agreement can, of course, "get into bed" with a client using the NEC with the target contract. Perhaps, in the long term, a dialogue between the NEC panel and the authors of the model form of integration agreement would be productive.
As the NAO made clear in its report, integration of the delivery process starting with planning and design is the only way forward for the industry. Contracts such as the NEC always add value within these arrangements but, for the future, there is an opportunity to enhance their currency by embracing fully fledged integrated delivery teams.
Rudi Klein is a barrister and chief executive of the Specialist Engineering Contractors Group. He is also chair of the NEC users group