The Olympic Delivery Authority has chosen the NEC contract in the hope that it will keep the job moving efficiently. But it will only work if it’s well enough resourced
The New Engineering Contract Users Group has recently held its annual seminar at the headquarters of the Institution of Civil Engineers (ICE). The lecture theatre at the ICE has a faintly ecclesiastical atmosphere and the users group’s sessions are rather reminiscent of evangelical occasions, with preachers (sorry, speakers) standing up and announcing to the faithful that a new application has been found for the NEC (glory be!) or a new edition of the contract for supply only has been published (hallelujah!).
We heard from Howard Shiplee, director of construction for the Olympic Delivery Authority (ODA). He explained why the ODA had chosen the NEC. The NEC provided a basis for collaborative working, the early identification of risk and flexibility of contract method. The risk of post-contract disputes was reduced, and the Office of Government Commerce and the National Audit Office recommended it. This was all good orthodox stuff.
Without appearing to appreciate that this might be an understatement, he added, “We expect a lot of communications.” He went on to say that he knew that it was essential to ensure that there were “adequate resources on both sides” to deal with the “communications” that often engulf NEC projects. The really significant point that he was making was that both sides must have proper resources if the contract is to operate as intended.
This is a point that is missed by many until it is too late. The employer has a budget for the construction of its facility. That budget has allowances for project management costs based on past experience of similar projects, usually procured under a traditional contract such as JCT or ICE.
The contractor prepares its tender on a similar basis. It will select a contract manager with 20 years’ experience of building this sort of project. With that track record, there should be no problem.
But there is. The contract manager (having read the contract) sends in an early warning notice. The project manager knows about contractors that do things like that: there is likely to be trouble here. The notice is therefore ignored.
Without appearing to appreciate that this might be an understatement, Shiplee added, ‘We expect a lot of communications’.
The contract manager then starts sending in compensation event notices. The project manager knows that his worst fears are confirmed; this is one of those “contractual” contractors always looking for more money or an excuse for delay. The response is: “Stop fussing about notices and get on with the job. All the claims can be sorted out at final account.” The contract manager is relieved that a traditional approach is being adopted and stops sending notices. Instead, he stores them up for the normal discussion in 12 months’ time.
The advantages of the NEC have now been lost. The ability to plan the works to take account of known risks and events on site has been lost, and the contract does not have the machinery to deal with after-the-event assessment. There is no final account process.
The NEC’s appeal is that it provides management machinery designed to keep the job moving efficiently. Users on both sides, as Howard Shiplee acknowledged, must provide sufficient management resource to operate that machinery. If the investment is made, the expected return is a reduction of the cost of problem-solving and delay. If the investment is not made, no return can be expected.
Later in the seminar, we heard from one of the patriarchs of the NEC, Martin Barnes. He was asked whether he was concerned that there may not be an adequate supply of good quality project managers to cope with the burgeoning use of NEC in projects such as the Olympics. “Not really,” he said. He suggested that formal training in how the NEC works was not required. An appreciation of the aims and methods of the NEC was what was needed. He felt that the NEC “liberates people to manage as they always wanted to do”.
Shiplee may well have crossed his fingers at that point. For the 2012 project to succeed, he is going to need every project manager he can find. They will certainly need to appreciate the NEC’s aims, but they will also have to respond promptly to all the notices that the contractor is required to send. The contractors are going to have to staff up with similar teams. If you think you may need a project manager for an NEC project between now and 2012, book early.
John Redmond is head of construction at solicitor Osborne Clarke