22/04/24
This article 'From Sandhurst to Hong Kong' is brought to you by Instruct, a knowledge hub centred around NEC Contracts, distributing a weekly newsletter and have an in-house AI knowledge system tailored to NEC4 contracts and specifically NEC4 ECC. Check out their website and LinkedIn page for more information, keep updated, and subscribe to their Newsletter or AI knowledge system.
Newsletter #3 and here are our highlights:
Hong Kong Landfill - World’s largest and longest NEC Contract
£12m academy for musicians at Sandhurst completes
Proposed instructions - Working with a limited budget
Benefits to taking an empathetic approach to contract drafting
1 General
The introduction of NEC4 Design Build and Operate (DBOC) is slowly gaining traction, and significantly with the Hong Kong market where NEC has an expanding presence. Hong Kong has just announced its use of a DBOC for a 60 year contract for a landfill site which will house 76 million m3 over the next 25 years.
3 Programme
Positive news this week at the Royal Military Academy Sandhurst. A £12m Defence Infrastructure Organisation (DIO) funded project has delivered a flagship building for army musicians, providing new facilities including offices, store rooms, rehearsal areas, and changing rooms etc. The project was delivered by Pick Everard via Perfect Circle.
6 Compensation Events
Do proposed instructions work with a limited budget?
The premise of proposed instructions is to give the Client and Project Manager control over cost and programme by requesting an impact analysis of a specific Scope of works before it is formally instruction for delivery. This works well and refinements from NEC3 to NEC4 mean the Contractor is treated more fairly with their ability to receive compensation for proposed instructions which don’t proceed (Clause 60.1(20)).
Within the Instruct community we have seen a recent dilemma prompted by a Client having a strict budget for a Scope of works and understanding that they are unlikely to be able to afford the whole Scope. The question is, can proposed instructions be used by a Client to determine how much work can be completed for a set budget?
Let’s explain further:
Scenario - Client has a tarmac road to build but knows the budget isn’t enough to pay for it all, they can only afford part of the road.
Approach - Project Manager notifies a proposed instruction (65.1), asking the Contractor to provide a quotation with a programme. But knowing the budget isn’t enough for the whole Scope, how does the Project Manager and Contractor work a solution where the Scope is refined during the proposed instruction process, such that the volume of Scope delivered maximises the budget? A cost versus Scope balance?
Issue - If the proposed instruction states the Scope, the Contractor must price the Scope and submit a quotation. If the Contractor doesn’t price the whole Scope, then they haven’t complied with the instruction? So how do we get around this?
Solution - NEC affords us the following options/ solutions which may not be core to proposed instructions but follow the principles of NEC:
10.2 - Mutual trust and co-operation. First and foremost all parties should discuss the Scope and work together to optimise Scope for cost.
63.2 - Use rates and lump sums to agree and define costs for common items to give a baseline, this can identify costs which the Client may be happy to remove in support of other items of Scope.
Ensure transparency with the cost components, allowing all parties to identify the cost breakdown for future refinement.
Project Manager can define the budget in the proposed instruction, documenting the flexibility the Contractor has in costing the works up to the budget.
62.1 - The Contractor can identify different methods of dealing with the Scope and submit multiple quotations. This could give benefits of identifying how much of the road could be built for the budget when reducing requirements or using different materials. This is where communication between the parties is key.
The Project Manager can review the quotation from the Contractor and following direction from the Client, respond asking for specific changes to refine the price to meet the budget.
In summary, if the budget is a constraint for instructing additional works, NEC fosters collaboration and discussion. The contract mechanisms are all available and providing the parties agree to the approach, pragmatic and well documents decisions and actions will ultimately provide the consistency and paper trail required. The Client can maximise their budget whilst the Contractor retains cost control.
Don't forget Instruct AI is on hand to help answer these types of question. This is what it suggested when asked:
Contract Data
“Contracts created using an empathetic lens often result in quicker turnaround times”
Pinsent Masons have neatly summarised the benefits of taking an empathetic approach to contract drafting. For anyone drafting contracts, the negotiation and discussion around clauses and structure can delay and obfuscate the situation. The use of NEC is a great tool, ensuring Clauses 10.1 and 10.2 are at the heart of the contract.
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