Basic changes required to

implement NEC
1 Nov 2013

Kelvin N. F. Lau – Associate Vice President

 B&V 1 Nov 2013

OUTLINE
• NEC ECC in Brief
• Video to introduce NEC in DSD Pilot
Contract (DC 2008/02) using ECC Option C
• Mindset Changes from a Consultant’s angle
• Highlights of Contract Management in
DC2008/02- Compensation Event / Defect /
Payment
• Feedback Sharing

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 B&V 1 November 2013

Introduction of NEC Engineering

Construction Contract (ECC) – Option A to D
New projects – Engineering and Construction
Contract (ECC)
 Option A / B – Fixed price

 Financial risk more on Contractor

 Option C / D – Target cost
 Fairer risk sharing
 Open book accounting
 Pain/Gain Share
 Option E – Cost reimbursement
 Option F – Management contract
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 B&V 1 November 2013

Understanding of Choice of Options

Option Charateristic
A (Priced •Scope well-defined
contract with •Lump Sum payment
price list – Lump
Sum)
B (Priced •Scope defined but quantity may vary
contract with bill •Paid by Re-measurement
of quantities)
C (Target •Scope well-defined
contract with •Cost saving incentive
activity schedule) •Fair risk sharing
•Actual payment + Fees
D (Target •Scope defined
contract with bill •Cost saving incentive
of quantities) •Fair risk sharing
•Actual payment + Fees
•Site Measurement taken throughout contract
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 B&V 1 November 2013

Video

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 B&V 1 November 2013

NECs in B&V’s hand

Contract NEC Type Sum Client Contractor Commence Status
ment
DC2008/02 Fuk ECC Option C 76M DSD/DP Chun Wo Aug 2009 for Completed
Man Road Nullah 33mths
Decking
DC2012/09 Pak Framework + 187M DSD/CM Kum Shing Jun 2012 for On going
Hok Lam & Sha Tau ECC Option B 50mths
Kok Sewerage
DC2012/05 Yuen ECC Option D 144M DSD/SP Kwan On Sep 2012 for On going
Long Kam Tin 48mths
Sewerage Stage 3,
Pkg 2
1/WSD/13 ECC Option C 180M WSD/C China Road - Oct 2013 for Just Started
Improvement of China Pipeline JV 24mths
Fresh Water Supply
to Cheung Chau

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Difference in Project Organization
GCC Project Organization
•Employer (DSD)

•Engineer (B&V) •Contractor (CW)

NEC-ECC Project Organization

•Employer (DSD)

•Project Manager •Supervisor (B&V)

(DSD/DP)

•Contractor (CW)
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 Document Framework
GCC Vs NEC3 Option C
GCC NEC
Notes to Tenderers Notes to Tenderers

General & Special Conditions of Tender General & Special Conditions of Tender

General Conditions of Contract Core Clauses & Secondary Option Clauses

Z Clauses
Special Conditions of Contract
(i.e. Additional Conditions of Contract)

Articles of Agreement Articles of Agreement

- Schedule of Articles of Agreement

BQ Activity Schedule

Form of Tender Form of Tender

Appendix to Form of Tender Contract Data Part 1

- Contract Data Part 2

Site Investigation Information (if any)

Site Information
(Not forming part of Contract)

General & Particular Specifications Works Information

Drawings Works Information

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 B&V 1 November 2013

Role of the Consultant in the Pilot Contract

NEC GCC
Title of B&V in this Supervisor Engineer
Pilot Contract
RSS in this Pilot Supervisor’s Engineer’s
Contract Representative (RSS post – Representative
RE)
Role Offering support to the Carry out the duties and
Project Manager in exercise the power
Purpose ofexecution
NEC conditions
of the day-to- ofspecified
contractin the Contract.
day project management i.e. contract
administration; watch &
inspect the Works; test &
examine materials;
workmanship….etc
Foreword to NEC conditions
• Stimulating good management and relationship between the parties to
contract and , hence, of the work included in the contract
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Changes in Rules – changes in mindset (1)

The Contract is to be run by

mutual trust and cooperation
developed amongst Client,
Consultant & Contractor with
the interests of the project.

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 Why do Trust and Cooperation so
important in NEC?
Normal GCC
Apart from safety, Emphasis on Obligation of
there is no individual party
common
objective formed Client
Mission - to ensure
within 3 parties. project on time &
If there is no trust within budget

and cooperation
between each safety safety
party, who will be
Consultant Contractor

safety
the winner? Mission – to
Result – Probably Mission – to maximise profit
ensure quality
all losers.

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Changes in Rules – changes in mindset (2)

• Emphasis on effective communications

– new rules for responding on project matters

• Transparency of Information and Decision Making

• Risks and Responsibilities Sharing concept

• Payment for Option A/B similar to GCC; Contractor

will price a Fees for management of “Changes”

• Payment for Option C/D = Contractor’s actual

expenses + Fees ; this fees will also be used for
management of “Changes”
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Changes in Rules – changes in mindset (3)

• In addition to the contract basic requirements such

as scope of works and time for completion, new
thoughts outside the target of the original contract
are formed for the team to meet after signing
contract. They are more than the contract
commitments.
• To meet this, more effort are required from the
team.

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 Group Discussion on Common Goals in
DC/2012/09 (set in July 2012 Workshop)
Related Goal Short Term (6 mth) Evaluation up to 9/13
Progress ±5% of programme Y (X% behind Prog)

Expenditure ±10% Y (X% behind Prog)

Safety 0 incident Y

Environmental 0 NC Y

Complaint (justified) ≤1 N (total nos = X)

UU damage 0 Y

Commendation letter from >0 Y (XX nos.)

stakeholders
Submission/Approval <2 days in average ?

Compensation Event <5 ?

(except IW)
•PRESENTER
Performance Score NAME •OPTIONAL TITLE
•COMPANY DIVISION
>60 Y

Organized Activity for team Min. 2 Y (Drinks & Soccer)

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 •15

Ideas for improving communication and

working relationship in DC/2012/09 (set
in July 2012 workshop)
Idea Short Term (6 mth) Evaluation up to
9/13
Smart phone Everyone have a one Y
for communication
for Whatsapp!
Working meeting weekly Y
between RSS and KS
Share office Agree setup within 1 N(XX weeks late)
month
Training in partnering, ≥3 ??
manners,
requirements to
•PRESENTER NAME
frontline staff
•OPTIONAL TITLE
•COMPANY DIVISION

Happy hour/meal monthly ??

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 B&V 16 November 2010

Highlights of Contract
Management in DC2008/02-
Compensation Event / Defect
/ Payment

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Compensation Event (NEC characteristic)

• A “new term” for all issues related to TIME & COST

change. (Such as VO, claims, disruption..etc)

• Procedure designed with an aim to Quick Settlement

(pre-event agreement)

Typical types of Compensation Events are

listed in NEC –ECC Core Clauses 60,
Contractor doesn’t need to wait a long
time for a VO
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 Compensation Event
- Contractor get paid on EOT due to EOT
Inclement Weather, Utility Work & Special
Circumstances
• All the above related CEs covers Time + $

(vs GCC: inclement weather, utility work, special

circumstances  Time only)

CE for inclement weather covers increase in Prices 

more competitive bids for the Employer in long term

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 Compensation Event
- compared with VO and Claim
NEC-ECC GCC
• Quotation for CE ALWAYS • EOT and money are
covers both time and cost separately considered
(ECC62.2)

• No differentiation as VO or • VO – $ only
Claim • Claim – Time or Time + $

More efficient
project management

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 Compensation Event
- compared with VO and Claim
NEC-ECC GCC
• An Agreement process • Valuation or Assessment
between PM and Contractor by the Engineer

• Definite timeframe for both • No timeframe for reply

PM and Contractor

Better Co-operation & Quicker finalization

More resources & focus onto the project works

Average agreement time in FMR : 52 days

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 Compensation Event
- Notification of CE
NEC-ECC GCC

• PM within one week replies • No response time

a Notification of CE requirement on the Engineer
(ECC61.4)

More favourable to
Contractor
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 Compensation Event
- Assessment of Quotation for CE
NEC-ECC GCC
• Changes to Prices are effect • VO Valuation is based on
of the CE upon COST + Fee contract rates
(BQ rates, adjusted BQ rates
or star rates as per GCC61)

COMPENSATION principle(cost + fee)

Open book account  Cost information readily available

Easier Agreement of Quotation

+ Solid Back-up
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Handling of Defective Works (1) –
Responsibility is owned by the Team (not just
the Contractor)

Handling of in Defective Works by Supervisor

• Issue of Notification of Defective Works

• Checking on Defect rectification

• Ensure Defects rectified within defect correction

period (12 weeks after Completion)

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Handling of Defective Works (2) – Flexible
approach to clear the defects
• Cost of defect correction  Included as part of
Defined Cost

Exception:
• Disallowed Cost (Defect corrected after Completion,
Defect due to Contractor not complying constraints in
Works Information)

Incentive for earlier correction of Defects

Focus on Clearing the Defects (Not Blame)

Advance Defect notification to assist Contractor

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Handling of Payment
- Payment Mechanism

• Payment based on the PAID elements of Defined Cost

Quick settlement of wages &

payment to subcontractors and
suppliers

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Handling of Payment
• Disallowed Cost (Examples)

• Defects correction after completion

(e.g. defect repair for roundabout)
• Not justified by the Contractor’s record
(e.g. payment record missing)
• Resources not used to Provide the Works
(e.g. extra staff or unreasonable material wastage)
• Resources not taken away from the Working Area after PM’s
request
(e.g. idle water pumps)

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Handling of Payment
– Price Adjustment for Inflation

• Price Fluctuation not owned by contractor only.

• Calculated and Frozen at each IP to “offset” the effect of

fluctuation

• Adjustment to Target Price (not amount due)

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- Feedback from Trial Experience
In General
• More Engineering and Project Orientated
• Real Partnering ( building trust not hatred )
Contract Finalization
• Easier settlement due to Open Book Account system
• Stipulated timeframe makes agreement process start
when things are still fresh (right people and right time)
Variations
• Quick settlement & Compensation Principle allows
focus on factual issue and less on guessing tactics
• Better decision making on project management
(Contractor, Client & Consultant views taken)

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Up-to-date Observations from Fuk Man
Road NEC
Main Contractor & Subcontractors
Successfully made their money from the contract

Consultant
• Less Conflicts
• More Job Satisfaction

Client
• Save time (5.5 months ahead)
• Save money (Approx. $4M)

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B&V 16 November 2010

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Hi Young Engineers,
Are you ready for a
change?

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Q&A

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 Compensation Event
- Assessment of Quotation for CE
CE Quotation = Estimated Actual Cost* + Fee (*Estimated cost includes Risk)
Agreed CE Quotation = Change to the Prices

Adjusted ceiling Agreed CE

quotations
Original ceiling = Change
(Target Price) to the
Prices

CE1 CE2 CE3

Pain-Gain share between Employer and Contractor 
Based on Final Adjusted ceiling vs Actual Cost 34