NEC4: Engineering and Construction Contract Option C: Target Contract with Activity Schedule

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If the final PWDD is less than the target cost the Contractor will receive a pre-agreed share of the saving depending on the ratio. If the PWDD, it is greater than the target cost, the Contractor will pay a share of the difference (again at the agreed ratio). Clause 81 has been amended to make the contractor's liabilities more clear, in contrast to the previous wording which assigned "all risk that the employer [now client] does not have" to the contractor. However, this raises the question about whether the client or the contractor will be deemed to carry anything not listed as either a client or contractor liability. Broome JC, Hayes RW. (1997). A comparison of the clarity of traditional construction contracts and of the New Engineering Contract. International Journal of Project Management, 15, 255-261. doi: 10.1016/S0263-7863(96)00078-6 Beneficial for developers who are just entering the market as responsibility for procuring and managing the works is with the management contractor. In addition, contract data has been simplified and the schedule of cost components has been changed

The two most often used forms of NEC contract are the Option A and the Option C forms of the Engineering Construction Contract. These two forms of contract rely on an activity schedule rather than a bill of quantities. In simple terms, an Activity Schedule breaks the works down into parts (i.e. activities) which a tendering contractor then both prices and has to show in his programme. The sum of the prices for each activity becomes the contract Prices. NEC's history started in 1986 when Martin Barnes was commissioned to start drafting a contract to stimulate good project management. The first edition of NEC was launched in 1993. NEC2 arrived two years later, in 1995. NEC2 was used to build the High Speed 1 railway, between London and the Channel Tunnel. [ citation needed] Clients need to ensure they fully understand the change and recognise the requirement to audit and verify the consultant’s staff costs. Target cost contracts can be beneficial where the scope of work is not fully defined or where the risks anticipated are greater than usual. Like Option C, financial loss and financial gain are shared by both Contractor and Client. However, unlike Option C, this Option utilizes a Bill of Quantities to make up the price of works.The cost of rectifying defects after Completion and the cost of correcting defects caused by the Contractor not complying with a constraint are deemed to be Disallowed Costs.

The Engineering and Construction Contract contains several core clauses under 9 nr main sections relating to:

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The NEC is a family of standard contracts, each of which stimulate good management of the relationship between the two parties to the contract and, hence, of the work included in the contract, can be used in a wide variety of commercial situations, for a wide variety of types of work and in any location, and are clear and simple documents using language and a structure which are straightforward and easily understood. The contracts legally define the responsibilities and duties of Employers (the party which commissions the work) and Contractors (the party which carries out the work) in the works information. The contract consists of two key parts, divided between contract data provided by the Employer and that provided by the Contractor. The NEC3 complies fully with the Achieving Excellence in Construction (AEC) principles. The Efficiency and Reform Group of the UK Cabinet Office recommends the use of NEC contracts by public sector construction procurers on construction projects. [ citation needed] This core clause also contains new clauses dealing with assignment and disclosure/confidentiality. These are welcome additions, but as the clauses are fairly short clients may wish to replace them with their own bespoke 'z' clauses, as is currently the case. Core Clause 3: time The NEC Option C is a target cost contract with activity schedule where the out-turn financial risks are shared between the client and the contractor in an agreed proportion.’ NEC.

NEC target and reimbursable options (Options C, D, E and F) provide for the contractor to be reimbursed for the actual costs of carrying out the works. These Contracts include reference to costs described as “Disallowed Costs”. for those estimates to be produced within very tight timescales so as to avoid disrupting the project itself NEC is famed for its use of short, plain English, and the new contracts incorporate changes in terminology. They are now gender neutral with some considered changes in emphasis. For example, the 'employer' is now the 'client', and 'works information' is now the 'scope'. This creates consistency across the suite. All compensation events are also assessed based on defined cost plus fee. The only difference between options C and E is that option C has the target mechanism and the consultant’s share, which depends on how well the consultant does compared with the target total of the prices. The purpose of this is to encourage the client and consultant to collaborate and jointly manage risks and jointly reduce the defined cost during delivery of the service. Secondary Options Y(UK)1 – project bank account, Y(UK)2 – ref. the ‘Construction Act’, and Y(UK)3 – The Contract (Rights of Third Parties) Act 1999.

There have been four editions, the first in 1993, the second in 1995, the third in 2005 and the most recent in 2017. [6] The NEC3 was launched in 2005 and it was amended in April 2013. The NEC Users' Group, with over 400 members worldwide, brings together organisations and individual users of the NEC contract suite to exchange knowledge and best practice. [7] History [ edit ]