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20090714 Contracts Workshop

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Steven Jackson
Steven Jackson

The document discusses five key mechanisms of the NEC3 Option C contract: 1) Disallowed costs which refers to costs that the project manager can disallow and deduct, including rework, unnecessary work, and repairing damage. 2) Compensation events which provide a contractual remedy for changes that affect time and money, such as damages. The contractor must quote compensation events and the project manager assesses if the quotes are correct. 3) Time management which involves start and finish dates, key dates, maintaining a regularly updated accepted program, and adjusting the completion date due to compensation events. 4) Communications which must be in accordance with the contract and facilitate cooperation between parties. 5) Defects

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NEC3 Option C 5 Key Contract Mechanisms Steve Jackson
5 Key Contract Mechanisms Disallowed Costs Compensation Events and Change Control. How to manage time Communications. Defects. ¡° A child of five would understand this. Send someone to fetch a child of five.¡± Groucho Marx
The Ground Rules Clause 10.1 ... shall each act as stated in this Contract AND In a spirit of mutual trust and cooperation ¡° The secret of life is honesty and fair dealing. If you can fake that, you've got it made.¡± Groucho Marx
Contractor¡¯s overriding obligation 11.2(60) ¡­ to do the work necessary to complete the works in accordance with this Contract and all incidental work services and actions which the Contract requires 20 Contractor .. Advises on the design Prepares forecasts Ensures proper integration To ¡®Provide the Works¡¯ (He does what it says on the tin)
Financial Control Financial Control Disallow Costs Clause 11.2(23) Control the Target Cost Compensation Events Clause 60 Make Deductions Clause 55
Goal or no goal? You are the Russian Linesman The PM decides ¨C Clause 11.2(23) You cannot expect the Contractor not to claim the costs It is your responsibility to allow or disallow Disallowed Costs
Disallowable Costs - 1
Disallowable Costs - 2
Disallowable Costs - 3
Disallowable Costs - Summary Not ¡®Providing the Works¡¯ Any kind of rework (Design or Construction) Unnecessary work Uneconomic work Repairing damage ¡® Other costs¡¯ Clause 11.2(23) is a bit of a jumble ¨C but can be summarised as:
Record Keeping Site Records Accounts Records You set the agenda Be demanding Burden of proof lies with you Records must be communicated Feed the system!
Don¡¯t expect a happy response Final thought on Disallowed Cost But remember what Andy Warhol said ¡­. ¡° Art is anything you can get away with¡± The same applies to costs on a NEC Option C contract!!
Compensation Events ¡° If anything is certain, it is that change is certain¡± Philip Crosby ¡° A Compensation event is like a Cruise Missile ¨C you know its coming but there is f**k all you can do about it¡± Anon
The Roots of Compensation Events Damages: Hadley v Baxendale [1854] Liable for all losses in the contemplation of the parties Loss and Expense ¨C JCT Contracts Contractual remedy for damages Time dealt with separately Compensation Events ¨C NEC Takes account of time and money
Clause 16 Early Warnings & Risk Reduction Clauses 60-65 What Assess Notify Quote PM Assessment Implement
Compensation Events A CE may arise from almost any change in the Works Information And a few other things besides Contractor quotes PM must assesses if the quote is wrong State assumptions where necessary Beware: The Project Manager¡¯s indecision is final! (64.4)
How to Manage Time ¡° You may delay, but time will not¡± Benjamin Franklin
Time ¨C the basics Clause 30 Start: on the ¡®Access Date¡¯ Finish: on (or before) the ¡®Completion Date¡¯ Fulfil the criteria for the ¡®Key Dates¡¯ (on or before) Proceed: Regularly and diligently Mitigate delay
Time Management 31 Accepted Programme 32 The Contractor revises the programme ¨C from time to time ¨C New Accepted Programme 63/64 Completion Date is adjusted by Compensation events Similar to Financial Forecasts
Communications ¡° The single biggest problem in communication is the illusion that it has taken place.¡± George Bernard Shaw
PM Contractor Emp Compare with Cl 10.1 Good communication facilitates working together
¡° This 'telephone' has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.¡± Western Union internal memo, 1876 13.2 communication is not Communication
13.1 Communication instruction record register proposal submission certificate direction order message refusal non-acceptance acceptance warning Copy ¨C Read ¨C Record
Communication v notification ¡® Gee, I¡¯ve never had a pen pal before¡¯ 11.2(11) Communication is any form of communication as defined in Clause 13.
Defects ¡° In a true zero-defects approach, there are no unimportant items¡± Phil Crosby
43 / 44 Contractor corrects all Defects (whether notified or not) Corrects Defects at a time to suit himself, but without delay to Completion Employer may accept a Defect ¨C change to cost and time ¡° The crack¡¯s no fun when it¡¯s in concrete¡± - Anon
Thank you!

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20090714 Contracts Workshop

  • 1. NEC3 Option C 5 Key Contract Mechanisms Steve Jackson
  • 2. 5 Key Contract Mechanisms Disallowed Costs Compensation Events and Change Control. How to manage time Communications. Defects. ¡° A child of five would understand this. Send someone to fetch a child of five.¡± Groucho Marx
  • 3. The Ground Rules Clause 10.1 ... shall each act as stated in this Contract AND In a spirit of mutual trust and cooperation ¡° The secret of life is honesty and fair dealing. If you can fake that, you've got it made.¡± Groucho Marx
  • 4. Contractor¡¯s overriding obligation 11.2(60) ¡­ to do the work necessary to complete the works in accordance with this Contract and all incidental work services and actions which the Contract requires 20 Contractor .. Advises on the design Prepares forecasts Ensures proper integration To ¡®Provide the Works¡¯ (He does what it says on the tin)
  • 5. Financial Control Financial Control Disallow Costs Clause 11.2(23) Control the Target Cost Compensation Events Clause 60 Make Deductions Clause 55
  • 6. Goal or no goal? You are the Russian Linesman The PM decides ¨C Clause 11.2(23) You cannot expect the Contractor not to claim the costs It is your responsibility to allow or disallow Disallowed Costs
  • 10. Disallowable Costs - Summary Not ¡®Providing the Works¡¯ Any kind of rework (Design or Construction) Unnecessary work Uneconomic work Repairing damage ¡® Other costs¡¯ Clause 11.2(23) is a bit of a jumble ¨C but can be summarised as:
  • 11. Record Keeping Site Records Accounts Records You set the agenda Be demanding Burden of proof lies with you Records must be communicated Feed the system!
  • 12. Don¡¯t expect a happy response Final thought on Disallowed Cost But remember what Andy Warhol said ¡­. ¡° Art is anything you can get away with¡± The same applies to costs on a NEC Option C contract!!
  • 13. Compensation Events ¡° If anything is certain, it is that change is certain¡± Philip Crosby ¡° A Compensation event is like a Cruise Missile ¨C you know its coming but there is f**k all you can do about it¡± Anon
  • 14. The Roots of Compensation Events Damages: Hadley v Baxendale [1854] Liable for all losses in the contemplation of the parties Loss and Expense ¨C JCT Contracts Contractual remedy for damages Time dealt with separately Compensation Events ¨C NEC Takes account of time and money
  • 15. Clause 16 Early Warnings & Risk Reduction Clauses 60-65 What Assess Notify Quote PM Assessment Implement
  • 16. Compensation Events A CE may arise from almost any change in the Works Information And a few other things besides Contractor quotes PM must assesses if the quote is wrong State assumptions where necessary Beware: The Project Manager¡¯s indecision is final! (64.4)
  • 17. How to Manage Time ¡° You may delay, but time will not¡± Benjamin Franklin
  • 18. Time ¨C the basics Clause 30 Start: on the ¡®Access Date¡¯ Finish: on (or before) the ¡®Completion Date¡¯ Fulfil the criteria for the ¡®Key Dates¡¯ (on or before) Proceed: Regularly and diligently Mitigate delay
  • 19. Time Management 31 Accepted Programme 32 The Contractor revises the programme ¨C from time to time ¨C New Accepted Programme 63/64 Completion Date is adjusted by Compensation events Similar to Financial Forecasts
  • 20. Communications ¡° The single biggest problem in communication is the illusion that it has taken place.¡± George Bernard Shaw
  • 21. PM Contractor Emp Compare with Cl 10.1 Good communication facilitates working together
  • 22. ¡° This 'telephone' has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.¡± Western Union internal memo, 1876 13.2 communication is not Communication
  • 23. 13.1 Communication instruction record register proposal submission certificate direction order message refusal non-acceptance acceptance warning Copy ¨C Read ¨C Record
  • 24. Communication v notification ¡® Gee, I¡¯ve never had a pen pal before¡¯ 11.2(11) Communication is any form of communication as defined in Clause 13.
  • 25. Defects ¡° In a true zero-defects approach, there are no unimportant items¡± Phil Crosby
  • 26. 43 / 44 Contractor corrects all Defects (whether notified or not) Corrects Defects at a time to suit himself, but without delay to Completion Employer may accept a Defect ¨C change to cost and time ¡° The crack¡¯s no fun when it¡¯s in concrete¡± - Anon