Construction Essays - ECC

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The NEC Engineering and Construction Contract (ECC)

The NEC Engineering and Construction Contract (ECC) (previously the New Engineering Contract) has been developed to meet the current and future needs for a form of contract to be used in engineering and construction generally, which is an improvement on existing standard contracts in a number of ways.

Objectives

The objectives for the design of the NEC contracts were to make improvements under three main headings.

Flexibity:

The ECC is intended

  • To be used for engineering and construction work containing any or all of the

traditional disciplines such as civil, electrical, mechanical and building work.

  • To be used whether the Contractor has some design responsibility, full design

responsibility or no design responsibility.

  • To provide all the normal current options for types of contract such as competitive tender (where the Contractor is committed to his offered prices), target contracts, cost reimbursable contracts and management contracts.
  • To be used in the United Kingdom and in other countries

All the commonly used standard conditions of contract from the various sectors of

engineering and construction have been reviewed in the course of designing the ECC.

Some of their provisions which were peculiar to particular sectors have been omitted were they are better included in the Works Information. Where they are essential, they have been included in the ECC itself. For example, the need to make full provision for off-site manufacture and testing of work which is characteristic of mechanical and electrical contracts have been included in the ECC.

Clarity and simplicity

Although a legal document, the ECC is written in ordinary language. As far as possible, it uses only words which are in common use so that it is easily understood by people whose first language is not English and that it can easily be translated into other languages. It has few sentences which contain more than 40 words. Generally, longer sentences have been subdivided using bullet points to permit easier understanding. In the areas of insurance, disputes and termination, some phrases or terms which have a specific legal meaning have been retained. It is arranged and organised in a structure which helps the user to gain familiarity with its contents. More importantly, the actions by the parties which follow from use of the ECC are defined precisely so that there should be few disputes about who is to do what and how. The design of the ECC is based upon flow charts of the procedures to be followed by the parties named in the contract. One of the benefits of this approach to drafting has been that opportunities could be taken for simplifying the structure of the contract as well as ensuring that the procedures were not open?ended or conflicting. For example, almost all circumstances which may give rise to additional payment to the Contractor are identified as compensation events. The procedure for dealing with these events is mainly set out in the core clauses and includes review of both the cost and time implications. This contrasts with traditional forms of contract in which the procedure for compensation is different depending upon the nature of each event.

The initial impact of reading the ECC may not convey its full simplicity, in part because a number of newly defined expressions are used. The quantity of text used is much less than existing standard forms and the amount of text needed to give effect to the options is small.

The number of clauses used and the amount of text are less than in many standard forms. The ECC neither requires nor contains cross references between clauses.

A fundamental objective of the ECC is that its use should minimise the incidence of

disputes. Thus words like `fair', `reasonable' and `opinion' have been used as little as

possible. This does not mean that the flexibility of administering the contract has been

reduced. For example, in most instances where the Project Manager is required to make a decision, the basis of his decision is stated in the contract. This will significantly reduce uncertainty about the outcome of the contract. This benefits the Contractor without constraining the freedom of action of the Project Manager acting on behalf of the Employer

Stimulus to good

This is perhaps the most important characteristic of the ECC. Every procedure has

management been designed so that its implementation should contribute to rather than

detract from the effectiveness of management of the work. This aspect of ECC is founded upon the proposition that foresighted, co?operative management of the interactions between the parties can shrink the risks inherent in construction work. Developments inproject management techniques and their implementation over the past 20 years have moved faster than the evolution of forms of contract. With the ECC, it is now possible tobuild arrangements for the different parties to contribute to the management of a project upon improved practices and to motivate all parties, by means of the contract, to apply such practices to their work.

In total, the ECC is intended to provide a modern method for employers, designers,

contractors and project managers to work collaboratively. It also enables them to achieve their own objectives more consistently than has been possible using older forms of contract. Use of the ECC is intended to lead to a much reduced risk to the Employer of cost and time overruns and of poor performance of the completed projects. It should also lead to a much increased likelihood of achieving a profit for the Contractor, subcontractors and suppliers.

The two principles on which the ECC is based and which impact upon the objective of stimulating good management are:

foresight applied collaboratively mitigates problems and shrinks risk, and clear division of function and responsibility helps accountability and motivates people to play their part.

A secondary but important theme is that people will be motivated to play their part in

collaborative management if it is in their commercial and professional interest to do so. Reliance need not be placed upon exhortation either within the contract or outside it. Uncertainties about what is to be done and about how the unexpected arising in the course of construction will affect what has to be done are inevitable in construction projects. The ECC allocates clearly the risks arising in these ways between the parties. However, its main task is to reduce the incidence of those risks by application of collaborative foresight.

In this way, it aims to improve the outcome of projects generally for parties whose interests might seem to be opposed. The procedures in the ECC are designed to stimulate good management. Prominent examples of these are the early warning procedure and the way in which compensation events are dealt with. Compensation events are events which may lead to the payment to the Contractorbeing changed or the Completion Date being delayed.

A principle of the ECC is that the Project Manager, acting on behalf of the Employer and in communication with him, should be presented with options for dealing with the problem from which he can choose, directed by the interests of the Employer. The Contractor should be unaffected by the choice made. To achieve this, the valuation of compensation events is based upon a forecast of the impact which the change or problem will have upon the cost to the Contractor of carrying out the work ? as forecast by him at the time the event is assessed. Where, as is often the case, alternative ways of dealing with the problem are possible, the Contractor prepares quotations for different ways of tackling the problem. The Project Manager selects one on the basis of which will best serve the interests of the Employer. In some cases this will be the lowest cost solution, in others it might be the least delay solution.

The change to the Prices for the work is based upon the quotation. The Contractor carries the risk if his forecast of cost impact turns out to be wrong, but the Employer has a firm commitment. The risk to the Contractor of this method of pricing is conceptually similar to the risk he takes when pricing work at tender. It is a lesser risk because he is able to forecast costs much more accurately at the time that the problem is identified than he would have been able to do at the tender stage.

This arrangement is intended to stimulate foresight, to enable the Employer to make

rational decisions about changes to the work with reasonable certainty of their cost and time implications, and to put a risk on the Contractor which is tolerable and which motivates him to manage the new situation efficiently. An important by?product is that few issues relating to valuation of the work or extensions of time are left to be settled after the event.

This approach has pervaded the drafting of the ECC and is the basis for most of the

procedures which it contains. In designing the ECC, the motivation of each party in each action he is to take has been considered against good management criteria. Because this is motivation?driven, it does not appear in the words of the ECC itself but it is intended to result directly from the way in which the procedures are operated.

A typical aspect of this characteristic is the way in which the ECC makes use of the

programme for design, construction and installation. Many of the detailed procedures rely upon the fact that an up?to?date and realistic programme maintained by the Contractor is used in joint decision?making between him and the Project Manager. The use of the programme (which includes method and resource statements) is defined in some detail and in such a way that, again, the Contractor is motivated to keep it up?to?date and realistic. He is not simply exhorted to do so.

Subcontracts

The ECC has been designed on the assumption that work may be subcontracted. A

standard form of subcontract called the NEC Engineering and Construction Subcontract (ECS) has been published. This is very similar to the ECC but uses appropriate names for the parties and has a small number of additional provisions appropriate to a subcontract.

Use of the same text in the main contract and the subcontract provides certain back?to?back protection for main contractors using the ECS. It also has the convenience that Contractors' and Subcontractors' staff do not have to become familiar with two different sets of text and procedure. There is nothing to prevent a subcontract using a different option from that used in the main contract. An obvious example of this is where the main contract uses the management contract option but the subcontract uses one of the more conventional options. Option F (Management contract) has not been included in the ECS.

Some other changes

Two specific changes from conventional construction practice deserve mention. Firstly,subcontractors cannot be nominated. This change is made in order to simplify contract arrangements and to eliminate the clouding of responsibilities which nomination causes.

Elimination of this clouding should not only reduce disputes but strengthen the motivation of the parties to manage their activities. An Employer who has reasons for using a particular contractor for part of the works can use the ECC for a direct contract alongside other contractors

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