Five ways to make NEC3 work in practice

On May 24, we read in CM that EC Harris was advising construction companies to “use NEC3 with caution”, writes Graham Clarkson. It’s true that using the NEC3 form of contract may seem daunting to those who are stalwarts of the JCT but the benefits far outweigh the problems. So how do you navigate your way through the contract the public sector favours, in order to unlock its benefits for your business?

Since the NEC was launched 20 years ago, there has been a constant misconception that it is resource-heavy to administer. Proper use of the NEC means that the effect of changes in terms of time and cost is agreed during the currency of the works, meaning you have an agreed final account at any one time.

The argument in support of the NEC3 is that it is more efficient to assess and agree the implications of changes during the currency of the works whilst the issues are fresh in the party’s minds, rather than expend time and money for months after completion to agree a final account. In comparison, EC Harris found that it now takes 12.9 months on average to settle a construction dispute, irrespective of the type of contract – up on 8.7 months a year previously.

So here are our five tips for getting the right results from NEC 3:

1) Work with project managers and contractors who have NEC3 knowledge and experience

The NEC3 contract is administered by the project manager (PM) and contractor in addition to the supervisor, who performs a quality control role. It is essential that the PM and Contractor understand their respective roles, processes and timescales for actions. We have known clients to evaluate NEC the competencies, knowledge and experience of prospective PM’s and contractors prior to project team selection. 

We have experienced many contractors claiming to have NEC3 experience when in reality they have used the contract in name only and have not updated their work practices. The NEC3 is a collaborative contract and I recommend kicking off the project with a collaboration workshop centred around the purpose of early warnings, producing a compliant programme for acceptance and notifying and assessing compensation events.

2) Don’t revert to JCT practices and behaviours

The NEC3 is totally different from the JCT, and with good reason. The NEC3 embodies modern project management techniques, focusing on mitigating risks. The early warning provision is not a precursor for a compensation event (Variation).  The purpose of raising an issue which could affect the outturn cost, completion date, missing a key date or the performance of the facility in use, is to avoid or mitigate the effect of risks.

This simple but fundamental concept can be alien to some contractors who think that if a risk arises and is not specifically a contractor’s risk, then it’s of no consequence to them as the client will foot the bill in terms of time and cost. The NEC encourages good customer service by helping the client avoid additional time and cost so it is mutually beneficial.

3) Make sure the contractor has a planner who can prepare programmes in the detail required by the NEC3

Having a clear programme of delivery is key. We find that contractors commonly only focus on their construction works within the programme. But projects are a team sport and many designers and other client suppliers contribute to the finished product – all this needs to be incorporated within the programme for acceptance.

Under NEC3 the contractor is required to produce a programme which shows additional things as the dates for acceptance of the contractor’s design, and when plant and materials are to be provided by the employer. Revising the programme at the intervals specified within the contract data – to include actual progress, the effect of compensation events and how the contractor plans to deal with any delays – is essential for assessing the implications of any change.

4) Ensure that those assessing and agreeing compensation events have the authority to do so during the works

The NEC3 encourages the assessment of change in terms of time and cost as the project progresses. This provides the contractor, employer and project manager with greater predictability in terms of the outcome than more traditional forms of contract. The contractor should have on board an estimator/cost manager with the authority to provide the project manager with quotations for changes under consideration.

These quotations then need to be processed in a timely fashion by the project manager. However, this only works if the contractor’s staff and project manager have the authority to prepare and agree what is in effect the “final account” as the project goes along. If this is not the case, the NEC3 can result in a protracted final account period. The secret to success is to assess implications as and when they arise, agree time and cost on an event by event basis  – and then move on. 

5) Use a document management system which replicates the NEC3 work flow processes

One reason given by EC Harris as a cause for construction disputes is employer-imposed change. No client should be restricted from making changes on a construction project: there has to be flexibility as the client’s marketplace can change throughout the lifecycle of a project, therefore the contract needs to flexible. However, the contract should be structured in such a way that the client can make informed choices about the change.

NEC3 allows for the pre-assessment and agreement of the time and cost implications relating to a change under consideration prior to implementation. If clients only realise the impact of change 12.9 months after completion it’s hardly surprising that some of them  feel they get a poor service from our industry. The amount of change, particularly on alteration and refurbishment projects, can place both the contractor’s staff and project manager under a burden of administration.

However, a number of the document management providers, such as Conject and 4Projects, have developed information management systems to replicate the work flow processes of NEC3. So if you have a project where you know at the outset that there is likely to be considerable change we would recommend you consider a document management system which incorporates the NEC3 processes.

These are our five key tips to help make NEC3 work well for you. You can successfully use the contract but it does require buying into the key benefits of its use, and may mean some changes in established work practices. However, the long-term benefits will bring about quick return on investment and an improved chance of client satisfaction.

Graham Clarkson MBA is managing director of The Clarkson Alliance, a construction project management and BIM implementation consultancy. It manages capital investment projects in the health and leisure, education, heritage, housing and industrial sectors.