Practical Law

On 18 March 2010, leading speakers, from the London Olympics to Crossrail, shared their experience of how to make the NEC form work for you.

Here are my highlights from the event:

Introduction: the OGC’s endorsement

The UK government, through the OGC (Office of Government Commerce), has endorsed the use of the NEC3 suite of contracts for public sector procurement. The OGC states that the suite satisfies the Achieving Excellence in Construction criteria.

Reality bites

However, in reality, not everyone is familiar with the NEC suite, which has been criticised for various reasons, including the heavy administrative burden of its notices regime. Therefore, it was very useful to hear from three speakers with project experience ranging from the Olympics to Crossrail explain how it works in practice.

NEC in practice

On Thursday night, the Kings College Construction Law Association and the CIOB hosted a talk at Pinsent Masons’ offices. Its title was “NEC in Practice” and the speakers were David Gibson of David Gibson Associates, Mark Reynolds of CLM (the ODA’s Delivery Partner) and Martin Rowark, head of procurement at Crossrail.

All three speakers agreed that under an NEC form of contract:

• Communication between the parties is a key ingredient for a successful project.
• The parties need to act with a great deal of honesty – a blame culture is counter-productive and the parties need to focus should be on solving problems. (This is where the NEC seeks to distinguish itself from other forms of contract.)

Time and cost risk: early warning notices are good

The speakers identified that the most important time for open and honest communication is when the parties identify time and cost risk(s) during the project. The contractual mechanism for that identification is the Early Warning Notice, and each of the speakers stressed the importance of that mechanism.

As Martin Rowark said, Early Warning Notices are good and they should not be seen as adversarial steps.

Educating the team: using early warnings to manage time and costs risks

Educating the team is key and David Gibson highlighted the need to establish an open and honest relationship between the parties at an early stage, through workshops attended by the Employer, the Contractor and the Project Manager.  Some parties may be reluctant to be part of such a joint exercise but, without it, it will be difficult to achieve the different mindset that NEC requires.

Mark Reynolds picked up on this point and highlighted the very successful use of the Early Warning Notices in the Olympics projects.  He said that in the Olympics projects there have been some 21,000 Early Warning Notices issued.  Mark said that the time and cost risks identified in those Notices had been addressed, the risk managed, and disputes avoided.  This would not have been the case had parties failed to use Early Warning Notices.

Blame culture avoided and certainty increased

Mark pointed out that, as well as providing a great degree of flexibility in managing risk and avoiding a “blame culture”, the NEC provides transparency in relation to both time and money.  With the early identification of delay and cost increases, budgets can be adjusted and time and cost certainty maintained.

Martin picked up on Mark’s point and said that it was these characteristics that had made the NEC the contract of choice for Crossrail, which was using the Target Cost option (Option C of the Engineering and Construction Contract) in particular.

He said that where taxpayers’ money is to be spent, as it is with Crossrail, it is important that there is a great degree of transparency and that the parties can look ahead and anticipate delays and cost increases. The flexibility in the management of risk during the life of the project afforded by the NEC was also an important aspect for Crossrail.

Perhaps unsurprisingly, Martin identified these aspects of the NEC as ways to ensure that Crossrail obtains “value for money” with the project.

What can we learn from these projects on how to use the NEC form successfully?

These high-profile projects tell us that:

• Educating the team is crucial. This should cover the entire team and be subject to regular refreshers. An NEC contract is not designed to be left on the shelf.
• Early Warning Notices are good. They are not adversarial claims but a way to manage time and money.
• Good communications and transparency are at the heart of the NEC. Without them it is not possible to achieve the benefits that that NEC has to offer.

In summary, a sea change for everyone used to the more traditional forms.

There is no doubt that using the NEC form effectively requires a change in the mindset of everyone on the team. Nonetheless, experience on the Olympic site and other major projects shows that it can have great advantages.