Managing Risks and Compensation Events A Practical Case Study... · NEC key obligations •Starting, Completion and Key Dates 30.1 The Contractor does not start work on Site until

Managing Risks and Compensation Events – A

Practical Case Study

10 November 2015

11/11/2015 © NEC Contracts 1

Peter Clayton

David Gibson

What we will be covering

• Early Warnings and communications

• Programme and completion obligations

• Completion and Defects

• Payment and Compensation Events

NEC – vision and underlying principles

“The Employer, the Contractor, the Project Manager and the

Supervisor shall act as stated in this contract and in a spirit of mutual

trust and co-operation”

foresight applied collaboratively mitigates problems

and shrinks risk

clear division of function and responsibility helps

accountability and motivates people to play their part

Structure – the Main Options

Main Option Interim Assessment Final Assessment

A Lump sum

(Activity Schedule)

HK – may use milestones

Total of the prices for completed

activities

HK – may use milestones

Total of the prices of the

activities

B Remeasurement contract

( Bill of Quantities)

Quantities of completed work at

bill of quantity rates and

proportions of any lump sum

Remeasured value of the work in

accordance with the bill of

quantities

C Target contract with Activity

Schedule

Defined Cost paid plus fee Final Defined Cost+ fee plus

share of saving or less share of

excess compared to target

HK – may set upper “fixed price”

D Target contract with bill of

quantities

Defined Cost paid plus fee Final Defined Cost + fee plus

share of savings or less share of

excess against target based on

final remeasurement

E Cost reimbursable contract Defined Cost paid plus fee Total Defined Cost paid plus fee

F Management contract Defined Cost accepted for

payment plus fee

Total Defined Cost paid plus fee

NEC key obligations

• Providing the Works

20.1 The Contractor Provides the Works in accordance with the

Works Information.

• Working with the Employer and Others

25.1 The Contractor co-operates with Others in obtaining and

providing information which they need in connection with the

works (Others are parties other than E, C, SCs, PM and

Supervisor)

NEC key obligations

• Starting, Completion and Key Dates

30.1 The Contractor does not start work on Site until the first

access date and does the work so that Completion is on or before

the Completion Date

30.3 The Contractor does the work so that the Condition stated for

each Key Date is met by the Key Date (note sanction for failure in

cl 25.3)

Note absence of ‘proceed regularly and diligently’ etc

NEC key obligations

• The Contractor’s design

21.1 The Contractor designs the parts of the works which the

Works Information states he is to design.

21.2 The Contractor submits the particulars of his design as the

Works Information requires to the Project Manager for

acceptance…does not proceed until…[acceptance]

27.1 The Contractor obtains approval of his design from Others

where necessary

X15 – Option needed to limit design standard to reasonable skill

and care not fit for purpose

Early Warning (clause 16)

• Early Warning – risks to time, cost, quality

– each party must notify “as soon as it becomes aware”

– entered by PM in Risk Register

– Contractor and any of its Subcontractors’ personnel can be

instructed to attend a risk reduction meeting

– Consider solutions and proposals to avoid/mitigate risk

– meeting and revised Risk Register and if needed an instruction to

change the Works Information

– failure to notify can reduce payments (11.2(25) Opt. C) /

compensation event claims – assessed as if early warning was

given (Clause 61.5/63.5)

Early warnings and Risk Register

• Key points

– early warnings do not count as claim notices, but

– Late early warning can prejudice claim entitlement,

– Risk Register does not allocate risks,

– If contractor actions means work outwith contract scope/risks then

instruction needed.

Programme

• If the programme is not identified in the Contract Data, the Contractor

submits a first programme for acceptance within the period stated in

the Contract Data

• What should be in the Programme?

– Starting dates, access dates, key dates, completion dates

– Order and timing of operations

– Float provisions

– Order and timing of works by Employer & Others

– Statement on how the Contractor plans to resource the Works

• PM should accept programme within 2 weeks or notify C of non-

acceptance

• If not accepted C must revise and resubmit.

Programme

• 31.3 – PM can only reject the programme if:

– C’s plans which it shows are not practicable

– It does not show information required by contract

– It does not represent the C’s plans realistically

– It does not comply with the Works Information.

• Should always be an Accepted Programme - can create entitlements to

claim additional time and money if:

– E does not adhere to an access dates

– E does not provide something which he is to provide on dates in

programme

– E or Others do not work within times shown on programme

Programme

• 32.1 – requirement to undertake regular programme revisions

• Regular programme revisions to show:-

– The actual progress and its effect

– The effects of implemented compensation events

– How to deal with delays and correct notified Defects

– Any other changes which the Contractor proposes to make

• Failure to submit revised programme against Contractor’s interest as

compensation event may be assessed based on PM assessment of

programme not reality

Completion

11.2(2)

Completion is when the Contractor has

• done all work which the Works Information states he is to do by

the Completion Date and

• corrected notified Defects which would have prevented the

Employer from using the works and Others from doing their

work

If the work which the Contractor is to do by the Completion Date is

not stated in the Works Information, Completion is when the

Contractor has done all the work necessary for the Employer to

use the works and for Others to do their work

Defects

• Defects – work not in accordance with Works Information or

Contractor designed work not in accordance with applicable law or

contractor’s design accepted by PM.

• 42 Supervisor can instruct C’ontractor to search for defects

• 43.1/2 Contractor obliged to correct Defects within defect correction

period stated in Contract Data which begins at Completion or when

Defect notified (if later)

Defects

• 43.3 Supervisor issues the Defects Certificate at the later of the

defects date and the end of the last defect correction period. (Does

not affect rights of E or C)

• Defects Certificate is a list of outstanding defects or confirmation

there are none

• 45 - financial consequences of outstanding Defects

• NEC therefore provides for resolution of Defects issues in a fixed

period rather than delaying Defects Certificate

Payment

• Basic entitlement (clause 50)

– PM assesses amount due at each assessment date and certifies

within 1 week

– Considers any application made by Contractor

– Assessment interval stated in Contract Data

– Payment within 3 weeks of assessment unless different period in

Contract Data

• Contractor is paid ‘Price for Work Done to Date’

• PWDD is different depending which Option you are on

Payment – Defined Cost and Schedule of Cost

Components

• Defined Cost

– Basis of payment and compensation event assessment for

Options C, D and E including:

• Payments to subcontractors, PLUS

• Cost of components in Schedule of Cost Components (‘SCC’)

for other work, LESS

• Disallowed Cost

– Basis for assessing compensation events for Options A and B

including

• Cost of components in Shorter SCC whether work

subcontracted or not

Time and Money Claims –

General

• One regime for time and money claims in relation to “compensation

events” – clause 60 and X clauses

• All compensation events lead to time and money unless amended

(eg some HK contracts for inclement weather)

• Rights to changes to Prices, Completion Dates and Key Dates are

the only rights for compensation events (63.4)

• Note linkage of important compensation events to dates which can

be set (and revised) in the Accepted Programme

• NEC promotes early binding agreements through Contractor

quotations for CEs. No final account mechanism.

Compensation Events – Procedure (Clauses 61 -65)

• PM notifies compensation events which arise from PM or Supervisor

giving instruction or changing earlier decision – Contractor is

requested to provide quotations

• Contractor notifies compensation events which have happened or

which he expects to happen if:-

• believes is a compensation event

• PM has not already notified the event (Clause 61.3)

• No notifications after the defects date (Clause 61.7)

• Contractor loses right to claim if does not notify within 8 weeks

“of becoming aware of event” except where the PM should have

notified the Contractor of the event (61.3)

• In HK this part is often deleted

Replies & Assessment

• PM reply within 2 weeks of submission (62.3) -

options for reply

• Project Manager’s assessment if (64.1):

• Failure to submit quote or programme;

• Quote assessed wrongly;

• Programme not submitted or rejected for

permitted reasons (64.2)

Quotations (fully inclusive)

• Within 3 weeks of instruction (62.3)

• + programme if affected

by compensation event (62.2)

Response

• By PM within 1 week or longer if agreed (61.4)

• In HK this period often amended to 2 weeks

• If no reply, 2 weeks notice, then deemed

compensation event

• Project Manager’s decision - EW

not complied with (61.5)

Notification

• PM notification with instruction (61.1)

• Contractor notification 8 weeks from “becoming aware” (61.3)

• Must be a separate notice (13.7)

Compensation Events – procedure

Compensation Events - money

assessment (Clause 63.1)

• Changes to Prices are assessed as effect of CE on

• actual Defined Cost of work already done

• forecast Defined Cost of work not yet done

• resulting Fee

• Cut off between “actual” and “forecast”

– date of PM’s instruction, certificate, changed decision or

assumption; or

– date of notification of the compensation event

• In HK contracts may be amended so the cut off is when the PM

instructed quotations

• NOTE: Quotations are for each CE and should include for all

costs including prolongation etc

Compensation Events – delay

assessment (clause 63.3)

“A delay to the Completion Date is assessed as the length of time

that, due to the compensation event, planned completion is later than

planned completion shown on the Accepted Programme…”

• Means Contractor owns the float

• Means no retrospective analysis of concurrent contractor delays

Compensation Events - Assessments

• Assessments are to include cost and time risk allowances “for

matters which have a significant chance of occurring and are at the

Contractor’s risk…” (clause 63.6)

• Assessments assume that

– the Contractor reacts competently and promptly to the

compensation event

– any Defined Cost and delay is reasonably incurred

– the Accepted Programme can be changed (cl. 63.7)

• Cost based on Schedule of Cost Components (HK amended)

Effect of implementing compensation

events

• Assessments are not revised if a forecast they were based on shown

to be wrong – cl. 65.1

• Idea is once a quotation is agreed the parties are bound by it whether

it is right or wrong.

• But, PM may state “assumptions” for a compensation event if “too

uncertain to forecast reasonably” and if the assumptions prove

incorrect that is a further CE

• Contractors have no power to decide that a compensation event

quotation is subject to assumptions but should set out clearly where

they consider the PM should use assumptions and what they are.

Summary

• NEC requires a new mindset and authority and willingness to make

decisions rapidly.

• NEC contracts must be carefully tendered and require more

resources to manage. If final account is avoided fewer resources

needed after completion.

• Staying on top of programme obligations is crucial.

• When NEC is not followed correctly it can make disputes harder to

settle and resolve.

Questions and Answers

27

Contractor’s Practical Application

Workshop

(NEC 3 – Option C)

28

Welcome

David Gibson

CEO of DGA (UK) Limited

NEC Experience 2000 – 2013

Channel Tunnel Rail Link

London Orbital Railway

Crossrail

29

Workshop Objectives

• Practical Solutions on Major Infrastructure Projects

• We will look at real time events

• You will decide how you respond

• TODAY YOU ARE THE CONTRACTOR

30

COLLABORATIVE

WORKING

Project Timeline – Day 1 Organise Collaborative Working Workshop

31

Clause 10.1 The Employer, the Contractor, the Project Manager and the Supervisor shall act as stated in this contract and in the spirit of mutual trust and co-operation.

Project Timeline – Day 1 Organise Induction Safety / Contract Programme

32

• All new staff must attend a safety induction programme

• This induction programme for staff must include a

briefing on how the Contract Mechanisms work. • Stamp our early misconceptions of:

- This is a cost plus contract - Lump sum contract behaviours

33

THE PROGRAMME

Project Timeline – Day 1

Do you have a programme?

34

Clause 11.2 (1) The Accepted Programme is the programme identified in the Contract Data or is the latest programme accepted by the Project Manager. • Let’s Assume no programme is identified in the

Contract Data. • So what do you do as the Contractor?


Check the Contract

35

Clause 31.1 If a programme is not identified in the Contract Data, the Contractor submits a first programme to the Project Manager for acceptance within the period stated in the Contract Data. (Normally 14 days). What happens if you do not submit a programme?


Do you have a programme?

36

Clause 50.3 If no programme is identified in the Contract Data, one quarter of the Price for Work Done to Date is retained in assessments of the amount due until the Contractor has submitted a first programme to the Project Manager for acceptance showing the information which this contract requires. (See Clause 31.2) • What should happen after the Contractor submits a

programme?


Contractor submits Programme

37

The Contractor submits the programme Clause 31.3 Within two weeks of the Contractor submitting a programme to him for acceptance, the Project Manager either accepts the programme or notifies the Contractor of his reasons for not accepting it. A reason for not accepting a programme is that • The Contractor’s plans which it shows are not practicable • It does not show the information which this contract requires, • It does not represent the Contractor’s plans realistically or • It does not comply with the Works Information

38

EARLY WARNINGS


The Project Manager’s Review

39

• The Project Manager starts to review the programme and notes that the Contractor intends to start one of the buildings on a plot of land at week 24 but the Project Manager has just been informed by the Employer that he cannot get access to that plot of land until week 28 because a CPO is taking longer to obtain. The Contract stated that access would be available by week 24 and this building has its own Key Date.

• The Project Manager writes to the Contractor and

notifies him of the above – what do you do next?


Delay from CPO

40

Issue an Early Warning Notice Clause 16.1 The Contractor and the Project Manager give an early warning by notifying the other as soon as either becomes aware of any matter which could • increase the total of the Prices, • delay Completion, • delay meeting a Key Date or • impair the performance of the works in use The Contractor may give an early warning by notifying the Project Manager of any other matter which could increase his total cost. The Project Manager enters early warning matters in the Risk Register. Early warning of a matter for which a compensation event has previously been notified is not required.


Delay from CPO

41

• Early Warning Notice Clause 16.2 Either the Project Manager or the Contractor may instruct the other to attend a risk reduction meeting. Each may instruct other people to attend if the other agrees. Clause 16.3 At a risk reduction meeting, those who attend co-operate in • Making and considering proposals for how the effect of the

registered risks can be avoided or reduced, • Seeking solutions that will bring advantage to all those who will be

affected, • Deciding on the actions which will be taken and who, in accordance

with this contract, will take them and • Deciding which risks have now been avoided or have passed and

can be removed from the Risk Register.


Risk Reduction Meeting Solution

42

At the risk reduction meeting the Project Manager and the Contractor agree a solution to overcome the delay from the CPO as follows: • Access Date changed from week 24 to week 28 • Key Date unchanged for Completion of building but mitigate

delay • Prefabricate in lieu of in-situ concrete internal walls & stairs • Working longer hours per day • Additional labour and plant working on more work fronts • Contractor to obtain a Construction Noise Permit (CNP) to

allow extended working hours


Delay from CPO

43

Early Warning Notice Clause 16.4 The Project Manager revises the Risk Register to record the decisions made at each risk reduction meeting and issues the revised Risk Register to the Contractor. If a decision needs a change to the Works information, the Project Manager instructs the change at the same time as he issues the revised Risk Register. The Project Manager issued the revised Risk Register So what do you do next?

44

COMPENSATION EVENTS


Check if it’s a compensation event

45

Is it a Compensation Event? Clause 60.1 The following are compensation events. (1) The Project Manager gives an instruction changing the Works

Information except • a change made in order to accept a Defect or • a change to the Works Information provided by the Contractor for his

design which is made either at his request to comply with other Works Information provided by the Employer.

(2) The Employer does not allow access to and use of a part of the Site by the later of its access date and the date shown in the Accepted Programme. (4) The Project Manager gives an instruction to stop or not start any work or to change a Key Date.


Notify the Compensation Event

46

• Notifying a Compensation Event? Clause 61.3 The Contractor notifies the Project Manager of an event which has happened or which he expects to happen as a compensation event if • the Contractor believes that the event is a compensation event and • the Project Manager has not notified the event to the Contractor If the Contractor does not notify a compensation event within eight weeks of becoming aware of the event, he is not entitled to a change in the Prices, the Completion Date or a Key Date unless the event arises from the Project Manager giving an instruction, issuing a certificate, changing an earlier decision or correcting an assumption.


Project Manager agrees it’s a CE

47

• Project Manager Request for a Quotation Under 61.4 the Project Manager notifies his decision that this is a compensation event and instructs you to submit quotations What do you do next?


Quotation for Compensation Event

48

Clause 62.3 The Contractor submits quotations within 3 weeks of being instructed to do so by the Project Manager. The Project Manager replies within two weeks of the submission. His reply is • An instruction to submit a revised quotation, • An acceptance of a quotation • A notification that a proposed instruction will not be given or a

proposed changed decision will not be made or • A notification that he will be making his own assessment. Clause 62.4 The Project Manager instructs the Contractor to submit a revised quotation only after explaining his reasons for doing so to the Contractor. The Contractor submits the revised quotation within three weeks of being instructed to do so.


Quotation Submitted

49

The Contractor submits the quotation and in the quotation under risk is included the following item: Risk for not obtaining CNP and having to take alternative measures to secure the Key Date HK$ 20,000,000 The Project Manager believes the risk of not obtaining the CNP is low and will therefore not accept this item. So what do you do next?


Resubmit Quotation with Assumption

50

Clause 61.6 If the Project Manager decides that the effects of a compensation event are too uncertain to be forecast reasonably, he states assumptions about the event in his instruction to the Contractor to submit quotations. Assessment of the event is based on these assumptions. If any of them is later found to have been wrong, the Project Manager notifies a correction. So the Project Manager would ask the Contractor to resubmit his Quotation (Clauses 62.3 and 62.4) based on the assumption that the CNP will be obtained. He would also need to tell the Contractor that he would need to submit his CNP application in a timely manner and use his reasonable endeavours to liaise with the Government environment department to obtain the CNP in a timely manner.


Contractor resubmits quotation

51

The Contractor resubmits the quotation without the item for risk for not obtaining the CNP but inserts a qualification to the effect that the quotation is based on the Project Manager’s assumption that the CNP will be achieved and therefore the Contractor has not included any time risk or cost for alternative measures if the CNP is not obtained. The Project Manager is now willing to accept the quotation. What should happen next?


Project Manager accepts quotation

52

Clause 62.3 Project Manager replies within two weeks an acceptance of a quotation Clause 65 – Implementing compensation events 65.1 A compensation event is implemented when • the Project Manager notifies his acceptance of the Contractor’s

quotation, • the Project Manager notifies the Contractor of his own assessment

or, • A Contractor’s quotation is treated as having been accepted by the

Project manager. Why is acceptance & implementation so important?


Accepting Quotations

53

Clause 65.2 The assessment of a compensation event is not revised if a forecast upon which it is based is shown by later recorded information to have been wrong. Clause 65.4 The changes to the Prices, the Completion Date and the Key Dates are included in the notification implementing a compensation event.

Question


54

What happens if the Contractor submits a quotation and the Project Manager forgets to respond and the Contractor reminds the Project Manager he has not responded and he still does not respond?

Answer


55

Clause 62.6 If the Project Manager does not reply to a quotation within the time allowed, the Contractor may notify the Project Manager to this effect. If the Contractor submitted more than one quotation for the compensation event, he states in his notification which quotation he proposes is to be accepted. If the Project Manager does not reply to the notification within two weeks, and unless the quotation is for a proposed instruction or a change decision, the Contractor’s notification is treated as acceptance of the quotation by the Project Manager. This is why clause 65.1 includes “a Contractor’s quotation is treated as having been accepted by the Project Manager” as one of the options to confirm when a compensation event is implemented.

Project Timeline – Week 26

No CNP

56

The Government environmental department has refused to issue a CNP and therefore the Contractor cannot work extended hours and therefore there will be a delay to the Key Date to the building. What do you do next?


CE / Early Warning as no CNP

57

Compensation Event • Clause 16.1 Early warning notice • Clause 61.3 Notifying a Compensation Event? • Clause 60.1 The following are compensation events. (17) The Project Manager notifies a correction to an assumption which he has stated about a compensation event.

58

FAILURE TO NOTIFY A COMPENSATION

EVENT


Late Notification of a Compensation Event

59

The Contractor notifies the Project Manager for the first time that in week 15 he encountered rock in his excavation 1 metre higher than shown in the Contract boreholes that has caused delay to Completion and will increase the total of the Prices. What will happen?


Contractor notifies CE late

60

Clause 61.3 The Contractor notifies the Project Manager of an event which has happened of which he expects to happen as a compensation event if • the Contractor believes that the event is a compensation event and • The Project Manager has not notified the event to the Contractor. If the Contractor does not notify a compensation event within eight weeks of becoming aware of the event, he is not entitled to a change in the Prices, the Completion Date or a Key Date unless the Project Manager should have notified the event to the Contractor but did not.

61

FAILURE TO NOTIFY AN EARLY WARNING


Failure to give an Early Warning

62

The Contractor notifies the Project Manager for the first time that in week 20 a utility company was carrying out repair work on the Site that was stopping the Contractor from accessing a part of the Works and which was still not complete and was continuing to delay Completion and will increase the total of the Prices. What do you think will happen next?


Is it a Compensation Event?

63

Compensation Event Clause 60.1 The following are compensation events: (5) The Employer or Others • Do not work within the times shown on the Accepted Programme, • Do not work within the conditions stated in the Works Information

or • Carry out work on the Site that is not stated in the Works

Information.


Did the Contractor give an early warning?

64

NO! – So when the Project Manager requests a quotation: Clause 61.5 If the Project Manager decides that the Contractor did not give an early warning of the event which an experienced Contractor could have given, he notifies this decision to the Contractor when he instructs him to submit quotations. Why does he do this?



65

When the Project Manager receives the quotation: Clause 62.3 …The Project Manager replies within two weeks…His reply is • A notification that he will be making his own assessment Clause 64.1 The Project Manager assesses a compensation event • If the Project Manager decides that the Contractor has not assessed the

compensation event correctly in a quotation and he does not instruct the Contractor to submit a revised quotation.

In this case he knows the Contractor has not taken on board the fact, and is unlikely to do so, that he did not give an early warning.



66

Clause 63.5 (Assessing Compensation Events) If the Project Manager has notified the Contractor of his decision that the Contractor did not give an early warning of a compensation event which an experienced contractor could have given, the event is assessed as if the Contractor had given early warning. The Project Manager will say that if he had been told via an early warning about the utility company he would have had the power to remove them and thus no delay.



67

… it gets worse for the Contractor Clause 11.2(25) – Disallowed Cost is cost which the Project Manager decides … • Was incurred only because the Contractor did not

- Follow an acceptance or procedure stated in the Works Information or - Give an early warning which the contract required him to give.

Why is this bad news for the Contractor?



68

Clause 5 – Payment Clause 50.1 – The Project Manager assesses the amount due at each assessment date. … Clause 50.2 – The amount due is • The Price for Work Done to Date (PWDD) • plus other amounts to be paid to the Contractor • Less amounts to be paid or retained from the Contractor … Clause 11.2(29) – The PWDD is the total Defined Cost which the Project Manager forecasts will have been paid by the Contractor before the next assessment date plus the fee.



69

Clause 11.2(23) - Defined Cost is • The amount of payments due to Subcontractors for work which is

subcontracted without taking account of amounts deducted for - Retention, - Payment to the Employer as a result of the Subcontractor failing to meet a Key Date, - The correction of Defects after Completion, - Payments to Others and - The supply of equipment, supplies and services included in the charge for overhead cost within the Working areas in this contract

And • The cost of components in the Schedule of Costs Components for other

work Less Disallowed Cost

70

FAILURE TO FOLLOW AN ACCEPTENCE OR

PROCUREMENT PROCEDURE


Subcontractors - Procurement

71

The Project Manager is assessing the amount due to certify a payment for the Employer to pay to the Contractor and notices in the invoices submitted by the Contractor an invoice from a subcontractor who has carried out some drainage work on the contract but he has never received a request from the Contractor for acceptance of this subcontractor. What do you think will happen next?



72

Clause 26.2 The Contractor submits the name of each proposed Subcontractor to the Project Manager for acceptance. A reason for not accepting the Subcontractor is that his appointment will not allow the Contractor to Provide the Works. The Contractor does not appoint a proposed Subcontractor until the Project Manager has accepted him. Also … The Works Information procurement procedures usually require the Contractor to obtain 3 quotations from subcontractors.



73

If the Contractor has not sought acceptance from the Project Manager for a Subcontractor then usually the Project Manager will request that the Contactor does this retrospectively and demonstrate that he has complied with the Works Information procurement procedures. If the Contractor submits the name of the Subcontractor to the Project Manager for approval retrospectively and at the same time confirms he did not get 2 other quotations then what do you think will happen next?



74

Clause 11.2(25) - Disallowed Cost is cost which the Project Manager decides • Was incurred only because the Contractor did not

- Follow an acceptance or procurement procedure stated in the Works information

In this example the Contractor has failed to comply on both issues. Do you disallow the full cost of the Subcontractor? What happens if the Subcontractor goes into administration and causes delay whilst another Subcontractor is procured?

75

FAILURE TO PAY SUBCONTRACTOR IN

ACCORDANCE WITH HIS ORDER


Subcontractors – Payment

76

The piling subcontractor completed his works in week 20 and the final account was paid by the Contractor in week 30. All of the subcontractor payments were also certified by the Project Manager and paid by the Employer in week 28. In week 40 the Project Manager’s audit team undertakes and audit of the Contractor’s costs and discovers that the Contractor paid an ex-gratia claim of HK$ 30,000 to settle the final account which was not in accordance with the terms of the subcontract order. The Project Manager in the next payment assessment deducts HK$30,000 as a Disallowed Cost. Is he correct to do this?



77

Clause 11.2(25) - Disallowed Cost is cost which the Project Manager decides • Should not have been paid to a Subcontractor or suppler in

accordance with his contract. Note – Whilst the Project Manager can deduct this cost as a Disallowed Cost the Contractor has paid the Subcontractor his final account at week 30 which the Project Manager certified in week 28 and which the Employer subsequently paid.



78

Some Questions Can the Project Manager in one month certify the ex-gratia claim as Defined Cost and in a later month Disallow the Cost of the same ex-gratia claim? – Clause 50.5 states the Project Manager corrects any wrong assessed amount due in a later payment certificate. Has he prejudiced the Contractors ability to not pay the Subcontractor the ex-gratia claim. Is it a Compensation Event as Clause 60.1(8) states “The Project Manager… changes a decision he has previously communicated to the Contractor.

79

TAKE OVER


Take Over

80

The Employer informs the Project Manager that he needs to take over part of a building so that a specialist fit out Company can start work early as they need more time to complete the fit out than the Employer originally anticipated. In the Works Information this was not stated as all the fit out work was going to be undertaken after Completion. The Project Manager writes to the Contractor informing him of the Employer’s requirements. So what do you do next?


Take Over – Check the Contract

81

Clause 35.2 The Employer may use any part of the works before Completion has been certified. If he does so, he takes over the part of the works when he begins to use it except if the use is • For a reason stated in the Works Information or • To suit the Contractor’s method of working Clause 35.3 The Project Manager certifies the date upon which the Employer takes over any part of the works and its extent within one week of the date.


Take Over

82

The Contractor would notify the Project Manager that: Clause 60.1 (15) identifies as a compensation event when “The Project Manager certifies take over of a part of the works before both Completion and the Completion Date.” Clause X7.3 states “If the Employer takes over a part of the works before Completion, the delay damages are reduced from the date on which the part is taken over. The Project Manager assess the benefit to the Employer of taking over the part of the works as a proportion of the benefit to the Employer of taking over the whole of the works not previously taken over. The delay damages are reduced in this proportion.

83

ACCELERATION


Acceleration

84

The Project Manager has previously accepted a quotation for increasing the size of one of the buildings and a revised programme as a compensation event. The building had its own Key Date which was changed from week 75 to week 80 in the revised Accepted Programme. The Employer has asked the Project Manager to explore if the building can be completed by week 76 to allow access for the power utility company to start to energise the building. The Project Manager writes to the Contractor advising him of the Employer’s requirements? What do you do next?


Acceleration – Check the Contract

85

Clause 36.1 The Project Manager may instruct the Contractor to submit a quotation for an acceleration to achieve Completion before the Completion Date. The Project Manager states changes to the Key dates to be included in the quotation. A quotation for an acceleration comprises proposed changes to the Prices and a revised Programme showing the earlier Completion date and the Key Dates. The Contractor submits details of his assessment with each quotation. Cause 36.2 The Contractor submits a quotation or gives his reasons for not doing so within the period for reply Clause 36.3 When the Project Manager accepts a quotation for an acceleration, he changes the Prices, the Completion Date and the Key dates accordingly and accepts the revised programme.

86

CONTRACTOR’S SHARE


Contractor’s Share

87

• In the latest Project Manager’s assessment the Price for Work Done to Date is for the first time greater than the total of the Prices indicating that the Contractor is likely to end up having to pay his share of the excess to the Employer.

• Can the Project Manager adjust your assessment

when certifying payment to reflect that the Contract has to start paying his share of the excess to the Employer?


Check the Contract

88

Clause 53.3 The Project Manager makes a preliminary assessment of the Contractor’s share at Completion of the whole of the works using his forecasts of the final Price for Work Done to Date and the final total of the Prices. This share is included in the amount due following Completion of the whole of the works. Clause 53.4 The Project Manager makes a final assessment of the Contractor’s share using the final Price for Work Done to Date and the final total of the Prices. This share is included in the final amount due. This was one of the first Clauses amended by Employers.

89

COMPLETION OF THE WORKS


Completion of the Works

90

The Contractor notifies that in his opinion the works have been completed and that he requests that the Project Manager issues a Completion Certificate. This is the procedure laid down in the Works Information. The Project Manager inspects the works and notices that one of the defects previously notified to the Contractor to have a fuse board replaced so that it is in compliance with regulations so that the Employer can use that part of the building has not been corrected. What happens next?



91

Clause 11.2(2) Completion is when the Contractor has • Done all the work which the Works Information states he is to do by

the Completion Date and • Corrected notified Defects which would have prevented the

Employer from using the works and Others from doing their work. If the work which the Contractor is to do by the Completion Date is not stated in the Works Information, Completion is when the Contractor has done all the work necessary for the Employer to use the works and for others to do their work. Clause 11.2(3) The Completion Date is the completion date unless later changed in accordance with this contract.



92

So in this example the Project Manager would write to the Contractor advising him that the Completion of the works has not been achieved as the Defect to replace a fuse board has not been corrected and as such the Employer is unable to use the works. Once the Contractor has replaced the fuse board and has the appropriate certificate to demonstrate it complies with the appropriate regulations then: Clause 30.2 The Project Manager decides the date for Completion. The Project Manager certifies Completion within one week of Completion.

93

CORRECTING DEFECTS


Correcting Defects after Completion

94

The Contract Data states that the defects date is 52 weeks after Completion and the defect correction period is 3 weeks. After Completion the project becomes a live railway and the Contractor is not given access to correct a notified defect. How will the Parties manage correction of defects after Completion?



95

Clause 11.2(5) – A Defect is • A part of the work which is not in accordance with the Works

information or • A part of the works designed by the Contractor which is not in

accordance with the applicable law or the Contractor’s design which the Project Manager has accepted.

Clause 11.2(6) The Defects Certificate is either a list of Defects that the Supervisor has notified before the defects date which the Contractor has not corrected or, if there no such Defects, a statement that there are none.



96

Clause 45.2 If the Contractor is not given access in order to correct a notified Defect before the defects date, the Project Manager assesses the cost to the Contractor of correcting the Defect and the Contractor pays this amount. The Works Information is treated as having been changed to accept the Defect.



97

So in this scenario: The Supervisor would issue the Defects Certificate at the defects date. The Project Manager would assess the cost to the contractor of correcting the Defects on the Defects Certificate. The Contractor would pay that amount to the Employer.

98

THE END

Thank you

Documents

Managing Risks and Compensation Events A Practical Case Study... · NEC key obligations •Starting, Completion and Key Dates 30.1 The Contractor does not start work on Site until