Richard Patterson

Hydro 2015, Bordeaux, 26 October 2015

NEC contracts – Good for Hydropower?

Richard Patterson• Chartered Civil

Engineer

• Once a dams engineer

• 26 years with Mott MacDonald

• FIDIC, PPP, NEC

• 19 years with the NEC

• A year with NEC as NEC Consultant

Richard Patterson

Co-author Warwick R. Fergusson

• Transpower NZ

• MBA in project management

• Member Australian Institute of Project Management (MAIPM)

• First chair of NEC Australasian User Group

• Electricity industry in Australia and New Zealand

• Hydro generation, also wind power and SCADA.

• FIDIC and NEC

Hydropower is special

• Nature of the work

• Location and materials

• Physical environment

• Geology

• Programme, seasonality and interfaces

• Complexity of equipment specifications

• Quality

• Health and safety, environmental and social

• Country risks

Which contracts did survey respondents use

for civil, M&E and combined contracts?

• FIDIC 71

– Red 28

– Yellow 22

– Silver 21

• World Bank / Asian Development Bank 24

• Bespoke 25

• NEC 14

• Other 2

The form recognises that the extent of design required by the contractor may

vary

92% 54%

Key pre-award factorsConsidered important or

very important

Considered satisfied or very

satisfied with current form

The forms are flexible and so can be

applied to different types and sizes of

work

88% 71%

The form is well used and understoodby potential bidders

88% 67%

The form allows flexibility with respect

to risk allocation, but the allocation is

clear

97% 42%

Mainly FIDIC

Flexibility : one of NEC3’s key principles

Flexibility

ECCEngineering and Construction Contract

TSCTerm Service Contract

ECSCEngineering and Construction

Short Contract

TSSCTerm Service Short Contract

PS

CP

rof’l S

erv

ices

Co

ntra

ct

SC & SSCSupply Contract &Short Contract

design construction operationbusiness case

ECSEngineering and Construction

Subcontract

ECSSEngineering and Construction

Short Subcontract

Framework Contract

Adjudicator’s Contract

Supply

Low

High

Pro

ject

Co

mp

lexity

Flexibility: the NEC family

PS

SC

Pro

f’l Serv

ices

Sh

ort C

on

tract

Z

A B C D E F

X1

X2

X3

X4

X5

X6

X7

X1

2

X1

3

X1

4

X1

5

X1

6

X1

7

X1

8

X2

0

W1 W2

C

X5

X6

Z

X1

8

X2

0

payment option

additional conditions

secondary options

dispute resolution option

1 - 9core clauses

jurisdiction - specific options

Flexibility: Engineering and Construction Contract

(ECC)

Y(UK)2 Y(UK)3Y(UK)1

W1

ECC: the extent of Contractor design is infinitely

flexible

Flexibility: ECC compared with FIDIC

Lump sum

Reimbursable (‘cost plus’)

Target

ECC Option

A

B

CD

E

Le

ve

l o

f p

ric

e

ce

rta

inty

Extent of design by Contractor

0% 100%

FIDIC

Silver

Remeasurement (BoQ)

FIDIC

Red

FIDIC

Yellow

Flexibility with NEC Engineering and Construction

Contract (ECC)

Flexibility: estimating and efficiency risk

ECC main option estimating risk efficiency risk

A – lump sum Contractor Contractor

B – remeasurement Employer Contractor

C – target shared shared

D – target Employer shared

E – reimbursable Employer Employer

F - management Depends on subcontracts Depends on subcontracts

Risk allocation clear: is ‘it’ a ‘compensation event’?

forecast

outturn

cost

base

risk

timefeasibility, outline design, detailed design, construction

aw

ard

of

co

ntr

act

client’s risk

Contractor’s risk

‘total of the Prices’

Ensure that ‘compensation events’ in contract

reflect those risks that client wishes to retain

14

NEC: Going global

User GroupKnown use

InterestDownloads

Some Chinese contractors have used NEC in India

Hong Kong government has made

NEC required in

2015

Mott MacDonald has used NEC in UK, South Africa,

Hong Kong, Dubai and …. Antarctica

Use in NZ – eg Meridian and Watercare

First use in Australia –Meridian

Wind Farm, 2014

International Criminal Court,

Holland

The form stresses the importance of

the programme (e.g. as interfacing

between contracts is often critical)

83% 67%

Key contract

management factors

Considered important or

very important

Considered satisfied or very

satisfied with current form

The form is written in simple language and can be understood by those for

whom English is a foreign language

96% 63%

The form helps the parties project

manage the change inevitable in a

project

96% 67%

16

16

The rest of NEC3’s key principles

Flexibility

Clarity and simplicity

Stimulus to good management

FIDIC: language

The Employer shall indemnify and hold harmless the Contractor, the Contractor’s Personnel, and their respective agents, against and from all claims, damages, losses and expenses (including legal fees and expenses) in respect of (1) bodily injury, sickness, disease or death, which is attributable to any negligence, wilful act or breach of the Contract by the Employer, the Employer’s Personnel, or any of their respective agents, and (2) the matters for which liability may be excluded from insurance cover, as described in sub-paragraphs (d)(i), (ii) and (iii) of Sub-Clause 18.3 [Insurance Against Injury to Persons and Damage to Property].

NEC: Simple language

NEC stresses the importance of the programme

• Critical – the ‘beating heart’ of the contract

• Detailed requirements of the contents of programme

• Includes resources

• Can be included at contract award

• Accepted by Project Manager

• Shows ‘as-built’ programme

• Updated frequently

• Used directly to assess ‘delay to Completion Date’ due to ‘compensation events’

NEC helps the parties manage

• Designed to encourage collaboration

• No ‘Variations’; no ‘claims’ – just ‘compensation events’

• The ‘compensation events’ – in one list – can

– change the ‘Prices’ and/or

– delay the ‘Completion Date’

• For each compensation event

– clear rules for time and money

– clear actions in clear process

– clear time period for each action

• Flexibility for Project Manager

• Sanctions on both parties for not DWISITC

• Do(ing) What It Says In The Contract !

Pitfalls? Jurisdiction?

• NEC is designed to be used internationally

• ICE Management, Procurement and Law Prestige Lecture, ICE, 24 November 2008

• His Honour Humphrey Lloyd QC:

• “ there are no real barriers to the NEC3 Engineering and Construction Contract being used internationally ”

Pitfalls? Jurisdiction?

NEC Newsletter

No,47, July 2009

http://www.neccontract.com/news/index.asp?Type=Newsletters#

Pitfalls? You need to use the contract

The main pitfall in

NEC is simply not

doing what it says in

the contract.

NE

C i

n u

se

for

hyd

rop

ow

er

RWE Innogy uses the NEC ECC for its UK hydro projects.

£11.8 million, 3MW run of the river hydro at Cia Aig near Fort William,

Scotland.

RWE Innogy is very positive about the use of NEC.

In mainland Europe RWE tends to use FIDIC, but is trying to adopt NEC.

Micro hydro under NEC ECC.

Mott MacDonald’s design and build contractor, Mott MacDonald Bentley.

Woodend for Scottish Water.

800mW underground Manapouri hydropower station.

NZ$30 mechanical and electrical refurbishment programme.

NEC3 ECC target cost contract.

Meridian, New Zealand

The 80 year old Waitaki power station is an historic part of the electricity network.

A range of work using over 50 NEC3 contracts.

Song Bung 4, Vietnam, 2015

Design review and supervision: Mott MacDonald

Client: Song Bung 4 Hydropower Management Board

Funder: Asian Development Bank (ADB)

`Contracts: FIDIC and ENAA forms

But…..ADB is to allow NEC….

…. and ADB has paid NEC to develop NEC for DBO

So what?

• Everything hydropower people wanted in their contracts

is done very well by the NEC.

• ….. significantly better than by ‘traditional’ contracts.

• NEC is for better project management. Better control.

• It might just be worth a change………

• ….. …and NEC should be considered as an option for

any hydropower project.

• But it needs training, systems and a change in culture

• ……and good people.

• You?

Interested?

• www.managementprocurementandlaw.com

– NEC and risk: http://bit.ly/MPL_Patterson

– NEC vs FIDIC: http://bit.ly/MPL_Heaphy

• Or ask richard.patterson@mottmac.com

• Hard copies on Mott MacDonald stand

Bedtime reading

– excellent concise guide to NEC3 contracts for different procurement and contract strategies (20 pages)

– free at www.neccontract.com

– go to ‘downloads’

NEC Procurement and contract strategies

Some of our NEC books, papers and articlesYear Title Where published

2015 NEC for design build finance and operate (DBO) contracts – taking best practice procurement into PPPs

ICE’s Management, Procurement and Law, accepted for Oct 2015

2015 NEC ECC – the Role of the Supervisor ICE publishing

2015 NEC3 Compared and Contrasted, Second Edition – Chapter on NEC vs IChemEcontracts

ICE publishing

2015 Using NEC to incentivise lowest whole life cost NEC Newsletter November 2015

2015 NEC contracts ticks IACCM’s ‘top ten’ NEC website

2015 Making the most of your early warnings –sorting out your TQs and RFIs…. and what about the opportunities?

NEC website

2015 NEC contracts and the CDM Regulations 2015 and health and safety

ICE’s Management, Procurement and Law, 168, June 2015

2015 NEC contracts and the CDM Regulations 2015

NEC Newsletter No 72, May 2015 and official NEC Guidance on NEC website

2015 Getting your project set up for ECC NEC Newsletter No 70, January 2015

2014 Working with the NEC contracts (in landscape architecture)

Landscape design, Winter 2014

2014 ECC Works Information provided by the Contractor - who takes the risk?

NEC Newsletter No 69, October 2014

2014 The importance of quality works information and site information in ECC projects

NEC Newsletter No 66, April 2014

…and there’s more!

Year Title Where published

2013 NEC for design build operate (DBO) contracts

ICE’s Management, Procurement and Law, Oct 2013

2013 How to Write the Scope for an NEC PSC ICE publishing 2013 (part of NEC 3 'boxed set'), April 2013

2012 Managing Reality - the ECC Manuals By NEC as part of NEC April 2013

2011 NEC3: contracts for partnering NEC Newsletter No 56, October 2011

2010 Ground Conditions and Risk Allocation: Combining the NEC Engineering and Construction Contract (ECC) and the Geotechnical Baseline Report (GBR)

Tunnels and Tunnelling Magazine, Dec 2010

2010 6 key links in the ECC NEC Newsletter No 51, July 2010

2010 NEC contracts as an enabler to Partnering May 2010 edition of 'The Partner’

2009 Using NEC contracts to manage risk and avoid disputes

ICE’s Management, Procurement and Law, 2009, No 4.

2009 Use of NEC in legal jurisdictions other than English law

NEC Newsletter, No,47, July 2009

NEC – A real opportunity for the Clerk of Works

Site Recorder, Magazine of the Institute of Clerks of Works

2007 NEC and Risk Management NEC Newsletter No 40, Oct 2007

2001 Using NEC for multiple site, undefined contracts

ICE’s ‘Civil Engineering’, May 2001

NEC Contract

Advisory Team

• www.neccontract.com

• www.mottmac.com

• richard.patterson@mottmac.com

• barry.trebes@mottmac.com

• hayman.choi@mottmac.com.hk

www.mottmac.com

Mott MacDonald