02 July 2015
Any conversation between an experienced Project Manager and a Specialist Construction Lawyer on the choice of contracts is likely to be a lively one. The views held by the users of NEC3 and SBCC/JCT contracts are invariably strong. The recent conversation between Ian Mackay, Director at CNS Planning, and Ann O’Connell Accredited Construction Law Specialist at bto solicitors, sought to explain the differences in principle and content.
Searching questions from an informed audience allowed the conversation to draw useful conclusions on each contract’s perceived strengths and weaknesses.
Setting the scene
The choice of project to give context to the conversation was brave. It was modelled on a real project for the external refurbishment of three residential blocks. It combined elements of refurbishment new build, civil and new building services engineering works. Such a project is likely to involve a significant amount of low value change. This is perhaps the Achilles heel of the NEC3 contract as a large number of small changes can often cripple any chance of effective administration of the contract. In practice, a Contractor may have a hopeless task of trying to estimate the timing of work in the face of numerous changes and yet it is the Contractor who accepts responsibility for this prediction when a compensation event is implemented.
Key differences, strengths and weaknesses
The speakers agreed that the key differences between the forms of contract lie in the principles underlying them and the means by which the principles are implemented.
Accordingly, SBCC/JCT present a robust set of tried and tested conditions with well recognised mechanisms for resolving issues of change to the contract works.
The objective of NEC3 is to compel the parties to deal with issues of potential dispute at the earliest possible stage by pre-assessing the effect of compensation events. It has a limited number of conditions with the meat of the contract specific provisions contained in the Works Information, Risk Register, Programmes and other documents. The proponents of SBCC/JCT argue that this could make the exact NEC3 terms more difficult to ascertain. In NEC3, the use of tools such as the Risk Register and Programme compels the parties to deal with change as part of the ongoing administration of the contract, leaving no simmering disputes for resolution after the project is completed.
The timescales for intimating early warnings and compensation events under NEC3 are tight and if the Contractor is not fully aware of the contractual requirements, he can be left floundering, weighed down by the administrative burden. Accordingly, good project management is key.
With NEC3, the Employer has the option to tailor the contract to provide control of costs and time by forecast and pre-assessment. He can choose from the following options:
a): Lump Sum - effective if the scope is well defined;
b): Bills of Quantity - the Employer takes risk on quantity, otherwise risk is with the contractor;
c) and d): Target Cost Contracts - a means of sharing risk/collaboration allowing the Employer a measure of control where the scope of work is likely to change;
e): Cost Reimbursable Contracts - where scope is not well defined; and
f): Management Control - managing a risk by engaging the Contractor early to help with design and planning, optimising methods and taking advantage of buying options.
In contrast, SBCC provides familiar contractual mechanisms according to the chosen procurement route. Such routes include traditional, design and build, construction management and others. The relatively new Construction Excellence Contract comes closest to the NEC3 format by including a Programme and Risk Register. Otherwise, parties are left to introduce such tools by way of amendment.
SBCC/JCT is the market leader by a significant margin and its strength in contracts where the value is less than £250,000.00 is acknowledged.
The nub of the position was recognised to be that if you are engaging in larger projects where the volume of low value change is not high, then given the strong project management team dealing with administration, NEC3 may provide a contract that would work for you. Otherwise, parties still prefer the familiarity and robustness of SBCC/JCT and if they can avoid disputes so much the better.
Ian Mackay, Director, CNS Planning
E: firstname.lastname@example.org T: 07971 419 164
Ann O’Connell, Consultant & Accredited Construction Law Specialist, bto
E: email@example.com T: 0141 221 8012