CIVIL ENGINEERING MANAGEMENT IConstruction LawNew Engineering Contract (NEC)The NEC was first published by the ICE in 1993 as a result of the general discontent with the other forms of contract. They wanted to create a contract that moved away from the traditional JCT approach and could become of international use. Since then, it has been re-published 3 times.
NEC3 is the latest version from 2005, updated in 2013. NEC have 3 clear features:They are written in simple, plain English so they can be easily understood.They stimulate good management and cooperation between the parties.They adapt to a wide range of works and locations.NEC believes that flexibility and good project management can deliver projects on time, budget and to the best possible standard.
It has six main options (A-F) which vary on how to price the project, pay the contractor and allocate risks. Option C is the best-known for being the most encouraging one in cooperation between the parties with its “gainshare/painshare mechanism”.NEC FeaturesProject Manager Role (PM)The project manager runs the project on behalf of the Employer and supervises it so it is kept on time and budget. An individual is often appointed as PM, although in some cases it is a team with a leader. He will be on site regularly and encourage cooperation by acting as an impartial middle-man between the employer and the contractor. Early Warning and Compensation Event ProcedureThis procedure is one of the NEC innovations that most encourages cooperation. Using this procedure NEC tackles problems as they appear. Both the contractor and the PM are obliged to warn each other whenever they become aware of something that has or could affect performance of works, rise costs or delay completion.
Mistakes done by either party, that could affect these variables, must also be communicated. Any early warning that increases the contractor’s total cost may then lead to a compensation event. If the event isn’t the contractors fault, it enables him to claim for more money and/or time (eg: weather or site conditions). Whenever a compensation event arises, the contractor has to provide a quotation. This is basically a summary on how this event will affect the project and a proposal on how to overcome the issue successfully. Condition PrecedentsThis is the NEC approach for not having final accounts.
The contractor has the obligation of notifying on any compensation event within 8 weeks of becoming aware. If he fails to do so he will lose the right to claim any additional time/money. However, he doesn’t lose this right if it was the PM who should have informed on the event and didn’t. This procedure allows any issues to be discussed and resolved as they appear during the project instead of being left aside until the end. Risk Registers with incentivesNEC3 requires the Project Manager to maintain a risk register.
Any early warning that is notified has to be included in it. Here, all risks have to be described and include any actions that will be taken to mitigate this risk. As well, it must be stated which party is going to be responsible for taking those actions. Maintaining the risk register is an incentive for all parties. The PM wants to tackle early warnings effectively so the project has no delays and minimal extra costs. Moreover, the contractor doesn’t want to lose any opportunity on claiming compensation events and wants the project to be finished on schedule so he can be fully paid. NEC3 also offers the PM and the contractor the right to call a risk reduction meeting to which they both have to attend. The objective of these meetings is that both parties can discuss and offer solutions to the risks.
ArbitrationDue to the encouragement for cooperation between parties in NEC, disputes are normally settled through arbitration. In arbitration, the parties nominate and select one or several candidates to act as the arbitrator. The arbitrator then listens to both sides, their arguments and evidence, and makes a final decision to settle the issue. This is a private and quick process because once the arbitrator is selected he can start hearing your case. Arbitration costs are also much cheaper than litigation costs, which is another reason for why parties prefer this process. Joint Contracts Tribunal Contracts (JCT)JCT contracts are the standard form of building contracts and are the most popular in the UK.
The JCT was set up in the 1930s by the RIBA and the NFBTE to set the standard for contracts in the construction industry. Since the 1980 version, it has been updated and rewritten every decade, JCT11 being the latest one. In 2016 this version was updated with some important changes. JCT FeaturesAdministrator RoleThe administrator role is very similar to the Project Manager in NEC, the main difference being that traditionally this role is assumed by the architect. According to contract conditions, the contract administrator has to act unbiased between the employer and the contractor.
Notice and Loss/Expense ProcedureJCT 2016 was a major change in the procedure. The contractor has to notify the administrator as soon as any relevant matter affecting progress or the possibility of something affecting the loss and expense has occurred or can occur. As well, he has to give monthly updates on the issues until there is enough information to precisely determine the full amount of such loss and expense. This tries to avoid claims being notified long after the event has passed, however, unlike in NEC, JCT doesn’t have a specified maximum number of days for issuing the claim. In this update, the contract administrator does have time constraints while before there he had no time limit.
The initial claim has to be assessed within 28 days of being notified and for every update he has 14 days to respond. Final AccountsThe final account is to be done no later than 6 months after the project is completed. Any issues or claims that had appeared and hadn’t been resolved during the project, will be revisited at the end to agree on how it affected time/money wise. This approach can be beneficial because revisiting the matter once the project is complete gives a much more objective view on the real extent of the problem. Sometimes issues that appear during the works seem much bigger than what they actually end up being. However, once the project is completed, the parties are much less reliant on each other which can result in unfair agreement.
(include part that parties are much less reliant at the end of the project?)Standard Allocation of RisksJCT divides risk into 5 categories: risk of personal injury/death, risk of damage to property other than the works and site materials, risk of damage to the works and site materials, damage from the excepted risks and specified perils. Specified perils accounts for dangers such as fires, floods, explosions, etc. The other 4 categories divide the most common risks and in each of them JCT clearly states in which cases are either the contractor or the employer liable. LitigationCivil litigation is settling disputes through court, with a judge or jury making the decision. In litigation, the parties have no say on who is going to be appointed judge.
It’s a public and legal process, much more formal than arbitration. It is also a longer process because the parties need to wait until the court is available to hear their case, which could be months or even years. The costs of litigation are higher because the attorneys have to properly prepare the case which can be very expensive. Small companies tend to lose the disputes to big firms because they don’t have enough budget or resources. However, unlike in arbitration, decisions can be appealed (provided certain conditions). The NEC ApproachJCT contracts keep being the most used contract in the UK because companies/people are familiar with it, however, this is a mistake. Many firms are now starting to prefer the NEC approach because of its good results. Its philosophy for cooperation, specially with the “gainshare/painshare mechanism” in Option C, provides a wider perspective on ideas and solutions.
In this mechanism, the contractor will suggest ideas to improve the design which could cut costs and reduce the total time. This is an incentive for all parties because they will share the savings achieved. In NEC, the early warnings procedure allows any possible risks that could delay the project to be tackled immediately and be resolved during the project, not left until the end like in JCT.
Furthermore, the risk meetings include all parties to discuss possible solutions while in JCT’s notice and loss procedure the employer just ascertains the expense of the contractor’s solution. Nevertheless, the NEC approach also has some drawbacks. As it is written in plain and not legal English, it is easier to understand but is also subject to misinterpretation which could cause disputes between parties.
Option C also has the drawback that not always will savings be achieved, meaning expenses will also be shared between all parties while in JCT this risk is not present. In NEC, unlike JCT, the contractor is also subject to risks like losing the right to claim any compensation events if he doesn’t notify them in timeDuty of CareDuty of care is the legal obligation of ensuring the safety of others while executing any action that can possibly harm them. Duty of care was established in 1932 in the case Donoghue v Stevenson where it was defined (by Lord Atkin) that you owe duty of care to your neighbour, who is defined by “persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions that are called in question.”Tort law doesn’t have a contract so all the responsibilities are covered by the duty of care.
Whenever an individual is proven to break a duty of care he owed to someone (intentionally or unintentionally) and damage them in some way he has been negligent. Negligence is the most common form of tort. Contract law is the set of rules covered in a contractual agreement between two or more parties. The contract, which must be agreed by both parties, establishes a legal relationship between them. Duty of care is not relevant to contract law because the obligations they owe each other are stated in the contract.
It is important to understand that anyone can sue another person for negligence, but, in contract law, due to the privity of contract, only the parties to a contract are able to sue or claim damages. Measure and Extent of damagesTo establish tort, you need to prove duty, breach and loss. Once the defendant has been found negligent, causation has to be proven.
The key test for causation is the ‘but for’ test which basically tries to determine if the damage was or wasn’t as a result of the negligence occurring. The foreseeability test then shows the remoteness of the negligence. This test basically questions if it was predictable that the damage was going to occur. If it is demonstrated that the damage was too remote then the defendant is not guilty. Pure economic loss is the term used for pure money claims that are not recoverable under the law of negligence. These claims cannot be recovered because there is no physical damage present in the tort claim (either to person or property). Unlike in contract law, compensation tries to insure for the damage done, because sometimes it is impossible to put the claimant in the position he would be if the negligence hadn’t occurred. In addition, sometimes punitive damages are awarded to the defendant so his actions are not repeated.
When the contract duties are breached, compensation has to be given for the damages. There are two types of damages, unliquidated and liquidated. In unliquidated damages, a breach of contract occurs and the parties have no pre-calculation on payable damages. In this case the compensation will try to place the injured party in the same position as if violation of contract hadn’t occurred.
However, remoteness also has to be considered. As there could be an infinite number of consequences, only the losses which are reasonably considered direct result of or any possible losses which both parties were aware of at the time can be recovered. Sometimes, the contract will include a liquidated damages clause.
This is a genuine pre-estimation of the required compensation for damages in case of violation of contract and a detailed explanation on how this amount was determined. If the contract does include it, then this will be the compensation paid even if the breach was less amount. However, it must not be mistaken for a penalty clause, which is not a reliable estimate and cannot be enforced as compensation. Some contracts include these clauses in case of delays, also including an extension of time.Complimentary nature of contract and tortIn the built environment, for any construction project, both contract and tort law have to be taken into account References