1. Dennis Li - HKCIC Lecturer
Principles of NEC
Dennis Li
- HKCIC Lecturer

2. About Me

3. Lecture Outline Session Description 1 Introduction to NEC
Background of NEC
Characteristics of NEC
Terminologies
Comparison between GCC and NEC
Contract Data 2
Procuring a NEC contract
Different forms of NEC contracts
Main Options and their risk profiles
Secondary options and their implications 3
Communication
Periods for reply
Communication protocols
Managing time
Programme management
Extension of Time and prolongation cost
Acceleration

4. Lecture Outline Session Description 4 Partnering Importance of trust
Practicing partnering 5
Managing Defects
Liability of defects
Notification
Correction and acceptance of defects
Commercial Management
Different payment mechanisms under different options
The Schedule of Cost Components
The Shorter Schedule of Cost Components
Contractor’s alternative design and its commercial implication 6
Handling risks and changes
Early warning mechanism
Risk Register
Compensation events

5. Lecture Outline Session Description 7 Handling risks and changes
Managing CEs
Hong Kong’s NEC Contract
History and development
Lessons learnt from pilot contracts
NEC or GCC? A summary review 8
Practice Notes for NEC by DevB
Contract administration
Subcontracting procedures
Open book accounting
Issues with site supervisions of NEC contract in Hong Kong 9
Practicals
Tender assessment of NEC contract in Hong Kong
Practical issues on use of NEC in Hong Kong
Course Assessment

6. Lecture 1 Introduction to NEC
Background of NEC
Characteristics of NEC
Terminologies
Comparison between GCC and NEC

7. Background of NEC https://www.youtube.com/watch?v=L7RUXQ8 DJRY
Official website:

8. History of NEC
The 1st NEC – then known as the “New Engineering Contract” – published by ICE in It was a radical departure from existing building and engineering contracts, being written in plain language and designed to stimulate good management.
The 2nd edition, called the NEC Engineering and Construction Contract, or ECC, appeared two years later.

9. History of NEC
NEC Contract Suite (3rd Edition) was launched in 2005 which included:
Engineering and Construction Contract (ECC)
Term Services Contract
Framework Contract
Professional Services Contract
Supply Contract
Subcontract
etc

10. History of NEC
NEC4 is launched in June 2017!

11. What’s the difference between GCC and NEC?

12. Characteristics of NEC
What are the problems with traditional contract (GCC)?

13. Characteristics of NEC - Clarity
Black & Veatch
21 February February 2019
Characteristics of NEC - Clarity
Plain English and present tense are used in the contract language, e.g.
Cl The Employer and the Contractor give an early warning by notifying the other as soon as either becomes aware of any matter ….
Key contract specific information is contained in Contract Data and written in italics in the Contract. Defined terms have capital initials.
Cross-referencing of different clauses is minimized.

14. Characteristics of NEC - Flexibility
Black & Veatch
21 February February 2019
Characteristics of NEC - Flexibility
A number of main options with different payment mechanisms e.g. lump sum, re- measurement, reimbursable;
A number of pre-set secondary options for project proponents to “pick and mix”.

15. Characteristics Contract has formal requirements to enhance management
Black & Veatch
21 February February 2019
Characteristics
Contract has formal requirements to enhance management
Partnering – Parties are expected to work collaboratively as part of the contract requirement
Early warning mechanism – either party is required to raise the early warning to the other if they are aware of any contractual matter arising
Time control – There are defined period for reply to drive communication and problem solving

16. Characteristics Contract has formal requirements to enhance management
Black & Veatch
21 February February 2019
Characteristics
Contract has formal requirements to enhance management
Programme management – There are detailed requirements on programme. Employer shall respond with either acceptance or non- acceptance with reasons provided.
Change management – Change is valued based on what reasonably costs the Contractor to carry out the unexpected scope of work. Therefore, he will not get a windfall or suffer dramatically because of a change.

17. NEC3 Contract

18. Documentation NEC Approach GCC Approach ECC Framework
Articles of Agreement and Form of Tender
(Amendment to Core Clauses)
GCC Forms
Core Clauses
General & Special Conditions of Contract
Main/Secondary Options Clauses
(Shorter) Schedule of Cost Components
Contract Data Part one & two
Additional Conditions of Contract
Works Information
General & Particular Specification
Site Information
Activity Schedule/ Bills of Quantities, Preambles and other documents
Bills of Quantities & Preamables
Drawings

19. the Project Manager and Supervisor
Time
Project Manager’s
roles
Supervisor’s roles
Cost
Quality

20. NEC3 Contracts and Options
Engineering and Construction Contract (ECC)
6 main pricing option clauses are:
Option A: priced contract with activity schedule
Option B: priced contract with bill of quantities
Option C: target contract with activity schedule
Option D: target contract with bill of quantities
Option E: cost reimbursable contract
Option F: management contract

21. Secondary Option Clauses (optional)
Option X1 – Price adjustment for inflation
Option X2 – Changes in Law
Option X3 – Multiple currencies
Option X4 – Parent company guarantee
Option X5 – Sectional Completion
Option X6 – Bonus for early Completion
Option X7 – Delay Damages
Option X12 – Partnering
Option X13 – Performance Bond
Option X14 – Advanced payment to the Contractor
Option X15 – Limitation of Contractor’s liability for his design
Option X16 – Retention
Option X17 – Low Performance damages
Option X18 – Limitation of liability
Option X20 – Key Performance Indicators (not used with X12)
Usually Adopted in HKSAR Government NEC Contract

22. Option Z (The Z Clauses)
Used to incorporate bespoke clauses, i.e. security, Health and Safety etc; or
To amend the core and main option clauses.

23. Contract Data Part 1 Employer, Part 2 Contractor
Important that contract data fully completed , affects operation of the contract
Defines the details of the contract, identified by italics

24. Terminologies
Cl In these conditions of contract, terms identified in the Contract Data are in italics and defined terms have capital initials.
Exercise on change in terminologies

25. Contract data
Exercise on contract data

26. The Key Players Provide Access
Provide something stated under the Works Information
Employer
Manage the contract
Gives Instruction to change the Works Information
Gives an early warning
Certifies Completion
Accepts the Programme or notifying reasons for not accepting
Instruct to stop work
Assesses the amount due
Certifies a payment
Notifies compensation event
Assessing compensation event
Accepting or not accepting Subcontractor
Assessing additional cost incurred for work not meeting Condition stated for a Key Date
Others……
Project Manager

27. The Key Players Notifies test sand inspections
Instruct to search for a Defect
Notifies each Defect
Issues Defects Certificate
Supervisor
Contractor
Provides the Works in accordance with Works Information
Design as required
Co-operates with Others
Manage subcontracting
Gives early warning
Submits and revises programmes
Notifies tests and inspections
Corrects a Defect
Notifies compensation events
Submits quotations for compensation events
Others