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Chapter 1
Introduction
1.1 General
In writing this guide I have set out to provide a view, much of it personal, as to how to get the most out of the 3rd Edition of the New Engineering Contract Engineering and Construction Contract (ECC). It is no secret that I am a fan of this contract and, as a result, may be willing to overlook what many perceive as it faults or weaknesses. In this guide I have tried to identify and suggest ways in which the procedures and aims of the contract can be simplified so that users do not become unnecessarily bogged down in procedure, but instead concentrate on achieving the goals of the ECC. This guide therefore goes through the procedure in detail as intended by the relevant clauses, but concentrates on practical issues to provide suggestions which the parties can use to achieve the overall intent and spirit of ECC and to reach the common goal.
With this guide, you get what it says on the cover: A Practical Guide to the NEC3 ECC Form of Contract. It is a guide to provide users of the ECC, both novice and experienced, with a view of all its various philosophies, principles, mechanisms and vagaries. The reader will be guided through the contract in a manner that will enable him or her to use this guide for reference without necessarily having to read it all: in other words, a practical guide rather than a stuffy text book. That said, there will be an amount of cross-referencing between sections in order to avoid repetition, so users will need to follow these references to find more detailed supporting guidance to particular issues. One area that is not cross-referenced is the term âspirit of mutual trust and cooperationâ as found in clause 10.1 of the ECC, although used extensively throughout the guide. If users are uncertain of the meaning of this phrase, then they need to re-read Chapter 4.
To assist the reader in finding where any particular clause, related legal case or UK statute is referred to in the text, a comprehensive index of such references is included in Tables A1.1âA1.3 in Appendix 1.
The more I have worked with this contract over the years, the more I have come to think of it not as a contract but as a Project Management Procedures Manual. This should not be a surprise as the original contract was drafted by project managers for construction professionals (and not by lawyers for other lawyers and judges).
Nevertheless, we must not lose sight of the fact that the ECC is a contract and, as such, legally binds those parties that enter into a contract incorporating these standard terms.
1.2 Mechanics not law
Being a practical guide, this book considers the mechanics of the contract and not of the law. As a practicing construction professional, I am interested in the successful outcome of the project for all parties involved. From my point of view, the employing organisation should get what it wants in terms of a project finished on time, to the required quality and within budget (providing, of course, that the budget was reasonable in the first place). The consultants should be recognised for their contribution, whether it be design, management or commercially orientated, and be paid a reasonable fee for the service they provide. The contractors and subcontractors who carry out the work should be allowed to work efficiently, be recognised as having contributed to the project and make a profit.
Only those projects that satisfy all of the above criteria should be considered as being successful. Every organisation, whether it be a company, partnership or individual who is involved in a project has its own needs and goals from that project. A good project will recognise this simple fact of business. It is when all the parties involved recognise each otherâs business goals (see Section 4.4.3) from the project, and work to align these goals, that success is achieved for all. As soon as one of the organisations involved feels dissatisfied, then the seeds of a dispute have been sown. As the industry knows, such seeds germinate easily and freely; once they appear on a project they can spread faster than any invasive weed.
Following on from the earlier editions, the ECC is drafted to impose the best practices within project management on the parties with the goal of avoiding disputes. It is the mechanics of these procedures and how to make them work effectively that is the focus of this guide.
As a consequence the guide does not consider the law in relation to the ECC, except where reference is needed to explain why something is included or to confirm that, in relation to the law in the United Kingdom, those requirements have been complied with by the ECC (or not as the case may be).
1.3 A simple formula for understanding a contract
Letâs face it: all contracts are confusing when you first try to work out what it all means. I picked up a simple formula for considering contracts many years ago from an experienced Chief Quantity Surveyor of a contracting organisation, who came to my then local centre of The Chartered Institute of Building to give an evening talk on Joint Contracts Tribunal (JCT) Contracts. It didnât matter that he was talking about JCT Contracts. What I took away from that talk was a formula which I still use today in relation to any contract or procedural document that I encounter; this formula holds good in all such situations. I still have the piece of paper on which I noted the few words I needed to remind me of what to do. I rarely look at that piece of paper now as the formula has become second nature to me in relation to every contract or set of procedures which I read.
The formula is in two parts. The first part can be remembered by four words: WHO, WHAT, WHEN and HOW.
To expand, a contract is a document which sets out the rights and obligations of the parties to that contract, no matter what the contract is for. In the construction and related industries such contracts cover (usually by necessity) a range of extensive rights and obligations for both parties, how such rights and obligations are to be administered and the involvement of agents to carry out specified duties for one or both of the parties. WHO, the first of our four key words, relates to the administration of these rights and obligations. The WHO in the ECC will be one of the five named persons including the Employer, the Project Manager, the Supervisor, the Contractor or the Adjudicator. The specific roles of these individuals are covered in detail in Sections 5.2â5.6.
By its processes and procedures, the ECC sets out WHAT must or may be done in the event that a certain circumstance arises. The WHAT will involve the WHO doing something as set out in the contract.
WHEN that something is to be done is also set out by the contract. In the case of ECC, the timetable for WHEN these things shall be done is clear and forms a key part of the processes and procedures under the contract. Failure to comply with these processes and procedures in accordance with the requirements specified by WHEN can result in a right being forfeited because of this failure.
Finally, ECC sets out HOW the process or procedure shall be carried out. Again ECC is prescriptive as to the HOW, although much of the HOW is set out in general terms that apply across all of the subsequent detailed processes and procedures.
To summarise, the first part of the formula (which holds good for all contracts and not just the ECC) is to consider WHO does WHAT, WHEN they do it and HOW it is to be done. Understanding these things is important as ECC creates what are known in legal circles as conditions precedent. Although the English Courts do not like such provisions, they can be effective if drafted in certain terms (for further comment on conditions precedent see Section 1.5 below).
When dealing with specific processes and procedures in this guide, the WHO, WHAT, WHEN and HOW will be summarised as appropriate in each case.
1.4 Mandatory or discretionary
The second part of the formula I learnt that evening was to consider whether an obligation, requirement or procedure was mandatory or discretionary. The distinction is quite clear: if something is mandatory then it must be done in order to create a right for you and/or an obligation on someone else. If something is discretionary, then the party concerned can do it if they feel it is appropriate but lose nothing if they do not.
The key to whether something is mandatory or discretionary is in the little words. If a provision says that a party âshallâ, âmustâ or âwillâ do something then the requirement to do that something is mandatory; that key little word leaves that party with no other option.
On the other hand, if the provision in question says that the party âmayâ or âcanâ do something, then that requirement is left to the discretion of that party i.e. the action is discretionary.
Appreciating whether a requirement or a provision is mandatory or discretionary is key to making sure that you, as a party or agent to the contract, do what is required of you at the right time and in the right way.
In the ECC, and indeed every other contract in the NEC3 family together with all the previous editions, there is little to doubt or question as to whether things are mandatory or discretionary. The first clause in the ECC, clause 10.1, clearly states that the Employer, the Project Manager, the Supervisor and the Contractor shall act as stated in this contract. The meaning is plain and clear: they are all required to carry out the procedures set out in the contract at all times and in the way stated. There is no discretion about it, unless such discretion is given expressly in a particular clause (there are a small number of such instances which will be pointed out as they arise).
1.5 Conditions precedent
Put as simply as possible, a condition precedent is a condition which acts to prevent either a right or an obligation from coming about until such time as the event prescribed as the condition precedent occurs. If a time limit is attached to the occurrence of the event (which is a condition precedent to a right or an obligation) and the event has not occurred within the time limit stated, the right or obligation can never come about.
It is important for users of the ECC to understand this principle; part of a mechanism which is commonly used includes such a condition precedent with a time limit. This actual condition will be highlighted when it is commented on.
While the courts in the UK do not traditionally like or support such clauses, they have enforced numerous examples where the wording has been clear. The first and second editions of the ECC were both said to include conditions precedent but it is generally felt that those conditions were not clearly enough worded to be effective. However, with the third edition, it is generally considered that the wording now used is almost certainly clear enough to be considered as an effective condition precedent.
1.6 Note on use of upper case in key words and phrases
Capital initial letters are used to identify terms that are defined as a feature of the ECC as set out in clause 11.1. Whenever I have referred to any such term I have maintained consistency with the ECC and followed that principle of using upper case for the first letter of defined terms throughout the text of this guide. The reader will however come across instances where the same terms are referred to in a general sense, when lower case is used. I have adopted this approach in order to distinguish between specific references to procedures, rights, obligations and other such matters which are directly linked to the ECC, and more general comments about good practice, the construction industry and other non-contract specific items.
For example, âContractorâ refers to a specific issue that concerns the Contractor under the ECC and âcontractorâ refers to the contractor in general terms.
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Chapter 2
Background to the NECECC
2.1 The background: First edition
The timescale that we are looking at starts with a consultative document published in 1991 which was followed by the first edition in 1993, the second edition in 1995 and the third edition in July 2005 (NEC Panel, 2005a).
Many people believe the first edition was published in response to Sir Michael Lathamâs (1994) report, Constructing the Team. This report was however pre-dated by both the consultative document and First Edition.
In his report Sir Michael identified the NEC (as it was then called) as being the contract which, more than any other in general circulation at the time, contained many of the provisions which he considered should be adopted in Construction Contracts. Out of the thirteen key issues which Latham thought should be adopted, the NEC contained eight. The full list of key issues from Constructing the Team is as follows:
1. âA specific duty for all parties to deal fairly with each other, and with their subcontractors, specialists and suppliers, in an atmosphere of mutual cooperation.
2. Firm duties of teamwork, with shared financial motivation to pursue those objectives. These should involve a general presumption to achieve âwin-winâ solutions to problems which may arise during the course of the project.
3. A wholly interrelated package of documents which clearly defines the roles and duties of all involved, and which is suitable for all types of project and for any procurement route.
4. Easily comprehensive language and with Guidance Notes attached.
5. Separation of the roles of contract administrator, project or lead manager and adjudicator. The Project or lead Manager should be clearly defined as the clientâs representative.
6. A choice of allocation of risks, to be decided as appropriate to each project but then allocated to the party best able to manage, estimate and carry the risk.
7. Taking all reasonable steps to avoid changes to pre-planned works information. But, where variations do occur, they should be priced in advance, with provision for independent adjudication if agreement cannot be reached.
8. Express provision for assessing interim payments by methods other than monthly valuation i.e. milestones, activity schedules or payment schedules. Such arrangements must also be reflected in the related subcontract documentation. The eventual aim should be to phase out the traditional system of monthly measurement or remeasurement but meanwhile provision should still be made for it.
9. Clearly setting out the period within which interim payments must be made to all participants in the process, failing which they will have an automatic right to compensation, involving payment of interest at a sufficiently heavy rate to deter slow payment.
10. Providing for secure trust fund routes of payment.
11. While taking all possible steps to avoid conflict on site, providing for speedy dispute resolution if any conflict arises by a pre-determined impartial adjudicator/referee/expert.
12. Providing for incentives for exceptional performance.
13. Making provision where appropriate for advance mobilisation payments (if necessary, bonded) to contractors and subcontractors, including in respect of off-site prefabricated materials provided by part of the construction team.â
By comparison with the other major standard forms available at the time, the NECâs score of eight was three to four times better than any of its competitors. Encouraged by this praise...
