Busting NEC myths (part 2)

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Welcome again to this blog feature, we hope that you enjoyed the last one. The first blog built on the slot that NEC had at this year’s APM conference ‘Myth Busting: dispelling the myths to improve project delivery success’ . The part I in the title gave that bit of a clue that there could well be a number of myths to bust! And here are two more to think about…

Myth 3: Early warnings shouldn’t be encouraged
A number of clients/users still seem to have a concern about early warnings, a key feature of NEC contracts, fearing that they might be a pre-cursor to a contractor’s ‘claim’ or a compensation event (in NEC speak). One of the cornerstones of NEC contracts is that the contract should act as a stimulus to good management. So what does good management look like? There are many ideas that we can contribute here but the one I’d like to single out is ‘no surprises’ – a feature of good management to me means we have an ethos of no surprises; surprises are particularly annoying when they appear too late in the day to be able to do something about them. And that is what early warnings are all about, the earliest notification of something that might affect time, cost or quality to give the parties maximum time to avoid or reduce each matter as it is known about. In fact they can go further than that. There’s nothing to stop users pushing through possible opportunities as well as dealing with those negative matters.

The process is quite simple and is divided into two parts – notification and action. The notification is a reciprocal obligation on both parties to simply tell each other about the matter. This then gets logged. There are no further details necessary at this point. Either party can initiate what is called a risk reduction meeting at any time, for any duration, with any necessary people, using whatever forum is most appropriate. Those that attend then set about suggesting ways in which the matter can be avoided or reduced – and the best for both parties outcome is generally selected. Through this process comes risks and opportunities affecting both clients and their supply chain.

So early warnings are a good thing and should be encouraged. The earlier both parties know of a problem or opportunity gives them the best chance to solve or exploit this. More of these please on any project!

Myth 4: Wait until the job is finished before discussing changes
A key memory I have from my initial experience in construction was the oft said “let’s leave that discussion on change until the job is finished”. This actually was the theme of change management everywhere and still is today using other traditional forms of contract. Agree absolutely nothing. At all levels of the supply chain. Get on with the job. Wait until the job is over then cart off the engineering staff and bring in the cost people. In the meantime, somehow businesses had to try and forecast (guess?) what extensions of time there might be, what the final payment might be, how much resource might be needed for how long to close down the account, guess the financial year this all might happen and somehow predict  what profit or loss might arise and when. My opinion of this is that it is a quite shambolic and completely unprofessional/unacceptable way of doing business. We can and should do much better and this much at least is owed to our clients, our sanity and our own businesses.

So what do NEC contracts bring to the table that are so different? Well, what they have is a compensation event process (effectively change management). These deal with most of the usual changes that come about in construction – changes to the brief, late access, unforeseen ground conditions, bad weather and so on (though thankfully use better descriptors of each than I have used here!). Though probably the most complicated process in NEC contracts, the aim is that each compensation event is dealt with to conclusion in a fairly short time after each event arises – so each event on its own merits is dealt with in terms of both time and money. We therefore create a rolling final account approach to management and, if all goes well, very shortly after the works are completed on site, a final account is agreed but for perhaps any latent defects that might arise. So the client’s staff and contractor’s staff are charged with rolling their sleeves up and getting stuck into forecasting/agreeing the time/cost effects of all compensation events in a timely manner. Hard work? Of course it is, but my experience is that it only gets harder the longer one leaves it and memories fade.

There are a prescriptive set of rules to be followed and if the contractor or client doesn’t do what they should do then there are provisions in the contractor to keep moving the process on. We can do this as an industry, we just have to re-wire our DNA into genuine collaboration and a willing to knuckle down and put the hard work in during the job rather than building up an almighty mass of change to fall out over long after the job has finished. Better still, write brilliant tender documents in the first place that should better ensure the minimal amount of compensation events arise once the job is awarded, but that’s another story for another day…


This blog is written and sponsored by NEC.

Other myth-busting blogs:

Myth 1:  NEC3 contracts are admin heavy and not what it is was originally meant to be

Myth 2: NEC3 are being misused within project management

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Posted by Robert Gerrard on 24th Nov 2015

About the Author
Rob specialises in procurement and project management and is also involved in extensive NEC training and consultancy work. Rob is experienced in financial control, contract preparation and administration, including the consideration, evaluation and resolution of contractual claims mainly in civil engineering projects. He is an Examiner for the ICE Law & Contract Procedure he has also held the position of NEC Users’ Group Secretary from 2006 to date. His publications include NEC2 and NEC3 Compared, 2005, as well as drafting the NEC3 Professional Services Short Contract guidance notes, some of the flow charts and ‘How to…’ guides along with being a part of the working group who drafted the NEC3 April 2013 suite of contracts.

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