NEC - the project manager's contract

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Posted by APM on 27th Feb 2012

On 21st February 2012, Robert W. Pegg, delivered a talk on NEC the project managers contract at the Royal Hong Kong Yacht Club. He gave a brief introduction to the NEC forms of contract, the role of the project manager under the NEC and the current and projected usage of the NEC in Hong Kong. The event was attended by 60 members and guests.

Currently, Robert is Principal and Director of Evans and Peck, part of the worldwide Worley Parsons Group, and for whom he has worked since 2008. He is also Secretary of the NEC Asia Pacific Users Group. Roberts background combines contracting and consulting work in UK, Middle East and Asia. His current assignments include acting as project manager for the new Hong Kong Academy International School in Sai Kung being built under the NEC form of contract.

Roberts talk is arranged in three parts:

1. An introduction to NEC
2. NEC for project managers
3. The NEC in Hong Kong.

The New Engineering Contract (NEC) is defined as A brand or family of flexible contracts with common terminology and philosophy and incorporating a range of options to facilitate the implementation of alternative procurement strategies for works or services. NEC contract documents include a set of guidance notes and flowcharts which aid understanding of the intent of the drafted clauses. They can be used throughout the supply chain including for professional services. In 1980s, there was international dissatisfaction with industry performance. The NEC main contract consultation edition was produced in 1991. The NEC was launched by the ICE in 1993 with the 2nd Edition in 1995, and the 3rd edition in 2005. In 1994, the Latham Report Constructing the Team endorsed the NEC.

The NEC is a family of standard contracts, each of which has five key features:

1. Collaborative and proactive Project Manager (PM)
2. PM role and responsibilities
3. Risk management
4. Timely information flows and decisions
5. Flexibility of procurement route and risk profile.

In sum, employers, contractors and project managers collaborate in a spirit of mutual trust and co-operation. It focuses on proactive management, co-operation, trust and openness. Regarding the project managers role, the PM is required mainly to communicate with and reply to communications from the contractor, to give instructions related to the works, to administer all time/money aspects of the works, and certify completion and payments. For timely information and decisions, the NEC focuses on programs, communications, compensation events, interim payments in four weeks, response and rectification in a week and pricing details in two weeks, etc. Finally, the contract itself can be tailored for any construction based contract between an employer and a contractor. It is suitable for any sector of the industry and varying main procurement options A to F of which the employer will choose the best option/value for money on that project.

The Tang Report Construct for Excellence compiled in 2001 put forward 109 recommendations to improve the ways projects are delivered, risks are shared and industry participants interact, and the ethical standards. Hong Kong Jockey Club, South China Morning Post, and four Hong Kong Projects are early adopters of the NEC from 1991 to 1995. There have been a number of NEC pilot schemes in Hong Kong from 2009 to 2012.

Examples are: Sai Kung Nullah by Drainage Services Department/Chun Wo in 2009, Retrofit Noise barrier, Fanling Highway by Highways Department/Chun Wo in 2010, Retrofit Noise barrier, Tai Po Rd., by Highways Department in 2011, and TFM Relics Monuments Term Service Contract by Architectural Services Department in 2012. Other non-Government users include China Light and Power, Hong Kong Jockey Club, Mass Transit Railway Corporation and Hong Kong Academy.

In closing, Robert shared his personal views on the use of the NEC. There are a lot of benefits in using NEC. This kind of new contract provides the simple and flexible documents suitable for the organisations in Hong Kong with collaborative joint ventures with contractors. It worked well in early days but training is essential for those required to compile and implement the NEC. Contract timescales are challenging, particularly for projects with multiple changes to time or cost. In addition, changing the mindset is time consuming, but is fundamental to optimise project outcomes. Crucial areas for change include buying-in to change, openness and trust, planning/programming and risk management. To get this mindset changed, we need to trust the contractual partnering. However, it only changes incrementally. The NEC requires skillful people on programing and pricing. In Hong Kong, NEC contracts are adopted in civil and construction industries; while in the UK, mainly engineering projects. Compared to the UK, we are behind its moving.

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