Contracts

Contracts Coursework

Introduction

This paper defines the design of NEC3 ECC contract. The purpose of this course is to help the university to successfully execute an early contractor involvement approach by using the NEC3 engineering and construction contract (ECC).

It is implemented in order to give accommodation to £102 million postgraduates’ students or outreach centre project in its Malaysia (Eggleston, 2015). In addition to this, paper also allows providing a model clause and guidance’s to allow for ECI using the ECC.

Moreover, this study also discusses the general principal of law which governing construction contracts. Afterwards, design an NEC3 ECC contract by focusing on major activities.

At the same time, payment in the NEC 3 ECC and dispute resolution method will also cover under the NEC 3 ECC (Patterson and Trebes, 2013). Thus, this report gives the detail understanding about the NEC3 ECC.

There is a huge benefit that the Heriot University gain from the watt university in the form to provide the accommodation facilities for 2910 postgraduate’s students as well as provides outreach centre that’s a vital for the university to develop community based teaching activities.

Principle of law governing construction contracts

The principle law of construction is not considered as a separate branch of general law. The construction law involves the application of particular commercial activities like procuring of construction projects. Law governing construction contracts includes various elements that make the valid construction contract. It is mention below:-

  • An agreement should be made by free consent of the parties

It is necessary for the construction company and university to enter into the NEC 3 ECC project with free consent without include any cause of coercion, under-influences or fraud & misrepresentation etc (Allen and Kraakman, 2016).

thus, consent is said to be that term which do not include any above mention caused. If the agreement between both the parties is exist with free consent then it is stated to be legal construction contract.

  • Under the agreement, business parties should need to be competent

The parties in this case are Construction Company and Heriot University to a contract. It is must for the parties to be competent for entering into a contract. According to section 11 under ICA, it is clear stated that every individual is competent to contract if he is on the age of majority, not charged with any unlawful practices (Young, 2012).

Then, the party would be considering as a competent enough to enter into contract. Likewise, both Construction Company and Heriot University should enter into the NEC 3 ECC only both are competent enough to fulfil the contract needs in a efficient manner.

  • It should be lawful consideration and object

Lawful consideration would be the promise which both parties should maintain under the agreement then only it is considered as a lawful construction contract between construction organisations with Heriot University. At the same time, it also requires to considering that object which is legal and not one which is disapproves by the law. Thus, this element allows making valid contract.

  • There should be an intention to create an legal relationship

This principle stated that both parties should consist of common purpose and perceive the things as similarly that’s allows to develop legal relationship. Based on this principle, it is suggested to the NEC 3 ECC to create legal relationship by pursuing common understanding about construction project. This will create the lawful relationship between the parties.

  • It should not have been expressly declared to void.

As per the ICA section 24 to 30, it is stated that the agreement between the parties is not considered to be void in case of construction project because in this, all the specification related to project is clearly mention which does not provide support to declare the contract void.

Design an NEC3 ECC contract by selecting appropriate Main Options, Secondary Options and appropriate Z clauses to achieve this goal. Explain how your selections will provide appropriate contract features.

For the design of NEC3 ECC, it is found that this project demands various activities which need to be undertaken for successfully implement the contract between the parties.

However, NEC3 engineering and construction contract considers as the main construction contract within which option A-F are extracted. This contract is also used on various popular and high profile events such as London Olympic 2012. At the same time, NEC3 family also construct daily projects also such as building, highways and process plants (Hughes, 2012).

This contract is used for appointing the professional engineers, contractors for developing the effective construction work. In order to design the NEC3 ECC contract, there is need to create proper flow of communication among the project manager, university head and this has to be done within two weeks as per the clause of 13.3.

Other than that, the option which needs to focus is to get the acceptances of design submission under the time of 2 weeks of clause 21.2 (Watermeyer, 2012). Similarly, there is also need to finalise the subcontractors through developing the tenders. This practice helps the project to be accomplished on a timely manner and within specific cost.

This is because sub-contractor not only contributes towards goal achievement but it also supports towards availability of resources for performing the activities of construction project. Thus, this creates the need of tender in regards to inviting the sub-contractor within 2 weeks under clause 26.2 and 26.3.

Afterwards, project manager required to focusing on secondary options for NEC3 ECC contract and it is the completion duration of project (Potts and Ankrah, 2014). It means that there is need to decide the completion time of project in order to perform all activities accordingly as per the clause 30.2. In like manner, these clauses guide the project manager to achieve the goals.

In context to the mention case study, it is found that the main goal of use the NEC3 ECC is to construct the building at the Heriot University for offering the accommodations facility to £102 million postgraduates and for outreach centre project at the Malaysia campus.

For the NEC3 ECC project, project manager firstly should focus on selecting the right sub-contractor with the help of tenders (Ter Haar et al., 2016). Tender is the tool which allows the company to select that contractor which supplies right quality of resources with relevant amount.

Construction tender also helps in identified the appropriate engineers, contractor which is skilled in such profession and it brings specialised design of the project. Through this way, the project manager could able to fulfil the requirements of the construction project. Such practices contributes towards the effectively development of building at the university.

Other than that, Project manager at secondary level concentrates on the completion of project within the standard budget in order to avoid high investment. Likewise, project manager monitors the plan of project so that they would decide the future action (Hughes, et al., 2015).

This would be done by the manager through compare the actual result with the standards result. Afterwards, they identified the deviation for corrective actions. This exercise provides supports in terms to achieve the construction goals which are to develop the building at the Malaysia campus in order to offers accommodation facility and outreach centre project at the Heriot University.

In addition to this, there are two options are available that project manager select for achieving their goals.

Option A

Option A is considered as a priced contract with an activity schedule and there is risk of carrying out the work at the agreed price is developed from side of contractor. This document contains all the documents related to cost components of project.

Option B is also considered as priced contract including bill of quantities and the risk of carrying out the work is born from the side of contractor. The document contains core and secondary clauses.

The selection of right sub-contractor, engineer and designer provides support to the contract features in the form of develop the appropriate design of building. That’s why project manager prefer to go to option A and B.

Conditions guiding payment in the NEC 3 ECC conditions of contract

In the views of Keane and Caletka (2015), the payment system of the construction contract is largely depends upon the party’s contracts. Likewise the party’s in the construction project generally decides to make a payment in an instalment manner or with the down-payment format.

Thus, it depends upon the nature of contracts. According to Laryea and Murray (2017), NEC3 ECC contract provide enough flexibility in the payment system to the party’s i.e., contractor or university. This could be possible through offering primary or secondary payment options.

In addition to this, option A provides priced contracts based on activity schedule on agreed prices. Option A allows the party’s to decide the payment of contract, based on the activity schedule.

On the other side, option B payment is decided by the contractor, based on core and secondary requirement of project. This payment options also provide clarity by straight forward language and structure which guides the university to make timely payment.

It is also found that there is high uncertainty exist in the payment options of construction projects. Due to changing market price which impacts the payment of the party. Because of this concern, NEC3 ECC contract focuses towards uncertainty in construction sector through offering various payment options in order to protect both the parties from the loss (Rameezdeen and Rodrigo, 2013).

In case of payment, generally parties use future contracts in which sub-contractor receives the payment based on the future value. Besides that, call & put option is also following by the company in the construction project payment.

Under call option, company buys the assets as per the agreed price on before of particular date and accordingly payment is done at the agreed price on fixed. Other than that, put option allows to sell the assets on agreed price and as per that payments is received by the party. Thus, different payment method uses by the company as per their size, structure and nature.

Contractual standing in terms to govern the contractual programme

Contractual standing can be understood with the case of payment programme. In regards to this, Turner and Turner (2014) depicted that as per this NEC3 standards contract, option B price contracts is the most suitable for the case of construction project like Heriot watt university plans to build rooms for the postgraduates student.

For adopting the option B, there is required to provide clear picture of the construction project to the university head. At the same time, both project manager and management of university should discuss about the human and physical resources requirements so that they mutually decide the expenses which would occur in the construction project.

Furthermore, project manager also need to communicate vision of the project (Ter Haar et al., 2016). For instances, manager conveys that construction demands of approx. 180,000m2 to build accommodation and outreach centre which is the focus point for the university Community.

Thus, the communication of project details helps in avoiding the confusion between the parties. Afterwards estimating the prices of each activity then contractor can easily estimate the overall price of the project.

Accordingly, they could decide the payment method like instalment or lump-sum as per their preferences. Therefore through this manner, payment system can be carried among the parties.

Dispute resolution methods in NEC 3 ECC conditions of contract that can be used for the project

For this project, NEC3 engineering and construction contract helps is taken for developing or building an accommodation and centre in Malaysia campus. In this case, dispute resolution method can be used for resolving the issues and problem faced by NEC3 ECC during adjudication.

At the time of construction process, NEC3 ECC Contraction Company faces problem related to shortage of labour and workers as well as timely payment are not made to suppliers, workers (Turner and Turner, 2014).

While analyzing the project study, it is found that there is basic dispute between the workers and contractor. In this situation, the third party plays a vital role in resolving the issues by taking a corrective measure or decision for solving a problem efficiently.

In concern to it, communication is a significant factor which helps in meeting the issues between the contractor and workers because issue rises due to miscommunication or lack of communication among them.

In simple words, construction project completion successfully is highly relying on the communication element because communication reduces the conflict difference gap between parties (Hughes, 2012).

In addition, contractor will create or develop a relationship with workers and supervisors because communication is only source which reduces the issues and problems. In this situation, workers are required to reply the contractor on time so that project delay can be avoided to some extent.

Moreover, the contractor also required to stet a project time period so that each work is completed on time so that project gets completed successfully. In other words, contractor should specify workers that how important to complete the project on time because timely completion of project will provide benefit to employer and them also (Heaphy, 2013).

In respect to it, supervision is also required to complete the project at set standard time in order to avoid project delay and problems. But at the same time, administration department is required to set a time period and instruct the project contractor so that chances of delays can be avoided to some level.

Comparison study between NEC3 ECC conditions of contract with the FIDIC Red Book form of contract

The engineering & construction contract (NEC3) and FIDIC condition of contract for EPC/ turkey projects are considered as popular standards forms in the area of engineering and construction contracts. These standards are widely used in the UK projects. However, both uses different approach towards the way in which project should be organized and managed.

In the views of Besaiso (2012), FIDIC Silver is particularly designed as a turkey contract which believes to perform the work by giving all the responsibility with authority to the contractors. Likewise, employers will hand over responsibility to the contractor for all designs, engineering and constructions.

This practice allows the construction company to manage each activity through start to finish at right time. It provides support to save maximum time and investment of the company.

On the other side, Murphy et al., (2014) mentioned that NEC3 contract is worked as a collaborative process through focuses on contract administration. The parties are under this contract are guided to work with a spirit of mutual trust or co-operation. This is a main agenda of the NEC3 contract standard.

In the research of Zhang et al., (2016), it is identified that NEC3 is quite different contract in its structure, language and nature as compare to FIDIC Silver. It is because NEC3 uses more flexible language in the design responsibility and pricing structure.

While, FIDIC Silver follows tradition approach in language of contracts like extensions of time or variations. Thus, it can be stated that FIDIC Silver concentrates more on quality rather than focuses on expenses.

In support to this, Brown and Elms (2013) found that NEC3 is developed with core conditions which are six main options in which price and procurement strategy is also determine.

At the same time, several secondary options such W, X and Y clauses are also available in this contract. In this standard, the parties can customise their contract as per the project in which clauses they would like to incorporate. While FIDIC uses the secondary options such as performances security and liquidity damages.

In relation to this study, the structure of NEC3 reflects more as a management tool as this believes that good contract always remain active throughout life of the project.

This standard follows new concept and approaches with time changes so it contributes towards the implementation of construction project with technology friendly manner.

Besides that, FIDIC standards reflects more traditional approach as it works with the general condition and that’s guide the parties for perform the project by following the particular condition of contract (Keane and Caletka, 2015).

The FIDIC contract includes particular designs, structure and resources which is necessary to use as per the FIDIC conditions. Thus, it is depicted that FIDIC is more established body which follows all the traditions exercises.

According to Chan and Chan (2012), both contracts has a guideline regarding to starting date, completion date, access dates and they also allows for damages in case to late completion of project by the side of contractor. In the case of FIDIC, it is needed to provide about the initial detailed about the project or it also need to update related to actual progress of project.

While NEC 3 focuses more detailed documents in which project starting facts to end time is needed to mention and the updates of the project requires to submitting on a daily basis.

The acceptance by the project manager allows to bringing change or monitoring the progress. This practice helps the management to identify the problems at early stage. In this contract, the incentive is also mention for the contractor when they complete the project before the standard time.

Moreover, the warning process is also mention in the contract for the project manager and contractor in order to protect the project from adverse affect from time, cost and quality (Hughes et al., 2015).

This helps to reduce the risk in the future project. In concern to quality, both the contracts use the separate technical documents. Likewise, FIDIC provides separate contracts for employer design, contractor design and it also explains that hat design is need to carry out by which contractor.

On the other side, NEC is more depend upon the completion state as at that time, it identifies the error or mistakes in project. So both the contracts use different pattern to maintain the quality of project.

Therefore, it can be stated that both NEC and FIDIC contracts are standard forms of contract that performs various functions from procuring work to consultancy services. But at the same time, it is identified that NEC3 is more systematic approach which is well suited to current construction project.

Conclusion

From the above discussion, it is concluded that NEC3 ECC is valuable standard contract which uses collaborative approach for the parties. In a similar manner, the NEC3 ECC also provide supported towards the development of project for Heriot Watt University. Thus, it can be stated that NEC3 ECC proved to be effective in terms to achieve the goals i.e. to provide accommodation to post-graduates students.

References

Allen, W.T. and Kraakman, R., 2016. Commentaries and cases on the law of business organization. Wolters Kluwer law & business.

Besaiso, H., 2012. Comparing the Suitability of FIDIC and NEC Conditions of Contract in Palestine. University of Manchester.

Brown, C.B. and Elms, D.G., 2013. Engineering decisions: framework, process and concerns. Civil Engineering and Environmental Systems30(3-4), pp.175-198.

Chan, D.W. and Chan, J.H., 2012. Developing a performance measurement index (PMI) for target cost contracts in construction: a Delphi study. Construction law journal.

Eggleston, B., 2015. The NEC 3 engineering and construction contract: A commentary. John Wiley & Sons.

Heaphy, I., 2013. NEC versus Fidic. Proceedings of the Institution of Civil Engineers-Management, Procurement and Law166(1), pp.21-30.

Hughes, K., 2012. Understanding the NEC3 ECC contract: A practical handbook. Routledge.

Hughes, W., Champion, R. and Murdoch, J. 2015. Construction contracts: law and management. Routledge.

Keane, P. J., and Caletka, A. F. 2015. Delay analysis in construction contracts. John Wiley & Sons.

Laryea, S. and Murray, A. 2017. Tendering and administering activity achedule-based NEC3 contracts: legal and management. Civil Engineering= SivieleIngenieurswese2017(v25i1), 43-48.

Murphy, S.E., Spillane, J.P., Hendron, C. and Bruen, J., 2014. NEC contracting: evaluation of the inclusion of dispute review boards in lieu of adjudication in the construction industry in the United Kingdom. Journal of Legal Affairs and Dispute Resolution in Engineering and Construction6(4), p.04514002.

Patterson, R.L. and Trebes, B., 2013. NEC contracts for design–build–operate contracts. Proceedings of the Institution of Civil Engineers-Management, Procurement and Law166(5), pp.260-268.

Potts, K. and Ankrah, N., 2014. Construction cost management: learning from case studies. Routledge.

Rameezdeen, R. and Rodrigo, A., 2013. Textual complexity of standard conditions used in the construction industry. Construction Economics and Building13(1), pp.1-12.

Ter Haar, R., Levine, M. and Laney, A., 2016. Construction insurance and UK construction contracts. CRC Press.

Turner, D.F. and Turner, A., 2014. Building contract claims and disputes. Routledge.

Watermeyer, R.B., 2012. A framework for developing construction procurement strategy. Proceedings of the Institution of Civil Engineers-Management, Procurement and Law165(4), pp.223-237.

Young, J.R., 2012. Inside the Coursera contract: How an upstart company might profit from free courses. The Chronicle of Higher Education19(07), p.2012.

Zhang, S., Zhang, S., Gao, Y. and Ding, X., 2016. Contractual governance: Effects of risk allocation on contractors’ cooperative behavior in construction projects. Journal of Construction Engineering and Management142(6), p.04016005.

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